As expected, the state of California is suing brokerage Edward D. Jones & Co. for improper marketing of mutual funds. The State criticized a $75 million settlement deal between the company and other regulators.
California Attorney General Bill Lockyer says the firm failed to tell investors about $300 million in payments it received from seven “preferred” mutual fund groups – American Funds, Federated Investors, Goldman Sachs, the Hartford, Lord Abbett, Putnam Funds, and Van Kampen Investments – to promote and sell their funds. Together they represented about 98 percent of all Jones’ mutual fund sales from January 2000 to the present, the state said.
Lockyer alled a $75-million settlement between Jones and the SEC “inadequate.” After months of scandal over trading abuses in mutual fund shares, unhealthy relationships between fund managers and fund distributors are now a major focus of interest at the SEC.
Brokerages control about 87 percent of the order flow in US mutual funds and State and Federal investigators as well as the SEC are investigating broker fees, compensation and conflicts of interest.
In November 2003, Morgan Stanley agreed to pay $50 million to settle charges that it failed to tell investors about payments it received for selling certain fund shares.
Earlier this month, Franklin Resources paid $20 million in civil penalties to settle charges that they had used fund assets to pay for marketing and failed to tell investors.
In September, PIMCO paid more than $20 million to settle charges involving failure to disclose payments made to brokers for promoting PIMCO fund shares.
In March, the SEC fined MFS Investment Management $50 million for keeping its trustees and investors in the dark about deals with distributors to sell MFS funds.