Regulators are looking into a claim by a broker that a Nations-Bank brokerage affiliate has used improper sales tactics.
A former broker at the unit, David Cray, of Clearwater, Fla., filed suit this week against the Charlotte, N.C., holding company's lead bank, claiming he was wrongfully punished for disclosing the activities.
While legal disputes between brokers and brokerages are common, regulators said they had never before heard of a broker suing a bank-affiliated brokerage over sales tactics.
The Office of the Comptroller of the Currency and Florida's banking and finance and insurance departments are examining Mr. Cray's claims to see if rules were violated. "We're looking into this," said Dean DeBuck, a spokesman for the Comptroller's office. "We've asked the bank for a response to it."
Brokerage Responds
The complaints were about NationsSecurities, a joint venture that NationsBank and Dean Witter Financial Services formed in 1992 to sell brokerage services through NationsBank's retail branches.
A NationsBank spokeswoman said the bank hadn't seen the suit and couldn't comment on it.
But the brokerage affiliate has responded to a letter of complaint Mr. Cray has circulated. In a prepared statement it said: "We treat letters of this kind very seriously and have begun an internal examination."
It added that it believes its procedures "conform not only with the letter of securities and banking laws, but with the spirit of disclosure and fair dealing inherent in those laws."
In his suit in United States District Court in Tampa, Mr. Cray claimed that while employed in a St. Petersburg office of NationsSecurities, he witnessed a range of improper activities, including:
* Misleading of customers about the lack of federal deposit insurance for investments.
* Failure to maintain adequate separation between brokerage and bank activities in branches.
* Distribution of confidential information about bank customers to brokers.
* Failure to give customers important information about investments.
Incentives Criticized
Mr. Cray repeatedly criticized commissions that he claims encourage employees of Nations-Securities to push proprietary mutual funds over other products. He said these commissions were not disclosed to customers, as they should have been, and have resulted in brokers pushing proprietary funds that weren't appropriate for clients.
But Mr. Cray, who says he has been a broker since 1978, and started working for NationsBank in 1992, is also seeking compensation in excess of $50,000.
He claims that retaliation by NationsSecurities officials made it impossible for him to continue working for the brokerage.
Some Permissible Practices
While refusing to comment on Mr. Cray's case, regulators said some of the practices cited in the suit as improper were allowed by banking rules.
For example, lists of bank customers are often used by brokers for marketing purposes. The only restrictions are that customers must not be misled by marketers using the lists, and that customer lists cannot be distributed where prohibited by local privacy laws.
Mr. Alpert claimed NationsBank violated Florida privacy laws when it gave local brokers lists of customers with maturing certificates of deposit.
