NASD Fines Three Distributions for Non-Cash Comp Violations

NASD has fined three investment distributors a total of $700,000 for violations of NASD's non-cash compensation rules, including improperly providing entertainment and paying for guest expenses at training and education meetings.

Involved in the regulator’s latest action were Scudder Distributors, Inc. of Chicago, Putnam Retail Management Limited Partnership of Boston, and AllianceBernstein Investments, Inc. of New York, according to a news release.

The announcement said NASD imposed a $425,000 fine against Scudder, which distributes the investment products of Scudder Investments. It levied a $175,000 fine against Putnam, which distributes its own investment products and a $100,000 penalty against AllianceBernstein, which distributes the investment products of AllianceBernstein LP.

NASD found that the three distributors, which rely on retail brokerage firms and their advisers to recommend and sell their investment products, improperly provided and paid for entertainment and attendees’ spouse and guest expenses in connection with training and education meetings.

According to the press release, NASD found that between 2001 through 2004, Scudder provided three types of impermissible non-cash compensation in connection with education and training meetings it sponsored.

NASD found that Scudder permitted spouses to attend educational events and paid for or reimbursed their expenses, including expensive meals at premier restaurants in New York City. The firm also paid for impermissible entertainment at educational events, including “theme” parties such as an elaborate rock-and-roll party in 2002, which involved recreating the “Whiskey-A-Go-Go” bar of the 1970’s and bringing in make-up artists to make attendees “look the part.” Lastly, Scudder paid for additional nights of lodging for selected attendees, without adequately ensuring that the cost of these extended stays was justified by cost savings associated with the extended stay. This included paying for Scudder attendees to engage in activities such as golf, fishing, and horseback riding, followed by dinner with live entertainment on a Saturday when there were no scheduled educational or training activities.

In Putnam’s case, NASD found the firm violated NASD rules relating to non-cash compensation from 2001 through 2004. During that period, Putnam paid for meals and ground transportation expenses of brokers’ spouses and guests in connection with numerous training and education meetings. Putnam also paid for entertainment at training and education meetings for brokers and their guests in connection with two training and education meetings in 2001, including tickets to a Boston Red Sox game in connection with one such meeting.

The AllianceBernstein allegations were that in 2001, the company improperly paid for brokers’ guests to attend dinners at prominent New York City restaurants and attend Broadway plays in connection with numerous training and education meetings.

AllianceBernstein’s improper spending on entertainment occurred at six meetings in 2001, and its improper spending on meals for guests of meeting attendees occurred at 10 other meetings in 2001, according to the NASD.

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