The
AIG Advisor Group has reached the end of a long running dispute with the SEC over a manager who oversaw brokers selling Class B shares of mutual funds instead of selling A shares, which would have entitled buyers to certain discounts. The distribution plan has been announced just as
AIG is entering the delicate final stages of negotiating the sale of its three independent –broker-dealers.
The dispute wound up costing an
AIG broker-dealer, Royal Alliance Associates Inc. of New York, and the manager, J. Michael Scarborough, $2.3 million in fines and restitution to customers. Scarborough is now affiliated with SII Investments Inc. of Appleton, Wis.
Last Thursday, the Securities and Exchange Commission’s division of enforcement said it had finalized a plan to distribute $2.3 million to clients of the former Annapolis, Md., branch of Royal Alliance, one of the
AIG broker-dealers currently on the block.
Earlier this decade, the SEC nailed a number of firms for failing to tell clients that A shares are cheaper than B shares.
Citigroup Global Markets Inc. of New York paid $20 million in March 2005, and Morgan Stanley, also of New York, was hit for $50 million in November 2003. The cases involved other alleged mutual fund violations, as well.
Mr. Scarborough, who was fined $50,000 in the matter, said this morning he paid $2 million in 2004 to settle the matter, with
AIG contributing the rest.
In a phone interview, he wondered why the SEC took years to come up with a plan to pay clients. “It’s taken four and a half years for them to pay the money out. Some of those clients are probably dead,” Mr. Scarborough said.
The dispute dates back more than a decade. According to the SEC, between 1998 and 2000 Mr. Scarborough supervised brokers who neglected to tell clients of certain discounts, known in the industry as “break points” that they would have received if they had bought A shares of the same funds rather than B shares. Like many reps and brokerage executives involved in B-share legal disputes, Mr. Scarborough said the regulators were essentially blind to the issue of the quality of a specific mutual fund, but instead focused on the overall cost.
“Our contention was to pick the best of class of mutual fund,” he said.
Mr. Scarborough left Royal Alliance at the end of last year. His practice remains based in Annapolis.
Meanwhile, the broker-dealers of the
AIG Advisor Group Inc. are being actively shopped by parent company American International Group Inc. of New York. The broker-dealers, which house some 6,571 affiliated reps, are part of a broad dumping of assets by the giant insurer, which needs to pay back government loans made necessary by its financial collapse in September.
