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Market group orders Smith Barney, Lehman Brothers to refund $5.6 million

March 13, 1997

WASHINGTON (AP) _ Leading brokerages Smith Barney Inc. and Lehman Brothers Holdings Inc. are refunding more than $5.6 million to customers who were improperly charged fees for cashing in mutual fund shares.

The regulatory arm of the National Association of Securities Dealers Inc., which owns the Nasdaq Stock Market, ordered the two New York-based firms to make the refunds and censured and fined them $250,000 each.

The self-policing group, known as NASD Regulation, said Wednesday more than 15,700 customer accounts were affected by the improper practice of charging commissions where none were allowed on mutual fund redemptions.

NASD Regulation investigators said the practice began in October 1990 at the former Shearson Lehman Brothers and continued until 1995. Smith Barney acquired most of Shearson’s retail operations in 1994 and Lehman Brothers _ which was not in the retail business _ became a separate entity.

In a settlement with NASD Regulation, the two firms neither admitted nor denied the group’s allegations.

Lehman Brothers spokesman Chris Cosentino declined comment.

Smith Barney said in a statement that ``as a result of an error,″ it charged commissions to some customers for mutual fund redemptions from Aug. 1, 1993 through Aug. 28, 1995.

The firm said the faulty charges occurred in a ticket processing system for mutual funds that it acquired as part of its takeover of Shearson’s retail operations. The errors occurred in 7,100 mutual fund transactions out of a total of more than 2 million during the two-year period, Smith Barney said.

The $5.6 million in refunds _ about $2.68 million for Smith Barney and $2.92 million for Lehman Brothers _ includes some $1.3 million in interest.

Refunds to Smith Barney’s customers already have been made, with current customers receiving credits to their accounts and former clients getting checks, and Lehman Brothers will repay its customers over the next 180 days, NASD Regulation said in a news release.

Mary Schapiro, the president of NASD Regulation, said the group’s action was ``important for investors and an excellent demonstration of the value customer complaints play″ in the organization’s disciplinary process.

Investigators became aware of the alleged overcharging after they looked into a single customer complaint against Smith Barney, NASD Regulation said.

``With more Americans using mutual funds as their primary investment tool today, NASD Regulation is committed to insuring that every customer is treated fairly,″ said Ms. Schapiro.

The NASD, which supervises some 513,000 brokers nationwide, is considered the securities industry’s most powerful self-policing body.

Also on Wednesday, the National Organization for Women named Smith Barney its first ``Merchant of Shame,″ kicking off a campaign to promote what it called ``women-friendly″ workplaces. In charges raised in a lawsuit filed last May in New York, the firm was singled out for allegations of sexual harassment at several Smith Barney offices nationwide.

Smith Barney had no immediate comment on the group’s action.


Smith Barney customers with questions about the refunds should contact Leslie Klenk at 212-816-8545.

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