WASHINGTON - The Financial Industry Regulatory Authority has fined 25 broker-dealers, including J.J.B. Hilliard, W.L. Lyons Inc., nearly $2.15 million for failing to take timely or proper compliance action with regard to breakpoint discounts on mutual fund shares.
Breakpoint discounts are volume discounts applicable to front-end sales charges on Class A mutual fund shares.
Louisville, Ky.-based Hilliard Lyons, which has about 97 active branches and 670 representatives, topped FINRA's list with a $500,000 fine for failing to accurately and/or fully complete self-assessments of breakpoint discount compliance, according to enforcement documents the self-regulator released yesterday.
"Today's settlements are a clear message that when firms are required to perform self assessments, FINRA demands that they be diligent and fully compliant," said Susan Merrill, executive vice president and chief of enforcement.
In 2002, FINRA - then NASD - became concerned about breakpoint discounts in 2002 after charges were made that many investors owed the discounts were not receiving them. The self-regulator issued an alert to investors in early 2003 and began examinations that led to enforcement action against 15 major and regional firms in early 2004. The firms agreed to pay $21.5 million to settle NASD and Securities and Exchange Commission charges of violations related to breakpoint discounts.
This latest set of sanctions stems from a self-assessment follow-up review that FINRA sent to firms in 2005 to make sure they complied with guidance they received in 2003 and to assess whether they took steps to ensure customers received the discounts.
FINRA found that Hilliard Lyons and 13 other firms failed to accurately and/or fully complete their assessments.
It also found that three firms failed to provide the discounts during a later review period and did not have written supervisory procedures in place to ensure investors received the discounts; six firms failed to provide timely refunds to customers or to notify them at all, or on a timely basis, that they were eligible for the discounts; and six firms failed to accurately complete a comprehensive trade-by-trade review of transactions.