If you have invested in mutual funds, you will surely know that there are some agencies that use unfair means to cheat clients. In recent years, the SEC and NASD have fined many brokerage companies for using inappropriate mutual fund scam and unfair practices. It has also been revealed that a number of big brokerage companies had secret contracts with several mutual fund families.
The brokerage firms would promote and advertise these few mutual fund families and call these families as the “recommended families” or the “perfect families” to encourage investors to invest in those families. The investors misunderstand these promotions as they are wrongfully presented as being the best mutual fund families, that could provide the best performance and benefits for the customers. But in reality, the reason for the promotion is due to the extra incentives that the brokerage firms received from the mutual fund families and commissions for advertising them.
In a recent survey, it was reported by one Mutual Fund company that more than 95% of all sales came from these limited seven “preferred families”. As the Mutual Fund brokerage did not reveal the reason for promoting these “preferred families” to the investors, the investors were unaware of the reasons and the strong incentives received for these promotions and recommendations for buying from these “preferred families” and leaving out the other fund families despite the specific needs of the investors.
General Eliot Spitzer, the attorney General of New York, filed charges against a mutual fund company J. & W. Sigma & Company are complaining that the company endorsed a large number of undisclosed timing provisions costing the investors with small funds about $80 million. Misleading timing in the stockmarket can make the value of the shares depreciate, makes the transaction and make the investment costs higher. It is a trading offence and highl objectionable when a company deliberately deceives the customers knowing the consequences, raises the price higher intentionally.
Spitzer’s office opposes with this and wanted a court order needed Seligman to supply documents and put together employees on hand for testimony. The court approved that appeal and the Attorney General revealed 35 previously secret agreements that were fund timers of mutual funds. During a three-year period, Seligman tracked and bored with the activities of these special contracts but did close to nothing nothing to close the company down. The evidence shows that there was a clear violation of fiduciary duty and the company’s damage management is not enough.