American Funds says 'no deal' to settlement in broker case

Once again, the L.A.-based American Funds mutual fund group is refusing to settle federal regulators’ three-year-old case against the company involving revenue-sharing deals with brokerages.

The giant firm now has appealed the case to the Securities and Exchange Commission, a company spokesman confirmed today.

The Financial Industry Regulatory Authority (FINRA), the securities industry's self-policing agency (and successor to the old NASD), in 2005 accused American Funds of making nearly $100 million in improper payments to about 50 brokerages from 2001-2003 as an incentive to get them to pitch its funds to investors.

Dozens of other fund companies have faced similar "pay-to-play" cases in recent years, and nearly all of them have done what financial firms normally do when their watchdogs allege wrongdoing: quickly settle by paying a fine, without conceding the charges.

But privately held American Funds, the biggest U.S. stock and bond fund manager (assets: $1.1 trillion), has refused to cave. After two separate FINRA panels rejected the firm’s appeal -- the latest rejection came April 30 -- the company had one venue left: the SEC. So on they go, to Washington. This fight could keep lawyers on both sides busy into 2009.

I explained in this column why American Funds just won’t let this matter pass, even though the rest of the fund industry has moved on.