Shelf Space No No:
The Hartford Financial Services Group agreed to pay $55 million to settle SEC charges that three subsidiaries of the firm failed to disclose their use of client mutual fund assets to pay brokerage firms to market The Hartford funds and variable annuities.
Between 2000 and 2003, The Hartford entered into these “shelf-space” arrangements with 61 different brokerage firms, racking up an alleged $40 million in ill-gotten gains. According to the SEC, The Hartford's mutual fund prospectuses assured investors that the firm used its own assets, not the shareholders', to pay for this “shelf space”; however, the SEC says the firm, in fact, funneled $51 million of the funds' assets to the 61 brokerages in the form of commissions. “Our action today sends a strong message about the importance of providing proper disclosure to fund boards and fund investors,” said Linda Thomsen, enforcement director for the SEC. The subsidiary firms neither admitted nor denied the SEC's allegations but did agree to refrain from future violations of the securities laws.
Broker Gets 14 Years:
Kevin Kelley, a 50-year-old former AIG Royal Alliance broker, was recently sentenced to more than 14 years in prison after being convicted of several counts of securities fraud in June. Kelley, who had been detained without bail after the judge deemed him a flight risk, defrauded investors out of roughly $4.2 million between 1999 and 2004, investing their funds without authorization, lying about performance and dipping into client funds for his own use. Many of his victims were senior citizens, prosecutors said.
NYSE Regulation Grab Bag:
New York Stock Exchange Regulation fined four firms a total of $750,000 for various securities violations.
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Morgan Stanley agreed to a fine of $500,000 for inaccurately reporting short positions in preferred securities and certain equity securities of affiliated interests.
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First Albany Capital agreed to a $100,000 fine for failing to establish adequate procedures to supervise branch managers responsible for customer accounts.
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Stifel Nicolaus & Co. of St. Louis agreed to a fine of $100,000 for improperly passing along customer data to a third party as part of its anti-money laundering policy, issuing research reports with insufficient disclosures and failing to preserve employee instant message records.
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Lastly, SIG Brokerage was fined $50,000 for improperly filing and withdrawing market-on-the-close and limit-on-the-close orders after the daily deadline. All of these firms consented to the fines without admitting or denying guilt.