NASD Fines Merrill, Wachovia for Disclosure Violations

The NASD on Tuesday said it censured and fined 29 securities firms, including some of Wall Street's best-known companies, a total of $9.22 million for failing to properly disclose disciplinary and other required information about their brokers more than 8,300 times.

The $9.2 million in fines is the most the regulator has ever imposed for reporting violations.

The NASD also suspended two of the firms, Merrill Lynch & Co. (MER) and Wachovia Corp. (WB), from registering new brokers for five business days because of their many violations and prior regulatory filing problems.

Merrill Lynch, the largest U.S. brokerage, was fined the most, $1.6 million. American Express Co.'s (AXP) American Express Financial Advisors Inc. was fined $700,000, Wachovia's Wachovia Securities LLC $650,000 and Prudential Financial Inc.'s (PRU) Prudential Equity Group LLC $550,000.

The NASD, once known as the National Association of Securities Dealers (search), said each of the 29 firms failed to make at least 25 percent of required disclosures on time between January 2002 and March 2004. ING Groep NV affiliate ING Financial Partners Inc., which was fined $200,000, had the biggest failure rate, 77 percent.

Brokerages in general must update NASD records within 30 days for regulatory actions, customer complaints, settlements and criminal charges and convictions involving brokers.

"Any time required information like this is not available to customers, they are harmed, because they need current, accurate information to help them make decisions on who to do business with," said Barry Goldsmith, the NASD's executive vice president of enforcement, in an interview. He said the NASD is investigating other brokerages for similar violations.

The firms agreed to conduct internal audits to monitor reporting and have officers certify that controls are in place to help ensure timely disclosures. None admitted or denied wrongdoing.

Morgan Stanley (MWD) in July was fined $2.2 million and banned from registering brokers for five days in a settlement stemming from the same investigation.

Late disclosures can make it harder for investors to review the backgrounds of roughly 665,000 registered brokers in nearly 5,300 firms through the NASD's BrokerCheck. Investors used the service more than 2.8 million times in 2003.

"Some firms treated disclosure of broker data as an administrative detail rather than a fundamental obligation of self-regulation," said NASD Vice Chairman Mary Schapiro in an interview.

Merrill was responsible for 1,420 late disclosures, while American Express had 770, Wachovia 610 and Prudential 490, the NASD said. ING had 160 late disclosures. Morgan Stanley was responsible for more than 1,800 at the time it settled.

Katherine Malfa, an NASD vice president in enforcement, said Merrill was fined a combined $315,000 by the NASD and New York Stock Exchange in 2000 and 2002 for other late filings, while Wachovia was fined $250,000 this year by the NYSE.

Merrill Lynch spokesman Mark Herr said his firm was "not happy that there have been problems with the timeliness of some reporting. We are changing our system so this problem does not arise again."

Wachovia Securities spokesman Tony Mattera declined to comment.

American Express spokeswoman Marie Davis said her firm has improved its supervision and controls. "We are absolutely committed to full compliance," she said.