The U.S. Securities and Exchange Commission announced settled enforcement proceedings against A.G. Edwards & Sons, Inc., alleging that the firm failed reasonably to supervise some of its registered reps who used deceptive means to place market timing trades on behalf of their customers.

As part of its settlement with the SEC, A.G. Edwards, a registered broker-dealer headquartered in St. Louis, will pay disgorgement and prejudgment interest of US$2.36 million and civil penalties of US$1.5 million for a total payment of US$3.86 million. A.G. Edwards also agreed to certain undertakings, including hiring an independent consultant to review whether the changes it has made to its policies and procedures are reasonably designed to prevent and detect future market timing activity.

The firm consented to the issuance of the SEC’s order without admitting or denying its findings.

The SEC also announced the institution of settled enforcement proceedings against a former registered rep in A.G. Edwards’ Boston Back Bay branch office for engaging in a fraudulent market timing scheme and the institution of administrative and cease-and-desist proceedings against a registered rep in its Boca Raton, Fla., branch office and two branch managers for their alleged involvement in the fraudulent market timing schemes.

The SEC’s order relating to the firm finds that between January 2001 and September 2003, registered reps in several of its branch offices engaged in illegal market timing schemes on behalf of their customers. These reps engaged in deceptive practices designed to circumvent restrictions that mutual funds imposed on market timing.

It also finds that the firm failed to develop or adopt reasonable policies, procedures or systems to monitor market timing in order to prevent and detect its reps’ misconduct. A.G. Edwards also failed to develop or adopt reasonable policies, procedures or systems for monitoring and responding to red flags about its reps’ deceptive market timing on behalf of customers, the SEC said.