American Express Unit is to Pay Settlement in Mutual Fund Probe
WALL STREET JOURNAL
New York -- American Express Co.'s financial-advisory unit will pay $7.4 million to resolve allegations by the New Hampshire securities regulator that it steered clients into the company's own lackluster mutual funds instead of better-performing products from others.
The state regulator alleged that Minneapolis-based American Express Financial Advisors routinely sold plans stacked with American Express funds, or funds from partners, and didn't adequately disclose the conflict to customers.
Mark Connolly, director of the New Hampshire Bureau of Securities Regulation, said that American Express, as an investment adviser, had a fiduciary obligation to design the best financial plans for its customers - an interest that should have come ahead of selling proprietary funds.
Firms generally receive commissions from selling both in-house and outside funds, but the in-house funds can yield more profit, because they bring a stream of management fees to the company.
American Express will pay $5 million in fines and penalties, as much as $2 million in restitution to New Hampshire investors, and $375,000 to reimburse the state for the costs of its investigation, the bureau of Securities Regulation said. Mr. Connolly said the $7.4 million settlement was the largest securities action in state history.
A spokesman for American Express, David Kanihan, said the company neither admitted nor denied the allegations. The New Hampshire investigation covered a period between 1999 and 2003, and Mr. Kanihan said American Express in the past two years had put in place "enhancements" to its disclosures and "strengthened compliance policies and procedures."