NEW YORK — Financial-services giant ING Group agreed Wednesday to pay $7 million to settle charges that its brokerage units in El Segundo and three other U.S. cities took improper payments from mutual funds to promote their products.
The brokerage operations gave preferential treatment to 10 mutual-fund companies, such as by giving them special access to brokers and setting annual sales goals to encourage brokers to push their funds on customers, according to the NASD, the brokerage industry's self-regulatory body.
In exchange, eight of the 10 fund companies paid the firms $25.7 million in stock-trading commissions even though the brokerages didn't execute any trades. The other two paid undisclosed amounts of cash.
The ING unit in El Segundo, Financial Network Investment Corp., works with 2,600 brokers around the country, according to ING. It paid about half of the fine, or $3.4 million. ING units in Des Moines, Denver and St. Cloud, Minn., are paying the rest.
The payments, known as directed brokerage, are similar to the inducements that food and consumer-products companies make to supermarkets for prominent placement on store shelves.
The NASD, formerly the National Assn. of Securities Dealers, prohibits firms from accepting brokerage commissions in return for selling mutual funds.
The payments occurred from 2001 to 2003. ING said in a statement Wednesday that it stopped accepting the payments at the end of 2003. The Securities and Exchange Commission outlawed directed brokerage in 2004.
"What troubled us is the firms will put their own financial interests ahead of their customers," said James Shorris, NASD enforcement chief. "They should be selling funds based upon the suitability of the funds for clients and the performance of the funds, not based on benefits the firms or their brokers are receiving for selling them."
"ING is pleased to have this matter resolved," the firm said.
The NASD refused to divulge the names of the 10 fund companies that paid for special treatment.