Ameriprise Financial Inc. (AMP) must pay $1.25 million to settle an enforcement action brought by regulators over sales of Section 529 college savings plans (search) amid a wide-ranging inquiry into the popular tax-advantaged accounts, said U.S. authorities Wednesday.

Brokerages regulator NASD said the enforcement action against broker and insurer Ameriprise was its first to result from a long-running and continuing probe into 529 sales practices at 20 securities firms.

"There are additional investigations under way," said NASD enforcement chief counsel Thomas Lawson in an interview.

NASD ordered Ameriprise, formerly known as American Express Financial Advisors (search), to pay a fine of $500,000 and to pay an additional $750,000 to compensate customers.

An attorney for Ameriprise in Washington was not immediately available for comment.

Regulators for months have been looking into abuses by brokers who sell 529 plans, which in recent years have received a flood of money from investors anxious to sock away funds to cover their children's college costs.

With more than 80 plans now marketed nationwide, assets in 529 accounts topped $59 billion at the end of the second quarter of 2005 and have continued to grow, according to consulting firm Financial Resources Corp.

Section 529 plans debuted in 1997 and are named after the federal tax rules under which they were created, offering tax breaks for setting aside college savings.

Questions were raised by regulators last year about excessive fees and sales of out-of-state plans to clients who might be better off tax-wise with in-state plans.

NASD Vice Chairman Mary Schapiro said: "NASD has long been concerned that investors understand the differences between the many different 529 plans that are being offered today and choose a plan that is right for them."

NASD said it found that from May 2001 through the end of 2004, Ameriprise sold more than $1.1 billion of 529 plans to more than 138,000 customer accounts. During that period, NASD said, "the firm's supervision of 529 sales was inadequate."

NASD said that Ameriprise neither admitted nor denied wrongdoing, as is customary in such settlements.

From May 2001 to October 2003, about half of the 50 states offered state tax benefits to residents investing in in-state 529 plans, but during that same period Ameriprise offered and sold only one 529 plan, which was from Wisconsin, NASD said.

Investors in New Mexico, South Carolina, Illinois, Colorado and West Virginia at the time could have gotten unlimited state income tax deductions by buying into their home states' plans.

But through the end of 2004, Minneapolis-based Ameriprise sold more than $55 million in Wisconsin 529 plans to customers residing in those five states, NASD said.

"As a result, those Ameriprise customers purchasing the Wisconsin plan who lived in one of the tax-advantaged states did not receive state income tax benefits available to purchasers of 529 plans," the regulator said.

Ameriprise at the time lacked proper procedures requiring its brokers to consider state income tax benefits when recommending 529 plans to investors, NASD said.

One settlement provision is that Ameriprise must assure NASD that the company is adopting new procedures, NASD said.

NASD said it has identified more than 500 customer accounts to which Ameriprise will distribute the compensation money.

American Express Co. (AXP) completed a spin-off of Ameriprise last month. Shares in Ameriprise were down 14 cents at $37.04 each in midafternoon trading on the New York Stock Exchange.