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NASD Fines Two Firms For Selling Shelf Space

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Feb. 22, 2005 — The National Association of Securities Dealers said it has fined Quick & Reilly Inc. and Piper Jaffray Companies (PJC) a total of $845,000 for giving preferential treatment to mutual funds offered by certain fund companies in exchange for brokerage commissions and other payments.

Quick & Reilly, now a unit of Bank of America (BAC), was fined $570,000, and Piper Jaffray was fined $275,000. The regulatory agency said both firms operated “preferred partner” or “shelf space” programs that gave favorable treatment.

In settling the matter, the firms neither admitted to or denied the charges, but both consented to the entry of the NASD’s findings.

The favorable treatment, the NASD said, included giving fund companies “higher visibility” on the two firms’ internal websites, and granting increased access to the firms’ sales forces.

Also, the two firms permitted participation in “top producer” or training programs, and they promoted the preferred funds more broadly than other funds, NASD said.

Both firms offered preferential treatment to a “relatively small number of mutual fund families,” the NASD said. Piper Jaffray included 12-15 fund complexes in its preferred partner program, which it operated between 1998 and 2003, but it sold funds offered by more than 100 fund complexes the NASD said. Quick & Reilly included 16-20 complexes in its program, which it maintained from 2001-2003, while it sold funds offered by about 300 companies, the NASD said.

Participating fund companies paid the firms extra fees in addition to regular sales fees, the NASD said. Piper Jaffray negotiated the extra payments each year, asking for minimum payments of $100,000-$125,000, the NASD said.