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January 15th, 2004
"Mutual Fund Payment Deals Under SEC Investigation"
A recent Securities and Exchange Commission (SEC) survey of 15 large brokerages shows that 13 of them appeared to give preferential treatment to fund companies from whom they received financial compensation. Techniques ranged from featuring the funds on the brokerage websites to highlighting them on "recommended lists" that brokers use to sell their clients funds.
While it is legal for companies to pay brokerage firms for these services, the payments (known as revenue-sharing) must be fully disclosed to investors. On Tuesday, the SEC announced the investigation of eight brokerages and more fund companies on the suspicion that they have broken federal securities laws by failing to properly disclose payments.
Revenue-sharing is only one of the latest in a string of scandals in the investing world to recently be exposed. Investor defections caused by the recent dramatic shifts in the market have made mutual fund companies desperate for new clients, leading to a number of fraudulent or unethical practices in an attempt to entice investors.
