The National Association of Securities Dealers announced today that it has settled cases against four firms involving mutual fund sales violations.

NASD imposed a US$473,000 fine against MML Investors Services, Inc., and a US$354,000 fine against NYLIFE Securities LLC, for improper Class B share sales. Securities America, Inc. was fined US$322,000 for improper Class B and Class C share sales.

In the US, Class B shares are similar to deferred sales charge units in Canada. Class C shares usually do not impose a front-end sales charge, but are often subject to a DSC if sold within a short time of purchase, usually one year, and typically impose higher asset-based sales charges than Class A shares. Unlike Class B shares, Class C shares generally do not convert to Class A shares.

The NASD found that, on certain occasions during January 2003 through July 2004, Securities America recommended and sold Class B and Class C share mutual funds and NYLIFE and MML recommended and sold Class B share mutual funds to their clients and did not adequately consider, on a consistent basis, suitability. These firms also had inadequate supervisory and compliance policies and procedures relating to these mutual fund sales.

It also fined Northwestern Mutual Investment Services, LLC US$100,000 for failure to have adequate supervisory systems and procedures to ensure that clients received Net Asset Value pricing when appropriate under NAV transfer programs. MML’s settlement included similar findings without a fine.

In resolving the Class B and Class C share cases, MML, NYLIFE and Securities America have agreed to remediation plans that cover over 10,200 transactions and at least 1,080 households.

In resolving the NAV cases, MML and Northwestern will provide additional remediation to customers who qualified for, but did not receive the benefit of, available NAV transfer programs. Total NAV remediation for MML, including remediation already paid to customers, is estimated at approximately US$2.56 million. For Northwestern, total remediation is estimated at US$2 million, in addition to the previous conversion of approximately US$2.0 million in Class B shares to Class A shares.

“The cases announced today are the result of NASD’s continuing commitment to help ensure that sales of mutual funds – the investment product most commonly held by investors – are made appropriately and with the benefit of full consideration of all available share classes and pricing features,” said James Shorris, NASD executive vice president and head of enforcement. “These firms failed to implement reasonable supervisory procedures to ensure that these considerations were addressed on a consistent basis.”

Each firm settled the matter without admitting or denying the allegations, but consented to the entry of the NASD’s findings.