NationsBank Corp. agreed to pay $6.75-million in fines to settle regulators' charges that its securities brokers duped mainly elderly customers when marketing volatile investments.
Charlotte, N.C.-based NationsBank, which controls nearly a third of all deposits in Florida, admitted no wrongdoing in the settlement. But three of its employees, including a senior vice president who oversaw national sales of mutual funds at the time, were all fined, suspended and censured.
The settlement ends a four-year investigation involving the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the National Association of Securities Dealers. In December 1995, the bank paid $30-million to settle a related, class-action lawsuit by consumers who said they were duped into buying the securities they were told were federally insured.
The fines included a $4-million penalty to settle SEC allegations, a $2-million fine by NASD and a $750,000 fine by the OCC. Though a spokesman for NASD described the fines as "very significant," the payout is relatively minor for an operation like NationsBank, which made more than $3-billion last year.
The charges stem from a period between mid-1993 and early 1994 and involve NationsSecurities, the brokerage arm of the bank. At the time, NationsSecurities was a joint venture of NationsBank and Dean Witter Financial Services Group. At issue were two government bond funds containing risky derivatives that the securities unit was selling at the bank and, according to investigators, under the guise of being part of the bank.
SEC commissioner Arthur Levitt said NationsSecurities "blurred the difference between the bank and the broker dealer." In so doing, he said, the company confused the differences between some uninsured, higher-risk funds and bank products insured by the Federal Deposit Insurance Corp. that are sold by bank employees.
According to regulators, the bank encouraged brokers to "blend in" with the bank and told them they would be foolish to point out that they weren't part of the bank. They were advised to use the term "receipt" instead of "confirmation," and "account" instead of "closed-end fund" and avoid the terms "commission" and "broker," investigators said.
More than 11,000 customers nationwide invested more than $300-million in the two closed-end funds in question, giving NationsSecurities more than $11-million in earnings. More than 65 percent of the investors were older than 60.
One of the three employees sanctioned by regulators, a Houston branch office manager, has since left the company. The other two, who now work in other departments of the bank, are Daniel Wroble, then-national sales manager for mutual funds, and Charles King, NationsSecurities executive vice president of sales and deputy chief operating officer at the time.
Wroble was fined $100,000, censured, suspended for six months in all capacities and suspended another six months as a principal. King was fined $50,000, censured and suspended for three months in all capacities. The Houston manager, Jamie Atkinson, was fined $35,000, censured, suspended one month in all capacities and an additional three months as a principal.
NationsBank said it agreed to the settlements to put an old issue behind it.
The bank noted it has significantly strengthened its policies since 1994, stressing that its sales force practices "needs-based selling" and properly discloses the nature of securities both verbally and in writing.
Among other changes, NationsSecurities has beefed up supervision of its sales force, created a customer relations department to answer questions, strengthened its compliance department and revised its manuals and handbooks because of the "unique legal and compliance concerns" of a broker dealer affiliated with a bank.