NASD Fines Piper Jaffray, Quick & Reilly Over Preferred-Fund Sales

The NASD on Tuesday fined brokerages Quick & Reilly and Piper Jaffray Cos. for giving preferred sales treatment to mutual funds in exchange for commission-generating stock trades and other payments.

The fines by the NASD, the securities industry’s self-regulatory agency, are the latest in a crackdown on long-standing revenue-sharing deals between brokerages and fund companies.

Last week, the NASD accused the distributor of Los Angeles-based American Funds, the No. 3 U.S. fund company, of making improper brokerage payments totaling $100 million from 2001 through 2003 as a reward for selling American’s mutual funds.

The company said it would seek a hearing to defend itself.

On Tuesday, Quick & Reilly, owned by Charlotte-based Bank of America Corp., was fined $570,000; Minneapolis-based Piper Jaffray was fined $275,000.

Neither firm admitted or denied the charges against them, but both consented to the NASD’s findings in the matter.

The NASD, formerly the National Assn. of Securities Dealers, said Quick & Reilly and Piper Jaffray had improper deals that gave certain funds favorable sales treatment, including greater visibility on the brokerages’ websites.

Such programs are known as “preferred partner” or “shelf-space” arrangements.

The NASD said several of the funds that received preferential treatment paid some or all of the shelf-space fees by directing commission-generating brokerage business to the brokerages.

Those payments violated a rule that prohibits brokerages from favoring the sale of shares of particular mutual funds on the basis of brokerage commissions, the NASD said.

The rule is aimed at preventing potential conflicts of interest, including that a brokerage would market certain funds to clients based on the reward to the firm rather than on what’s best for clients.

The NASD found that Piper Jaffray operated its preferred partner program from 1998 to 2003 while Quick & Reilly’s program ran from 2001 to 2003.

In calculating Piper Jaffray’s fine, the NASD said it took into account that the firm self-reported its conduct after an internal review.

Piper Jaffray shares fell 61 cents to $39.62 on the New York Stock Exchange; BankAmerica shares lost 54 cents to $45.20 on the NYSE.

Reuters was used in compiling this report.