Two FSC Securities Corp. brokers and a Seal Beach investment-advisor firm were sanctioned Monday by a Securities and Exchange Commission judge on charges they fraudulently failed to tell investors of mutual fund fees.
The administrative law judge, though, dismissed other SEC charges that the brokers failed to disclose they would get higher commissions if customers made one fund investment over another.
SEC staff members are reviewing the decision and will decide whether to appeal it to the agency's commissioners, SEC enforcement director Richard H. Walker said. The agency "is continuing to watch carefully" funds' fee disclosures, he said.
The SEC brought the unusual case in December 1998 as part of a campaign to get the fund industry to disclose its fees more clearly. The agency alleged that the brokers steered customers to an investment that charged higher fees and paid a bigger broker commission than an alternative investment in the same fund.
Two FSC Securities brokers in Southern California, Michael A. Flanagan Sr. and Ronald Kindschi, were ordered to pay a total of $33,731 in fines and refunds. They directed customers to one fund without disclosing that they could obtain sales-charge discounts in another fund in 1993 and 1994, the administrative judge, James T. Kelly, found.
Flanagan, 53, was suspended from working for a broker or dealer for four months, and Kindschi, also 53, for three months.
Spectrum Administration Inc., an investment-advisor firm in Seal Beach, was censured. The firm managed $148.5 million in assets in 1996. Kindschi was a part owner of Spectrum.
Lawyers for the brokers and the investment-advisor firm couldn't be reached for comment.
"The proven violations were serious," Kelly said in a 49-page decision issued in Washington. "They were repeated. Customers did suffer financial harm."