The Maryland attorney general's office announced yesterday that it has levied a record amount of fines against the PaineWebber Inc. brokerage firm and an affiliate for failing to register some employees as investment advisers as required by state law.
PaineWebber and its Mitchell Hutchins Asset Management Inc. affiliate agreed to pay the state $180,000 in fines and costs and agreed to resolve violations of the Maryland Securities Act, according to Attorney General J. Joseph Curran Jr.
New York-based PaineWebber was accused of failing to register 55 brokers as investment advisers for a full year after a state law went into effect in 1990. Mitchell Hutchins committed a smaller number of similar violations, Mr. Curran said. The majority of the brokers work in the companies' Maryland offices, while some work out of state but have clients in Maryland.
In a statement issued yesterday, PaineWebber and Mitchell Hutchins said they "recognize their obligations under federal and state securities laws and take them very seriously. The conduct giving rise to these charges was inadvertent."
But Deputy Securities Commissioner Melanie Senter Lubin said the law "was very well publicized," and that every other major brokerage house complied with it. In fact, PaineWebber registered only a few of its employees when the law went into effect, she said.
"They knew about the registration requirements and chose not to register," Ms. Lubin said.
The 1990 law requires PaineWebber to pay a $300 annual fee to sell investment advisory services and requires each broker engaged in those services to pay $50 a year. It also requires the brokers to complete certain education and examination requirements.
Investment advisers go beyond the commission-based buying and selling work of stockbrokers by providing advice to clients for a fee not based directly on the client's trading activity.
The most popular investment advisory service offered at large brokerage firms is the "wrap account," which offers clients both investment advice and securities trading for an annual fee based on the amount of assets under management.
Investment advisers who have clients in Maryland must register with the state and pass an examination that tests a basic level of knowledge about investment advisory services. The law requires them to disclose any past disciplinary actions against them and gives them fiduciary responsibility for their clients, according to Ms. Lubin.
The company came forward only after it was accused of similar violations in Virginia, said Ms. Lubin. PaineWebber ended up paying that state $300,000 in fines last year, also for failing to register brokers as investment advisers.
"The firms have enhanced their systems to help prevent this type of situation in the future," PaineWebber said. "All the alleged violations involve registration requirements and are technical in nature. These registration issues do not affect our customers in any way."