FINRA fines Wall Street $2.4 million, Money to be returned to customers

FINRA announced today that it has settled cases against five firms for mutual fund sales and supervisory violations including improper sales of Class B and Class C mutual fund shares and failure to have supervisory systems designed to provide all eligible investors with the opportunity to purchase Class A mutual fund shares at net asset value (NAV) through NAV transfer programs.

Merrill Lynch, Prudential Securities, Pruco and UBS were fined a total of $2.4 million and Wells Fargo Investments was given credit for remedial steps taken before FINRA’s inquiry. All five firms settled these matters without admitting or denying FINRA’s allegations, but consented to the entry of FINRA's findings.

Prudential Securities was fined $800,000 for share class sales violations while UBS Financial Services Inc was fined $750,000 for improper sales of Class B and Class C mutual fund shares. Pruco Securities was also fined $100,000 fine for improper sales of Class B shares. To resolve the Class B and Class C share matters, these firms also agreed to remediation plans that will address over 27,000 fund transactions in the accounts of 5,300 households.

To resolve the NAV violations, Merrill Lynch, Prudential Securities, UBS and Wells Fargo agreed to remediation plans for eligible customers who qualified for, but did not receive, the benefit of NAV transfer programs. It is estimated that total remediation to customers will exceed $25 million.

In addition, FINRA imposed a $250,000 fine to Prudential Securities, UBS and Merrill Lynch for failure to have reasonable supervisory systems and procedures to identify and provide opportunities for investors to obtain sales charge waivers through NAV transfer programs. From 2001 to 2004, many mutual fund families offered NAV transfer programs that eliminated front-end mutual fund sales charges for certain customers. Customers who redeemed fund shares for which they had paid a sales charge were permitted to use the proceeds to purchase Class A shares of a new mutual fund at NAV without paying another sales charge. As a result of inadequate supervisory systems, certain customers eligible for the NAV programs incurred front-end sales loads that they should not have paid, or purchased other share classes that unnecessarily subjected them to higher fees and the potential of contingent deferred sales charges.

FINRA also found Wells Fargo Investments failed to have reasonable supervisory systems and procedures relating to NAV transfer programs, but FINRA did not impose a fine because of the firm's proactive remedial actions taken upon its discovery of - and before FINRA's inquiry into - the violative conduct. Wells Fargo paid more than $612,000 in restitution to investors in Class A shares.