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Three Brokerages Face Charges Over Discounts

November 15, 2003|From Bloomberg News

American Express Co., Wachovia Corp., and Legg Mason Inc. said Friday that they faced federal sanctions for not passing volume discounts to some large mutual fund clients.

American Express also said the Securities and Exchange Commission and NASD had asked for mutual fund data for a probe of late trading and market timing activities. American Express is "cooperating fully with these inquiries," according to an SEC filing. Legg Mason said in a filing that it had received a subpoena from New York Atty. Gen. Eliot Spitzer's office and inquiries from the SEC in investigations of possible improper trading in its mutual funds.

SEC Chairman William H. Donaldson last week said a "significant number" of brokerage firms were facing action for failing to give customer discounts, known as breakpoints, on mutual funds. The agency's staff recommended taking action against the firms, which were sent letters advising them of potential charges, he said.

"It has the potential to be serious," said Thane Bublitz, a money manager at Thrivent Financial for Lutherans. "The best thing that a firm can do is be very proactive -- find where the problem is and fix it."

New York-based American Express began an internal review of its mutual fund practices in September.

Wachovia, based in Charlotte, N.C., said in an SEC filing that it had failed to give large buyers of its mutual funds as much as $5 million in discounts but since had promised to refund the money with interest. The fifth-biggest U.S. bank said it might face regulators' "administrative penalties."

Legg Mason, a money management brokerage based in Baltimore, said it faced a proposed fine of $2.3 million over allegations it overcharged some mutual fund customers. The company also said it had been subpoenaed by Spitzer.

American Express shares fell 47 cents Friday to $45.33, Wachovia fell 95 cents to $44.73 and Legg Mason dropped $3.77 to $81.05, all in New York Stock Exchange trading.

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