Compliance February 12, 2009

FINRA Fines Wachovia for Sales Violations

Financial Industry Regulatory Authority (FINRA) said Thursday that it has fined two Wachovia units more than $4.5 million for violations related to the sales of mutual funds and unit investment trusts (UIT).

Reported by

Ellie Behling

More than $5.4 million has been returned to affected customers, according to a release from FINRA.

Wachovia Securities was fined $4.41 million for its failure to provide investors with sales charge discounts in eligible UIT transactions, its failure to ensure that investors received the benefit of Net Asset Value (NAV) transfer programs in applicable mutual fund purchases, and for suitability violations related to the sale of Class B and C mutual fund shares, according to FINRA. Wachovia Securities Financial Network was fined $150,500 for suitability violations related to improper Class B share sales. The fines reflect the $4 million-plus in additional commissions the firms received by selling Class B and C shares rather than Class A shares.

UITs are investment companies that offer redeemable shares, or units, of a generally fixed portfolio of securities in a one-time public offering and terminate on a specified date. During the relevant period, UIT sponsors generally offered sales charge discounts to investors, known as “breakpoint discounts” and “rollover discounts,’ FINRA said.

FINRA found that Wachovia Securities failed to provide rollover discounts in connection with more than 15,000 customer purchases of UITs, according to the release. Furthermore, FINRA said the firm failed to provide breakpoint discounts in connection with approximately 5,000 customer UIT purchases, which resulted in customers paying approximately $2.71 million in excessive sales charges.

FINRA said each firm settled these matters without admitting or denying the allegations, but consented to the entry of FINRA’s findings.

“Firms must consider all relevant factors when recommending securities,” said Susan L. Merrill, FINRA’s executive vice president and chief of enforcement, in the release. “The failure to provide available discounts or recommend a suitable share class wrongly increases costs to investors. We are pleased that through these settlements millions of dollars are being returned to customers.”