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.G. Edwards May Face Disciplining
Monday May 9, 5:25 pm ET
By Jim Suhr, AP Business Writer
A.G. Edwards Says It May Face Disciplining by NASD Over Questioned Sale of Mutual Funds


ST. LOUIS (AP) -- A.G. Edwards Inc. revealed in a regulatory filing Monday that it may face disciplining by the National Association of Securities Dealers over the brokerage company's questioned sale of mutual funds.
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The St. Louis-based financial services holding company said in its annual report that the NASD has advised it has 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, reimbursement for any disadvantage based on actual performance and the retention of an independent consultant to review supervisory procedures.

In recent months, the NASD -- the brokerage industry's self-policing organization -- 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, in 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. The company did not elaborate on the settlement's possible terms, including the specific amount of the fine.

A.G. Edwards also revealed that the NASD is 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.

Given the preliminary stage of the matters, the uncertainty of outcomes and the evolving basis of regulatory actions, A.G. Edwards said it was unable to pinpoint or predict the impact of the issues in terms of eventual fines, other payments or losses, or changes in operations, product offerings or expenses.

The company said that while it believes such matters will not be material to its consolidated financial condition, they could be material to operating results in at least one period.

A.G. Edwards has said it is involved in investigations by the SEC, NASD and state regulators about mutual fund transactions.

A lawsuit seeking class-action status was filed last month in St. Louis city court, accusing A.G. Edwards of taking millions of dollars in "secret kickbacks" over the past 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.

In December, fellow St. Louis-based brokerage Edward D. Jones & Co. LP agreed to a $75 million settlement with the Securities and Exchange Commission and the Justice Department over allegations that it failed to properly to disclose to clients that it got compensation for steering them to certain fund groups.

In February, Massachusetts regulators filed a complaint accusing A.G. Edwards of defrauding mutual fund shareholders by allowing market-timed trades by a now-suspended Boston broker involving billions of dollars.

Market timing is the use of quick, in-and-out trades that skim profits from long-term shareholders and benefit favored short-term investors.

A.G. Edwards shares rose 42 cents, or roughly 1 percent, to close at $40.34 on Monday on the New York Stock Exchange, where they have traded between $31.09 to $45.70 over the past year.

A.G. Edwards, http://www.agedwards.com

National Association of Securities Dealers, http://www.nasd.com





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