MassMutual Fund Unit Settles With SEC

The term “directed brokerage” refers to the practice of mutual funds considering a securities dealer’s sales of fund shares when selecting dealers to handle fund portfolio brokerage transactions. The SEC banned directed brokerage arrangements in 2004.

In July 2003, OppenheimerFunds discontinued the use of directed brokerage arrangements, and it found that some funds were used improperly to meet revenue-sharing obligations, the company says.

In May 2004 OppenheimerFunds paid $15.8 million to some of the funds and accounts it manages. The payment was equal to the total amount of brokerage commissions used to make revenue-sharing payments, OppenheimerFunds says.

Because OppenheimerFunds made that payment in May 2004, the company now faces no additional civil penalties or disgorgement requirements, the company says.

OppenheimerFunds says it also has complied with an SEC order to set up a compliance program to prevent future abuses.

“We think the settlement reflects our actions in the interest of Oppenheimer fund shareholders, including voluntary termination of directed brokerage, payment to the funds, and full cooperation with the SEC staff throughout their review of our practices,” says OppenheimerFunds Chairman John Murphy.