The NASD on December 27 said, it collected a record $125.4 million of disciplinary fines this year, 21 percent more than in 2004, for violations including abuses in sales of mutual funds and variable annuities.
The Washington, D.C.-based regulator also said it filed 1,412 enforcement actions in 2005, up 1 percent, and barred or suspended 737 people from the securities industry, down 12 percent. It closed 9,150 arbitration cases and 1,700 mediation cases.
NASD fines are typically small relative to the profits that its regulated firms, including Wall Street's biggest names, generate. But the regulator often successfully pressures these firms into adopting reforms to thwart further wrongdoing.
"While the numbers appear fairly flat from last year, we've seen firms make a tremendous effort to comply with rules," said Mary Schapiro, the NASD vice chairman, in an interview. "The costs and reputational risks from non-compliance have risen, and firms appreciate that."
Issues the NASD will examine in 2006 include variable annuities, 529 college savings plans, over-the-counter equities, and new products, especially as retail investors show more interest in hedge funds, Schapiro said. The NASD also plans to modernise its examination programs, and push firms to use the Internet to make streamlined mutual fund disclosures.
In 2005, mutual funds were a major area of disciplinary activity for the regulator, which was once known as the National Association of Securities Dealers.
Twenty-six retail firms paid nearly $55 million in fines to settle charges that they provided favoured treatment for select mutual funds in exchange for brokerage business. In the largest settlement, Ameriprise Financial Inc agreed to pay $12.3 million.
The NASD fined American Express Financial Advisors, now known as Ameriprise; Chase Investment Services, Citigroup Global Markets, Linsco/Private Ledger Corp, Merrill Lynch & Co and Wells Fargo & Co more than $40 million for selling unsuitable Class "B" and "C" fund shares. Such shares can have higher fees than other classes.
In variable annuities, Waddell & Reed Financial Inc agreed to pay a $5 million fine and $11 million in restitution to settle charges that it improperly pressured thousands of customers to exchange the products. People often buy annuities as retirement investments, with taxes deferred until withdrawal.
The NASD regulates 5,144 brokerages with about 106,400 branches and 663,000 registered representatives. It works with the US Securities and Exchange Commission and New York Stock Exchange in overseeing US financial markets.
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