Fleet Paying $1.9M Over Shawmut
WASHINGTON (AP) _ The investment division of Fleet Financial Group has agreed to pay $1.9 million to settle charges by federal regulators that Shawmut National Bank of Boston, which Fleet later acquired, misused brokerage commissions to pay for client referrals.
The Securities and Exchange Commission announced the settlement Thursday. It also filed related fraud charges against East West Institutional Services Inc., a Detroit brokerage firm, and eight individuals, including Michael J. Rothmeier, the former president of Shawmut’s investment operation.
Fleet and two of the individuals agreed to settle the civil fraud charges, without admitting or denying wrongdoing. East West, Rothmeier and the other five people are contesting the charges, and their cases will go before an administrative law judge at the SEC.
Fleet already has repaid approximately $1.7 million of the settlement amount to former Shawmut clients.
The SEC alleged that beginning in mid-1993, Shawmut Investment Advisers Inc. violated its responsibility to its pension fund clients by failing to tell them that the brokerage commissions they paid went to brokers who referred new clients to Shawmut.
``Full and fair disclosure to investors is the foundation of the federal securities laws,″ Juan Marcel Marcelino, the SEC’s district administrator in Boston, said in a statement. ``(Investment) advisers must disclose any and all arrangements regarding their use of clients’ commissions.″
Fleet, in a statement from its Boston headquarters, noted that it ``promptly initiated its own internal investigation of these practices″ by the former Shawmut division and ``voluntarily disclosed″ their existence to the SEC in May 1996.
Christopher Andreoff, an attorney representing East West, declined comment.
Rothmeier’s lawyer, James Quarles, didn’t immediately return a telephone call seeking comment.
The SEC action follows an investigation by the market watchdog agency, the FBI and the Labor Department into allegations that brokers and pension managers received kickbacks or gifts in exchange for steering investments to Shawmut.
Investigators from the three federal agencies looked into allegations that at least two pension funds _ a Teamsters pension fund in Chicago and a public fund in Rhode Island _ were bilked of millions of dollars in the scheme, The Associated Press reported in July 1997.
Federal, legal and labor sources told The AP the investigators reviewed union and investment records in at least four states, trying to determine whether questionable commissions that Shawmut paid to several East West brokers compromised the pension funds.
In 1998, Fleet voluntarily repaid former clients of Shawmut, including one of the pension funds, about $1 million for questionable commissions. Fleet, which had acquired Shawmut in December 1995, became legally liable for the company.
Regarding East West, Fleet said at the time that a review of records kept by Shawmut indicated that the commissions paid to the brokerage firm may have been improper because it may not have performed research for which it had been paid.
A Chicago attorney had pushed for an explanation of what happened with the funds and a closer examination of ties between East West, Teamsters officials and alleged associates of organized crime in Detroit.
In addition, Fleet voluntarily repaid approximately $700,000 last spring. The $1.7 million the bank has paid was credited toward the settlement announced Thursday with the SEC, and Fleet has agreed to pay the remaining $200,000.
The two individuals who agreed to settlements with the SEC are two former Shawmut traders, Karen Michalski and Christopher D. Sargent. They agreed, without admitting or denying wrongdoing, to refrain from future violations of securities laws, to each pay a $5,000 civil fine, and to be barred from the investment advising business with a right to reapply after 15 months.