told a broker-dealer that soaked soldiers with massive mutual fund sales charges to drop down and give back $12 million.
First Command Financial Planning
neither denied nor admitted guilt in the case, which saw members of the military paying upfront sales charges of up to 50%. But regulators say the firm made misleading statements in selling the investments and agreed to pay restitution.
Authorities said armed forces personnel invested with the broker through a monthly installment method known as the Systematic Investment Plan.
Under these plans, an investor makes monthly payments for a fixed term, typically 15 years, and the proceeds are invested in underlying mutual funds. The purchaser is charged a 50% sales load on the first 12 monthly payments. Payments over the rest of the term aren't subject to sales charges, as long as the investor completes the 15-year term.
But the NASD said First Command's data indicate only 43% of its customers completed the 15-year term. Terminating the plan before completing it and after an early termination window closes resulted in a 50% sales charge being levied on the balance of the investment.
"Using misleading sales scripts, inappropriate comparisons and omissions of important information, First Command sold hundreds of thousands of complicated and often enormously expensive plans to young members of our armed services, who are frequently inexperienced investors," said NASD Vice Chairman Mary L. Schapiro. "These investors, like all others, are entitled to balanced and honest information about investment alternatives."
As a result of the probe, which also involved the
Securities and Exchange Commission
, First Command agreed to stop selling the questionable plans.
According to the agreement, First Command will pay restitution to thousands of customers who purchased the plans dating back to Jan. 1, 1999, and paid an effective sales charge greater than 5%. All money remaining will be payable to the NASD Investor Education Foundation, to be used for the investor education needs of members of the military and their families. The NASD expects that the foundation will receive $8 million from the settlement.
First Command also settled NASD charges of inappropriately confronting a customer who complained, failing to maintain emails, and failing to maintain adequate supervisory systems and procedures.
The NASD also fined and suspended a First Command supervisor for ignoring customer complaints.
"It is inexcusable that a First Command sales supervisor would try to stifle an airman's complaint by suggesting, among other things, that sending his complaint violated Air Force regulations," the NASD said.