Investment adviser Value Line Inc., its CEO and its former compliance chief have agreed to pay about $45 million to settle regulators' allegations the firm charged more than $24 million in bogus commissions on mutual fund trades.
Investment adviser Value Line Inc., its CEO and its former compliance chief have agreed to pay about $45 million to settle regulators' allegations the firm charged more than $24 million in bogus commissions on mutual fund trades.
The Securities and Exchange Commission announced the settlement with Value Line, a firm that is well known in financial circles for its analytical publications and that also manages mutual funds. New York-based Value Line, chief executive Jean Buttner and former chief compliance officer David Henigson didn't admit or deny the SEC's charges in agreeing to the accord.
Value Line is paying a $10 million civil fine and about $24.2 million in restitution plus $9.5 million in interest. Buttner and Henigson are paying civil fines of $1 million and $250,000, respectively. The two also were barred from working for any brokerage firm or investment adviser or as officers or directors of any public company.
The SEC alleged that from 1986 to November 2004, Value Line channeled a portion of the mutual fund trades to its brokerage business, Value Line Securities Inc., in a so-called "commission recapture program."
Value Line arranged for unaffiliated brokers to execute the trades at a discounted commission rate of a penny or two per share. But rather than passing the discount on to the mutual funds, the SEC said, Value Line had the outside brokers bill the funds 0.048 cents per share and then "rebate" 0.028 cents to 0.038 cents a share to Value Line Securities.
Altogether, Value Line Securities received more than $24 million in phony brokerage commissions in this scheme while not performing any real brokerage services for the funds on those trades, according to the SEC. Value Line falsely advised the funds' independent directors and shareholders that Value Line Securities provided genuine brokerage services for the commissions it received, the agency said.
"Value Line misappropriated millions of dollars from the mutual funds they managed by artificially allocating fund trades and then charging the funds for phantom brokerage services," SEC Enforcement Director Robert Khuzami said. "Such blatant wrongdoing will not be tolerated."
Value Line said in a statement that the brokerage fees in question comprised less than 1.5 percent of its total revenue during the period. Management ended Value Line's associated brokerage practice in 2004, the statement said.
