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Edward Jones Variable Annuity Sales – Fined $37,500,000 By SEC

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Edward Jones was fined $37,500,000 by the SEC for violations of the Federal securities laws by failing to disclose its receipt of revenue sharing payments for distribution of shares of mutual funds and 529 College savings plans. This is a wilful violation and contravened other regulations. Edward Jones will pay a total amount of $75,000,000 including disgorgement and penalty. Edward Jones promoted the mutual funds to its stockbrokers and the revue sharing plans. Edward Jones told the public and its customers that it was promoting the sale of the preferred mutual funds because the funds long term investment objective and performance, and failed to disclose that it received tens of millions of dollars from the preferred fund familes each year, on top of commissions and other fees. In addition, Edward Jones ran a sales contest and restricted the sales to those on the preferred list. (SEC 3-11780).

The selling of preferred mutual funds without disclosing the millions in secret payments was a huge event for Edward Jones. The undisclosed money is a clear violation of what an investor may expect; fair advice that is appropriate and suitable for them. The significant amount of literally secret payments is something that goes to the very core of trusting advice, and the amount of fines and disgorgement is certainly justified.

Edward Jones was fined $4,800,00 to the State of California for civil penalties for its failure to disclose the sharing of mutual fund fees. (Case No. 04AS05097). Edward Jones was fined $250,000 by a state regulator for failing to disclose that it received revenue sharing payments from the sale of preferred mutual funds. (05-053-CAG).

Edward Jones was fined $1,500,000 by a state regulator for failing to disclose its revenue sharing arrangement with a variable annuity company, when Edward Jones was recommending that company to customers. These revenue sharing arrangements included seven mutual funds, American Funds, Federated Investors, Goldman Sachs, Hartford, Lord Abbette Funds, Putnam Investments, and Van Kampen Investments. Edward Jones was paid millions of dollars from these revenue sharing arrangements each year. (AP-05-31)

Edward Jones was fined $250,000 by regulators for failing to provide certain variable annuity investors the chance to purchase shares at net asset value, saving sales charges. Edward Jones failed to exercise reasonable diligence to identify the essential terms of the program and provide the benefit to customers. As a result, the customers paid front-end sales charges that could have been avoided, were sold other share classes with additional charges that could have been avoided, and were exposed to back-end sales charges of contingent deferred sales charges. (EAF040110001).

Edward Jones was fined $40,000 by the state regulator for unsuitable variable annuity sales, from bond investment funds. (July, 2010 AP-10-15) This involved an elderly customer who had a prior bond investment. The stockbroker recommended a variable annuity investment but described it as something similar to the bond, providing a stream of income. The stockbroker described the variable annuity in Anchor Advisory II variable annuity as a bond and an appropriate place for the bond money.

 

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