US Mutual fund American Funds Distributors has been fined $5 million for allegedly paying brokerage firms to push its products on investors.
According to the National Association of Securities Dealers (NASD), which regulates the brokerage industry, American Funds directed brokers to securities firms that were the top sellers of their mutual fund products. The company’s parent company Capital Research & Management allegedly paid brokers commissions for using the specified securities firms. It is estimated that nearly $100 million was paid in commissions between 2001 and 2003. This violated the regulator’s anti-reciprocal rule, which is designed to prevent mutually beneficial practices of this kind in relation to the distribution of mutual fund shares.
NASD did not agree, however, with the view that the mutual fund’s actions had been intentional or reckless, as the practices had been in common usage within the industry as a whole for a number of years. American Funds spokesman Chuck Freadhoff said that the company “strongly disagreed” with the decision of the NASD panel, and would be appealing against the decision.