September 15, 1995
TO: COMPLIANCE COMMITTEE No. 35-95
SEC RULES MEMBERS No. 64-95
SUBCOMMITTEE ON ADVERTISING No. 14-95
RE: SEC SUSTAINS NASD SANCTIONS WITH RESPECT TO MUTUAL FUND
ADVERTISEMENTS
______________________________________________________________________________
The Securities and Exchange Commission recently sustained findings of the National
Association of Securities Dealers, Inc., in a disciplinary action against the former registered
general securities principal and chief compliance officer of a mutual fund distributor. A copy
of the Commissions order is attached.
The Commission found that the registered principal was responsible for publication in
The Wall Street Journal of two misleading advertisements that violated the NASDs Rules of Fair
Practice, and for failing to file the advertisements with the NASD within 10 days of first use as
required by the Rules of Fair Practice. The Commission found that the advertisements left the
reader with the misleading impression that five funds had been ranked as the five top
performing funds of all mutual funds for 1992, and that the advertisements contained
exaggerated statements and omitted material information.
The Commission also found that the registered principal had violated the Rules of Fair
Practice in connection with the failure to disclose, in the relevant funds prospectuses, a 1991
special concession arrangement between the distributor and another NASD member. The
Commission further found that the distributor, acting through the registered principal, had
failed to establish and maintain adequate written supervisory procedures concerning special
concession arrangements.
The NASD had censured the registered principal, suspended him from acting in any
principal capacity for one month, required him to requalify by examination as a principal, and
fined him $5000. The Commission remanded the matter for reconsideration of sanctions, out of
concern that, among other things, certain mitigating factors were not considered.
Thomas M. Selman
Associate Counsel
Attachment
Note: Not all recipients of this memo will receive an attachment. If you wish to obtain a copy
of the attachment referred to in this memo, please call the Institute’s Information Resource
Center at (202)326-8305 or (202)326-5903, and ask for this memo’s attachment number: 7272.