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The SEC and the NASD have continued to fine large brokerage firms for improper mutual fund fraud practices. It has been discovered that many large brokerage firms had secret agreements with different mutual fund families.

The brokerage firms would advertise and promote limited mutual fund families calling them either the “preferred families” or the “recommended families”. The brokerage firms misrepresented investors that these specific mutual fund families continued to provide better mutual fund performance and returns as the reason for promoting them. When in reality, the reason for promoting these mutual fund families was because those families paid extra incentives back to the brokerage firms. Are you the victim of mutual fund fraud?

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With respect to Edward Jones Mutual Funds sales more than 95 percent of those sales were made in their limited seven “preferred families” of funds. The failure to disclose to investors this specific payback arrangement resulted in investors being unaware that Edward Jones had a strong motivation to recommend the purchase of the preferred families to the exclusion of the other fund families regardless of the investors’ particular need.

New York Attorney General Eliot Spitzer filed a complaint against mutual fund manager J. & W. Seligman & Company charging that the firm sanctioned numerous secret timing arrangements that cost small investors $80 million. [Deceptive market timing can dilute the value of shares, raise transaction costs, and investors. It’s an objectionable trading practice that rises to a higher level of abuse when the firm not only knows that it’s intentionally carrying out deception.]

The mutual fund lawsuit refutes a claim by company officials that there was some limited timing activity at Seligman which only caused $2 million to its investors.

Spitzer's office disagreed and sought a court order requiring Seligman to provide documents and make employees available for testimony. The court granted that request and the Attorney General uncovered 35 previously undisclosed agreements with mutual fund timers. During a three-year period, Seligman tracked and tolerated the activities of these special agreements but did little or nothing to shut them down. The record shows that there was a clear breach of fiduciary duty and the company’s damage control is inadequate.

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Are you the victim of mutual fund fraud? If yes, contact a mutual fund lawyer about your losses. There’s a good chance that you have a mutual fund lawsuit.

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