Edward Jones & Co., a brokerage firm that caters to individual investors, agreed to pay $75 million to settle regulators’ allegations that it didn’t disclose hidden marketing deals with mutual funds.
The penalty is the largest imposed by regulators over so- called revenue sharing agreements, and includes the U.S. Securities and Exchange Commission, the NASD, and the New York Stock Exchange, the U.S. Attorney in St. Louis, the company said in an e-mailed statement today. The five-member SEC still must approve the settlement, the company said.
Edward Jones marketed seven funds as preferred investments, while never telling investors that the fund companies paid to be included in the recommendation, regulators said. The firm, one of the largest closely held brokerage partnerships, won’t admit or deny wrongdoing.
“The SEC and the other regulators, after spending a year- and-a-half on mutual fund managers, are now focusing their attention at the point of sale, where many of the most egregious abuses originated,” said Burton Greenwald, a Philadelphia-based mutual-fund consultant.
In a statement, Edward Jones said it “will take immediate steps to revise customer communications and disclosures to ensure that the firm’s preferred vendor relationships are more fully disclosed.”
Earlier today, the Wall Street Journal and CNBC reported that Edward Jones was close to reaching an agreement with the SEC, the NYSE and NASD, the regulator formerly known as the National Association of Securities Dealers.
State and federal agencies have been probing mutual fund sales practices as part of their investigation of the $7.6 trillion industry. The marketing payments are often kept hidden from investors and can taint brokers’ advice, SEC Chairman William Donaldson said in August when the SEC banned some of the incentive payments.
California Attorney General Bill Lockyer today sued Edward Jones over the payments. He said at a press conference in Los Angeles that the regulators’ $75 million deal was too small and he wasn’t joining in the settlement.
“It seemed to us that $75 million for a national settlement was inadequate,” he said.
The SEC has brought two previous cases involving the incentive payments. While not necessarily illegal, the payments must be disclosed to investors.
Last year, the SEC fined New York-based Morgan Stanley $50 million for failing to tell investors that it promoted the funds of 16 companies in exchange for undisclosed fees. In March, MFS Investment Management, a Boston-based unit of Sun Life Financial Inc., also paid $50 million for not disclosing that the company was using brokerage commissions to pay for the promotion of some of its funds.