Edward Jones will soon be writing a lot of checks to a lot of clients: $75 million in checks, to be exact. But the payday is actually a payback per the terms of Jones’ December 2004 settlement with regulators for inadequate disclosure of revenue-sharing practices in its mutual funds sales.
John Boul, head of the firm’s public relations department, said the SEC had approved the firm’s plan for distributing the funds to investors and that the firm “was happy to be moving forward.” Boul did not know exactly when checks would be sent out, but he expected that it would be before September.
Per the settlement terms with the SEC, NYSE, NASD and others, besides paying the large fine, Edward Jones managing principal Doug Hill was required to step down at the end of 2005; the firm’s disclosure practices had to be revamped; and all investors in the firm’s “preferred” mutual fund families were to be given a 90-day window in which to move into another fund, free of charge. In regard to the latter requirement, Boul reports that today “98 percent of customers who had been in preferred funds have not switched out, and the 2 percent who did switch moved into another preferred fund.”
But investor loyalty and trust and the SEC’s approval hardly bring closure to a matter that continues to dog the firm in the form of three class-action lawsuits—all of them seeking further financial penalty from the firm for inadequate disclosure in regard to its mutual fund sales practices.
Fortunately, some good news for the firm relating to one of those cases came last week: A California State Supreme Court judge dismissed a case brought by Attorney General Bill Lockyer for the second time, leaving an appeal to the Appellate division as his only option. Lockyer, who was seeking class certification for California mutual fund investors—accounting for nearly 5.5 percent of Jones’ business—has said he indeed plans to appeal.
“We believe claims related to this issue were settled in December 2004,” said Boul, “and we’re gratified that the court ruled in our favor and dismissed this suit.”
But it’s not over for Jones, who still faces the possibility of millions of dollars in fines: The three cases seek the disgorgement of approximately $375 million, the total amount of revenue-sharing payments received by Edward Jones between January 1999 and December 2004.