The summer 2003 scandal involving unpaid breakpoints—sales-charge discounts that mutual fund companies provide investors who put in a certain amount in a selected fund—might have been dwarfed by the market-timing scandal, but the SEC and the NASD haven’t forgotten about them.
According to a release from the NASD and SEC, it’s estimated that investors are owed $86 million from broker/dealers for just 2001 and 2002 alone. In a joint November release, the SEC and the NASD announced actions firms will be required to make for restitution, including a mandatory notice sent to all clients who purchased Class A mutual fund shares—the shares most affected by breakpoints—since Jan. 1, 1999. That’s a total of 450 firms, according to the NASD.
It also requires firms it deems having “poor records” of providing breakpoint discounts—175 firms in total—to provide a “comprehensive” review of all their transactions since 2001.
According to the joint report, discounts were not delivered in about one out of five eligible transactions. The average amount overcharged per transaction was $243, and ranged up to $10,000.
The action is a step up from an August directive that demanded that firms provide any warranted discounts it found. This actually directs them to notify all applicable customers about the breakpoint problem, so they will know to watch out for them their selves.