California, U.S. regulators drop American Funds probes
The giant mutual fund group had been accused of paying kickbacks to brokers who sold its products.
California and federal securities regulators have abandoned a 3-year-old fight to show that the giant American Funds mutual fund group cheated or misled its investors.
The separate moves by state Atty. Gen. Jerry Brown and by the Securities and Exchange Commission amount to big victories for the Los Angeles-based fund company, which, with $1.1 trillion in assets, is the nation's largest manager of stock and bond funds.
The 77-year-old firm, long regarded as one of the world's savviest money managers, had insisted it had done nothing wrong and had balked at following other fund companies in reaching settlements with regulators over similar allegations in recent years.
Brown today said his office had dropped its case accusing American Funds of failing to properly tell fund shareholders about special marketing-related payments made to brokerages that sold the firm's funds from 2000 to 2004.
Former Atty. Gen. Bill Lockyer, who launched the case in March 2005, had called the payments "kickbacks" designed to induce brokers to sell American Funds to their clients. He said the company had an obligation to clearly spell out the arrangements to investors so they understood the potential for conflict of interest.
Brown, in walking away from the case, said voluntary measures that American Funds already had taken to improve its disclosures to investors had "resolved the state's concerns."
American Funds' parent, Capital Group Cos., agreed to pay $2.5 million to cover the state's legal costs, but isn't required to make any additional changes in its practices.
By contrast, two other fund companies -- PA Fund Management, which managed the Pimco-brand stock funds, and Franklin Resources Inc. -- in 2004 agreed to pay the state $20.6 million and $18 million, respectively, in fines and restitution to settle similar cases brought by Lockyer.
Brown said he was swayed in part by the SEC's decision to drop its investigation of American Funds -- a decision that had been rumored last year but had not been publicly disclosed before today. Brown said the SEC's probe ended in October.
An SEC official in Los Angeles declined to comment.
A spokesman for American Funds confirmed that the SEC told the company it had dropped its investigation. He also said the company was "pleased" with Brown's decision but declined to comment further.
