Merrill, Prudential, UBS fined over mutual funds

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Reuters
By Jonathan Stempel
February 28, '08

NEW YORK (Reuters) - Brokerages, including units of Merrill Lynch & Co (MER) and UBS AG (UBSN), have agreed to pay $2.4 million in fines and reimburse more than $20 million to customers to settle probes into improper mutual fund sales and transfers, the Financial Industry Regulatory Authority said on Thursday.

The regulator fined Prudential Securities Inc $1.05 million and UBS Financial Services Inc $1 million for improper sales of Class B and Class C fund shares, and lacking proper supervision to allow investors to obtain waivers of sales charges.

Merrill was fined $250,000 for similar supervisory failures, and Prudential's Pruco Securities affiliate was fined $100,000 for improper sales of Class B shares, FINRA said.

A fifth brokerage, Wells Fargo & Co's (WFC) Wells Fargo Securities Inc, also lacked proper supervision but was not fined because it discovered and took steps to fix problems on its own, and has reimbursed $612,000 to customers, FINRA said.

The regulator said all five brokerages will reimburse customers who qualified for, but did not receive, appropriate fee reductions. None admitted wrongdoing.

Many mutual fund families allow investors to avoid front-end sales charges when they transfer fund shares.

FINRA, though, said that customers of the sanctioned brokerages incurred sales charges they should not have paid, or bought other share classes that unnecessarily subjected them to higher fees and back-end sales charges.

It said supervisory systems were inadequate at Merrill, UBS and Wells Fargo from 2002 to 2004, and at Prudential Securities in 2002 and 2003.

Class A shares typically carry front-end sales charges. Class B shares typically carry back-end sales charges and higher fees than Class A shares. Class C shares typically carry extra annual fees known as "level loads.

Prudential Securities merged with Wachovia Securities in July 2003. Wachovia Corp (WB.N: Quote, Profile, Research) took a 62 percent stake in the combined brokerage, while Prudential Financial Inc (PRU.N: Quote, Profile, Research) took a 38 percent stake.

FINRA regulates more than 5,000 brokerages.

Source: Reuters