Broker-Dealer Settles Charges with State Regulators for "Unreasonable Commissions"

A broker-dealer settled charges with several state securities regulators for charging "unreasonable commissions" to customers on low principal equity transactions. NASAA said that the transactions resulted in $8,250,000 in excess commissions.

According to the Consent Orders filed by California and Massachusetts state regulators (see here and here), the broker-dealer executed over 270,000 transactions nationwide where the commissions were in excess of five percent of the principal value. As a result, the regulators stated that the broker-dealers gained (i) $465,000 in total excess commissions after performing 16,000 transactions in California and (ii) $185,000 in total excess commissions after performing 5,700 transactions in Massachusetts.

To settle the charges with California and Massachusetts state regulators, the broker-dealer agreed to (i) discontinue further violations of respective state regulations, (ii) pay full restitution in the amount of $465,000 plus interest to customers in California and $185,000 plus interest to customers in Massachusetts, (iii) pay an administrative fine to NASAA, including the costs of the investigation to lead state regulators, amounting to $4,200,000 and (iv) comply with the undertakings set forth in the respective orders.

In an accompanying release, NASAA announced a $13 million settlement with the broker-dealer following the conclusion of an investigation led by state securities regulators, including Alabama, California, Illinois, Massachusetts, Montana and Washington. To date, Massachusetts and California are the only states to have released their respective consent orders.