The U.S. Securities and Exchange Commission said today that it has settled civil charges against TD Waterhouse Investor Services Inc. for making undisclosed cash payments to three investment advisors to encourage them to use TD Waterhouse for their clients’ brokerage business.

TD agreed to pay a US$2-million civil penalty and receive an SEC censure. The company neither admitted nor denied the commission’s findings. But in a statement Tuesday, TD Waterhouse said: “Although independent advisors are required by law to make the necessary disclosures, we regret that our oversight of those disclosures was not consistent with
our own written procedures in these cases. We have enhanced our internal controls and continue to offer educational resources to help advisors understand their disclosure obligations.”

The commission also announced related fraud actions against the three investment advisors and their principals for their failures to disclose the cash payments.

The SEC found that TD Waterhouse knew its payments created potential conflicts of interest between the advisors and their clients. Each advisor that received compensation from TD Waterhouse compromised its ability to evaluate independently whether to recommend that its clients use TD Waterhouse to handle the clients’ brokerage business, the commission said.

The SEC said TD Waterhouse made the payments to the advisors from its profits on the advisory clients’ brokerage business. The payments, however, did not directly benefit the advisors’ clients. Instead, the advisors used the money for their own purposes.

The three registered independent investment advisors who received the payments are: Kiely Financial Services, Inc., based in Greenville, N.C. Rudney Associates, Inc., of San Ramon, Calif., and Brandt, Kelly & Simmons, LLC, of Southfield, Mich.

“By creating these serious conflicts of interest, TD Waterhouse’s undisclosed cash payments carried the potential to corrupt the fiduciary relationship between an investment advisor and its clients,” said Helane Morrison, District Administrator of the SEC’s San Francisco Office.

Kiely Financial and Rudney Associates also agreed to settle the charges without admitting or denying the findings.

The commission instituted litigated administrative and cease-and-desist proceedings against Brandt, Kelly & Simmons and its principal, Kenneth Brandt.

http://www.sec.gov/news/press/2004-133.htm