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First Union, Barnett added to fund inquiry

Two more banking companies are under investigation for possible deception in bank mutual-fund sales, Florida regulators said Monday.

NationsBank Corp. came under investigation by the state Comptroller's Office in August following allegations by former customers and employees from the Tampa Bay area that the bank improperly encouraged bank customers to transfer money to mutual funds from certificates of deposit.

Now, Barnett Banks Inc. and First Union Corp. are under investigation as well.

Barnett and First Union are being investigated for whether they misled customers about the risks of investing in mutual funds, said Donald Saxon, the comptroller's securities chief. The agency also is examining whether the banks adequately disclosed their brokers' fees and considered the suitability of mutual funds for individual investors, he said.

"The comptroller is exceedingly concerned that no Floridians buy products without fully understanding what they're purchasing," said Terence McElroy, spokesman for Comptroller Gerald Lewis.

The Comptroller's Office has received 50 to 75 complaints of alleged banking deception from Florida mutual-fund investors, many of them elderly, McElroy said. The agency expanded its NationsBank investigation after receiving complaints about Barnett and First Union, he said.

Barnett, First Union and NationsBank are the three biggest banking companies in Florida.

Barnett, which is based in Jacksonville, and First Union, which is based in Charlotte, N.C., declined to comment on the state investigation. NationsBank, also based in Charlotte, previously has said its Florida brokerage operations comply with banking rules and standard practices.

The Comptroller's Office, which regulates state-chartered financial institutions, can issue cease-and-desist orders and direct the removal of offending bank officers and directors.

Three former NationsBank brokers and a former First Union broker, all from the Tampa Bay area, filed arbitration claims against their respective former employers earlier this year. The claims allege that the brokers were forced out of their jobs after objecting to deceptive mutual-fund sales.

Another 60 NationsBank brokers from Florida and seven other states also have filed for arbitration, contending their potential earnings were hurt by NationsBank's improper sales practices.

Two NationsBank investors from St. Petersburg also have filed a lawsuit against NationsBank.

McElroy said the agency is drafting disclosure guidelines for banks that sell securities. The guidelines, which are expected to be ready in about a month, seek to be more explicit than those issued by the National Association of Securities Dealers, he said.

_ Staff writer Robert Keefe contributed to this report.

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