The National Association of Securities Dealers today announced that it has fined three distributors a total of US$700,000 for violations of NASD’s non-cash compensation rules, including improperly providing entertainment and paying for guest expenses at training and education meetings.

The three firms fined were Scudder Distributors, Inc. of Chicago, Putnam Retail Management Limited Partnership of Boston and AllianceBernstein Investments, Inc. of New York. The NASD imposed a US$425,000 fine against Scudder, which distributes the investment products of Scudder Investments; a US$175,000 fine against Putnam, which distributes its own investment products; and a US$100,000 fine against AllianceBernstein, which distributes the investment products of AllianceBernstein L.P.

In settling with NASD, Scudder, Putnam, and AllianceBernstein neither admitted nor denied the allegations, but consented to the entry of NASD’s findings.

The NASD notes that it limits the use of compensation – including non-cash compensation such as reimbursement for travel expenses, meals and lodging in connection with training and education meetings – to help ensure the integrity of investment recommendations. Its rules are designed to prevent point-of-sale incentives from compromising a broker’s objectivity in matching the investment needs of the customer with the appropriate investment product.

The regulator found that the three distributors, which rely on retail brokerage firms and their brokers to recommend and sell the investment products they distribute, improperly provided and paid for entertainment and attendees’ spouse and guest expenses in connection with training and education meetings.

“Today’s enforcement action underscores the need for distributors of mutual funds and variable annuities to understand the limits surrounding the use of non-cash compensation.” said James Shorris, NASD executive vice president and head of enforcement. “Non-cash compensation of the sort found in this case is prohibited because it can induce brokers to put their own interests ahead of their clients’ interests.”