NASAA Announces $9.3M Settlement With Five Firms That Overcharged Customers
The North American Securities Administrators Association, known as NASAA, announced a $9.3 million settlement against five leading firms, including Edward Jones, LPL Financial, RBC, Stifel, and TD Ameritrade.
According to NASAA, the settlement resulted from an investigation conducted by state securities regulators into the practice of charging unreasonable commissions to retail customers on small-dollar transactions. NASAA stated that, in the five years covered by the investigation, the firms charged approximately $19 million to process 1.12 million small-dollar equity transactions and trades nationwide.
“This settlement will result in restitution to investors and shows once again that state securities regulators will take decisive action to protect investors,” said Leslie Van Buskirk, NASAA president and Wisconsin securities administrator.
State securities laws prohibit firms from charging unreasonable commissions to clients. In determining excessive or unreasonable fees, regulators consider several factors, including guidance provided by FINRA, the brokerage industry’s self-regulatory organization. According to guidance under FINRA Rule 2121, a commission pattern of 5% or even less may be considered unfair or unreasonable. NASAA said that, in this case, numerous equity transactions executed by the five firms included a commission well in excess of 5% of the principal value of the transaction at issue.
“This settlement is an important reminder to firms to be vigilant with regard to charging practices and to ensure they are dealing fairly with customers,” said Amanda Senn, NASAA enforcement section chair and director of the Alabama Securities Commission. “I also want to thank NASAA’s broker-dealer section and fellow state securities regulators for uncovering these practices and helping to secure a good outcome for investors.”
“When people decide to invest their hard-earned money, they should get the maximum value of their investing dollars. We want to thank the members of the multijurisdictional working group for their diligence and hard work,” added Jim Nix, NASAA’s broker-dealer section chair, and Amber Crouch, vice chair.
As a result of the investigation and settlement terms, the firms have agreed to provide affected customers with restitution, plus interest in the amount of six percent from the date of the customer’s transaction through the date of execution of the term sheet and offer of settlement. Fines and costs will also be assessed. The firms will pay total fines not to exceed $9,345,000 to settling states, in addition to reimbursement of investigative costs to the states in the working group. Each firm must also take measures to ensure that its policies and procedures include safeguards to prevent charging excessive fees.
The investigation was led by a multijurisdictional working group of state securities regulators in Alabama, Iowa, Massachusetts, Missouri, Montana, Texas, and Washington. NASAA further reported that Alaska, Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Mississippi, New Mexico, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, West Virginia, and Wisconsin intend to join the settlement.
This settlement follows closely on NASAA’s recent announcement that its members have voted to adopt proposed amendments to its Conduct Rule, as well as its call for public comment on its proposed REIT Guidelines.
NASAA’s membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, the 13 provinces and territories of Canada, and the country of Mexico. NASAA members are responsible for administering state and provincial securities laws.
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