Regulators levy fines against financial firms

updated 8:21 p.m. ET March 23, 2005

WASHINGTON - In three unrelated cases, federal regulators fined Citigroup Inc. and Putnam Investments $20 million and $40 million respectively and a smaller brokerage firm $100,000 to resolve allegations that they concealed from customers the fact that brokers were paid to recommend certain mutual funds, creating a conflict of interest.

The Securities and Exchange Commission announced the separate settlements Wednesday with Citigroup, the biggest U.S. financial institution; Putnam, the seventh-largest mutual fund company; and brokerage Capital Analysts Inc. Citigroup, Capital Analysts and Putnam, a unit of Marsh & McLennan Cos., neither admitted nor denied wrongdoing as part of the agreements. The SEC also alleged that Citigroup sold a type of mutual fund shares known as Class B shares to certain large-scale customers who could have earned a higher return from another type of shares.

Capital Analysts, a brokerage firm based in Radnor, Pa., agreed to pay a civil fine of $100,000 and $350,000 in restitution plus interest.

In a related move, the National Association of Securities Dealers disclosed that Citigroup, American Express Financial Advisors Inc. and JPMorgan Chase & Co. had agreed to pay a total $21.25 million for alleged violations in sales of mutual funds.

The NASD, which is the brokerage industry’s self-policing organization, fined Citigroup $6.25 million, American Express Financial Advisors $13 million and JPMorgan Chase $2 million. The investment firms, which also were censured by the organization, neither admitted nor denied wrongdoing. They did agree to establish a plan to correct deficiencies for some 50,000 households that invested in the fund shares.

The regulators’ moves were the latest enforcement actions over alleged abuses in the trading and marketing of mutual funds, in an industrywide crackdown that began in September 2003.

“We hope securities-industry professionals have by now received the message that they must fully inform their customers of the nature and extent of any conflicts of interest that may affect their recommendations,” SEC Enforcement Director Stephen Cutler said in a statement.

Citigroup shares rose a penny to close at $44.45 in Wednesday trading on the New York Stock Exchange, while Marsh & McLennan shares rose 43 cents to close at $30.23. Shares of American Express Co., which has announced plans to spin off the American Express Financial Advisors brokerage, lost 76 cents to close at $50.42 on the NYSE, and JPMorgan Chase shares fell 13 cents to close at $34.93.

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