NASD May Discipline A.G. Edwards

A.G. Edwards Inc. revealed in a regulatory filing Monday that it might face disciplining by the NASD over the brokerage firm’s questioned sale of mutual funds.

The St. Louis-based financial services holding company said in its annual report that the NASD had advised it had preliminarily determined to recommend action over the sale of mutual fund Class B and C shares, citing “the grounds for recommending such sales, suitability violations and the company’s supervisory procedures.”

The NASD orally had proposed a settlement, including a fine, that would let customers switch to Class A shares. It also included reimbursement for any disadvantage based on actual performance and the retention of an independent consultant to review supervisory procedures.

In recent months, the NASD -- formerly the National Assn. of Securities Dealers -- fined three other brokerages $21.25 million for selling B and C shares when A shares would have been better for the customers.

The regulators’ moves were the latest enforcement actions over alleged abuses in the trading and marketing of mutual funds amid an industrywide crackdown that began in September 2003.

A.G. Edwards said in its filing with the Securities and Exchange Commission that it was reviewing the allegations.

A.G. Edwards also revealed that the NASD was recommending disciplinary action against the company over the sale of certain mutual funds to IRA accounts in 2001 and 2002 for which certain mutual fund companies made additional payments to A.G. Edwards for the sales.

A lawsuit seeking class-action status was filed last month in St. Louis court. The lawsuit accuses A.G. Edwards of taking millions of dollars in “secret kickbacks” during the last five years to push certain mutual funds to clients, creating a conflict of interest between the company and its clients.

Revenue-sharing fees are legal, but the arrangements must be properly disclosed.

A.G. Edwards shares rose 42 cents to $40.34 on the New York Stock Exchange.