AIG units to pay SEC for steering clients to pricey fund sharesReprints
(Reuters) — Three American International Group Inc. units will pay more than $9.5 million to settle allegations they steered clients toward more expensive mutual fund share classes in order to collect more fees, U.S. securities regulators said on Monday.
The units — Royal Alliance Associates Inc., Sagepoint Financial and FSC Securities Corp. — together collected more than $2 million in extra fees, the U.S. Securities and Exchange Commission said. The practice, a conflict of interest, was not disclosed to clients, the SEC said.
An AIG spokesman said the company's adviser group is pleased to have reached a settlement in the case, which involved events that occurred between 2012 and 2014. None of the firms involved in the case admitted or denied the SEC's findings, the agency said.
"We cooperated with the SEC's investigation while working to enhance the processes at issue," the AIG spokesman said.
The SEC settlement comes as the agency has been probing conflicts of interest involving disclosures related to selecting mutual fund share classes, the agency said.
Last year, JPMorgan Chase & Co. agreed to pay $267 million to settle with the SEC for not telling customers between 2008 and 2013 they were being invested in a more expensive share class of proprietary mutual funds. Two of the bank's wealth management units admitted to wrongdoing as part of the settlement. JPMorgan agreed to pay an additional $40 million to the CFTC in a related settlement at the time.
The three AIG units breached their responsibilities as fiduciaries, an ethical requirement for SEC- and state-registered investment advisers that requires putting clients' interests ahead of their own, the SEC said. The units were obliged to disclose the conflict and that they would earn more fees through the fund shares they chose for clients, the SEC said.
What's more, the AIG units did not monitor their firms' accounts each quarter for so-called "reverse churning," a practice in which firms trade very infrequently in accounts they manage for fixed fees, the SEC said.
Reverse churning runs afoul of the obligation to act in clients' best interests because the advice is more costly than when clients trade individual securities.
The $9.2 million total penalty against the three AIG units includes $2 million to be returned to investors and a $7.5 million fine, the SEC said.