SEC cites 9 brokerages for improper practices

May 20, 1994|By New York Times News Service

WASHINGTON -- Securities and Exchange Commission officials said yesterday that during a two-year investigation of nine big brokerage firms, they found an unexpectedly large number of cases of improper sales practices and had referred them to the agency's enforcement division for further investigation and possible punitive action.

In releasing a report on the investigation, SEC Chairman Arthur Levitt Jr. also outlined plans for a crackdown on stock and bond brokers who generate extra commissions by pushing clients into inappropriate investments.

As part of the effort, Mr. Levitt announced the creation of a panel to review compensation in the industry. Among its members will be Raymond A. Mason, chairman and chief executive of Legg Mason Inc. of Baltimore.

According to the report, the SEC examined 161 branch offices that had received numerous customer complaints in preceding years or that employed at least one broker who had received many complaints or been the subject of arbitration or litigation.

The agency found sales practice problems at about 40 branch offices that required referral to the agency's enforcement division.

The nine firms, which all have extensive retail broker networks, are PaineWebber, Prudential Securities, Merrill Lynch, A. G. Edwards, Dean Witter Reynolds, Kemper Securities, Kidder Peabody and two firms that have merged since the study began two years ago, Shearson Lehman Bros. and Smith Barney.

To address the problems uncovered by the investigation, Mr. Levitt called for regulatory and legislative changes in a speech yesterday to the annual conference of the National Association of Securities Dealers.

The changes are aimed at barring dishonest brokers from the industry, and at forcing brokerage supervisors to pay more attention to brokers' sales practices than to their levels of commissions.

Regarding compensation, Mr. Levitt said that bonuses for joining new firms have become so large that a temptation has emerged for brokers to take advantage of their customers at one firm and then move on to another before a bad personal reputation takes hold.

Joining Mr. Mason on the review panel will be Chairman Dan Tully, who is chairman and chief executive of Merrill Lynch; Warren E. Buffett, chairman and chief executive of Berkshire Hathaway; John F. Welch Jr., chairman and chief executive of General Electric Co.; and Sam Hayes, a Harvard Business School professor.

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