The National Association of Securities Dealers today announced that it has fined a brokerage firm for improperly sharing directed brokerage commissions from a mutual fund company with one of its former brokers.

The regulator says this is the first case of its kind. The NASD announced that it has fined Securities America, Inc. US$375,000 for improperly sharing commissions with a former broker. It also found that the firm failed to adequately supervise the broker’s communications with his union-sponsored retirement plan clients to ensure that he disclosed his additional compensation to those clients.

In a separate complaint, the NASD charged the broker with improperly receiving directed brokerage commissions and other compensation of more than US$280,000. He was also charged with misrepresenting and failing to disclose this compensation to clients – at the same time he was advising those clients to maintain or include the fund company’s mutual funds in the retirement plans they offered to working and retired union members.

In settling the case, the firm neither admitted nor denied the charges, but consented to the entry of NASD’s findings. The allegations against the broker have not bene proven.

The NASD said that the actions announced today differ from previous disciplinary actions involving directed brokerage because, in this case, the fund company directed brokerage specifically for the benefit of an individual broker, which is a first. “NASD rules prohibit registered firms from granting a participation in directed brokerage to sales personnel. Also, the conflict of interest for the broker is heightened in this type of arrangement, compounding the seriousness of the violation,” it says.

“NASD will vigorously challenge all conduct that impermissibly compromises a broker’s objectivity, especially when retirement money is at stake,” said James Shorris, NASD executive vice president and head of enforcement. “This violation of NASD’s rules governing mutual fund compensation, when coupled with the failure to disclose to the firm’s clients the terms of his financial arrangement, made for an intolerable situation.”