Capital Research's American Funds Fined

Updated from 2:32 p.m. EDT

American Funds Distributors was fined $5 million Wednesday for allegedly directing brokerage commissions to securities firms that were top sellers of American Funds mutual funds from 2001 through 2003.

A National Association of Securities Dealers panel said the firm violated the so-called Antireciprocal Rule, which says that when mutual fund managers choose which firms will buy and sell securities for their portfolios, they may not take into account whether the firm is selling the managers' funds.

The NASD said that AFD directed more than $98 million in business to companies that were top sellers of its funds, and that the commissions were paid by AFD's parent company, Capital Research and Management.

"Evidence in this case shows ... that AFD requested and arranged for CRMC to direct brokerage to its 50 leading retail firms," the NASD said in its ruling, adding that those recommendations were "conditioned upon their past sales of American Funds -- indeed, that they were among the top 50 in the prior year's sales -- and ... the target amount AFD recommended was conditioned upon the specific amount of sales attained by the retailer."

AFD, the principal underwriter and distributor of American Funds, the nation's second-largest mutual fund family, said it plans to fight the decision.

"We strongly disagree with the NASD Hearing Panel's decision," said AFD spokesman Chuck Freadhoff. "We will appeal to the NASD's National Adjudicatory Council."

The NASD did say that AFD's violations, while serious, "were not egregious."