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Broker accused of accepting improper fees

He was paid for steering business to a fund giant and misled clients about it, the NASD says.

July 12, 2007|Walter Hamilton | Times Staff Writer

A Calabasas-based securities broker was accused Wednesday of taking improper payments from a mutual fund company that he recommended to union retirement plans.

Michael L. Bullock violated securities rules by accepting $262,500 in payments in 2002-03 from fund giant Massachusetts Financial Services Co. and then deceiving clients about taking the money, according to the NASD, the brokerage industry's chief regulator.

The case marks the first time the NASD has singled out an individual broker for receiving money from a fund company under a so-called directed brokerage arrangement. Previous cases have targeted brokerage firms for the fee-sharing arrangements, which entailed payments from fund companies to the brokerages that sold their funds.

Directed brokerage was banned by the Securities and Exchange Commission in 2004.

Bullock, 66, is the founder of Innovative Employee Benefit Programs in Calabasas, a retirement-advisory business.

Bullock's attorney, Ben Suter, said his client would fight the charges. "Mr. Bullock is a straightforward and honest person," Suter said. "He does his business properly."

Financial advisors help labor unions and companies pick mutual funds for employee retirement plans. Critics say many advisors base their recommendations on how much they would be paid rather than on what would be the best-performing or lowest-cost funds for workers.

"This case is another example of the conflicts of interest that are rife in the retirement-plan industry," said Ted Siedle, president of Benchmark Financial Services, a Florida company that investigates retirement plan abuses. "This case shows that whenever you have brokers compensated through commissions purporting to give objective retirement-plan advice that advice inevitably is tainted."

The NASD said Bullock arranged for Massachusetts Financial Services to direct commission-generating stock trades to Securities America Inc., the brokerage he worked for at the time, and for the firm to transfer most of the commissions to him.

Massachusetts Financial participated on the assumption that Bullock would steer 401(k) business its way -- an "implied promise" that violates securities rules, according to the NASD.

Bullock received the payments from January 2002 to November 2003, when he had about 15 union clients, the NASD said.

All but one of his clients had at least one Massachusetts Financial fund in their retirement plans and five clients used its funds exclusively, according to the NASD.

On at least six occasions, Bullock misled clients about the payments, the NASD said. Amid controversy about directed brokerage practices in 2004, a client asked Bullock whether he got commissions or engaged in "possible illegalities or questionable practices of any kind," the NASD said. Bullock deflected the question even though he knew he probably would face charges, the regulator said.

Omaha-based Securities America on Wednesday agreed to pay $375,000 to settle with the NASD. "We take compliance seriously and continue to enhance our compliance policies, procedures and oversight," a spokeswoman said.

Massachusetts Financial paid $50 million in 2004 to settle SEC charges that it made directed brokerage payments in exchange for brokerages recommending its funds to investors.


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