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Regulation and Compliance > Federal Regulation > SEC

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Ameriprise Financial Services has agreed to pay the SEC $17.3 million to settle an enforcement action that the Commission brought against the Minneapolis-based broker/dealer. The SEC alleges that Ameriprise received millions of dollars in undisclosed compensation as a condition of offering and selling certain real estate investment trusts to its brokerage customers. The SEC’s order says that “Ameriprise demanded and received so-called ‘revenue sharing’ payments related to its sales of REITs and failed to disclose the payments as required. Ameriprise also sold more than $100 million of unregistered shares of one particular REIT in violation of the registration provisions of the federal securities laws.” Robert Khuzami, Director of the SEC’s Division of Enforcement, said in a prepared statement announcing the enforcement action that “Few things are more important to investors than getting unbiased advice from their financial advisers. Ameriprise customers were not informed about the incentives its brokers had to sell these investments.” According to the SEC, the Commission’s order finds that “neither Ameriprise nor the REITs disclosed to investors that additional payments were being made in connection with the sale of REIT shares, or the conflicts of interest these additional payments created. The SEC’s order also finds that Ameriprise issued a variety of mislabeled invoices to the REITs as a means of collecting the undisclosed revenue sharing payments that appeared to be legitimate reimbursements for services provided by Ameriprise.” Ameriprise consented to the issuance of the SEC’s order without admitting or denying the findings.

The industry is still scratching its head as to why Bank of America has yet to join the broker protocol. After acquiring Merrill Lynch last year, Bank of America officials indicated in published reports their intentions to join the broker protocol, which allows departing brokers/advisors to leave a firm and not get sued under non-compete or non-solicit agreements, and allows them to take their clients’ basic contact information, and often their clients, with them. Bill Halldin, a spokesman for Merrill Lynch, points out that Merrill is a member of the protocol, and “we anticipate the [Banc of America Investment Services] BAI platform will join in the future, but no date has been set.” Patrick Burns, with the law offices of Patrick Burns in Beverly Hills, says that without BofA having protocol membership, “people are clearly at risk of getting sued and won’t be allowed to take their clients with them.” There are currently about 300 firms on the protocol list, Burns says, “but surprisingly BofA is not one of them.” Burns notes in his most recent Breakaway Broker newsletter that three firms have recently joined the protocol: Morgan Stanley Smith Barney; Wells Fargo Advisors (formerly Wachovia Securities); and Wells Fargo Advisors Financial Network (formerly Wachovia Securities Financial Network).

The SEC has brought an enforcement action against the Poughkeepsie, New York-based broker/dealer Prime Capital Services (PCS) and several of its representatives and supervisors for their alleged roles in fraudulent and unsuitable sales of variable annuities to senior citizens at free-lunch seminars in south Florida. The SEC alleges that PCS and its parent company, Gilman Ciocia, Inc., recruited elderly investors to attend the seminars, after which the seniors were encouraged to schedule private appointments with PCS representatives who then induced them to buy variable annuities. According to the SEC, the sales pitches allegedly concealed high costs, lock-in periods, and other material information. While the firm and its representatives earned millions of dollars in sales commissions, the SEC’s Division of Enforcement alleges that many of the variable annuities were unsuitable investments for the customers due to their age, liquidity, and investment objectives.

FINRA announced June 30 that it has launched a comprehensive initiative to survey retail sales practices in the municipal securities market, promote investor protection in that market, and give retail investors online tools and information that will help them make informed investment decisions when trading in that market. FINRA investigators are now conducting sweeps to gather information in three distinct areas. One broad sweep is looking at industry sales and supervisory practices with respect to sales of municipal bonds to retail investors. Firms are being asked to provide FINRA with detailed data on a range of retail muni bond transactions during the first quarter of this year. A second, more targeted sweep is examining potential conflicts, disclosure practices and marketing by firms underwriting municipal securities involving swaps and derivatives for small municipalities. A third, narrowly targeted sweep is seeking information from firms that engaged in retail sales of certain so-called municipal Gas Bonds that were underwritten and guaranteed by the now-defunct Lehman Brothers and quickly became distressed.


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