Writes Comptroller Citing Reports of Improper Practices in Brokerage Unit
House Banking Committee Chairman Henry B. Gonzalez has turned up the heat on NationsBank Corp. over allegations of improper practices involving its brokerage affiliate.
In a letter to Comptroller of the Currency Eugene A. Ludwig, the Texas Democrat said he was "troubled" by reports that, until January, the bank gave branch employees a share of brokers' commissions for referrals that resulted in sales.
He also expressed concern about reports that customers were encouraged to transfer money from insured deposits to uninsured investments without adequate disclosure of the risks. These claims have been made in suits by a handful of brokers and customers that are currently pending.
"Misleading sales practices and commission-sharing arrangements between brokers and tellers... raise the potential for customer confusion," Rep. Gonzalez wrote. "They also provide inappropriate incentives for tellers to steer clients into what may be unsuitable investments."
The arrangements would violate banking guidelines, National Association of Securities Dealers rules, and the conditions imposed by the Comptroller's office on NationsBank when it formed the brokerage joint venture with Dean Witter, Discover & Co., Rep. Gonzalez said.
Rep. Gonzalez has asked the comptroller for a status report on the agency's investigation into the allegations. The OCC declined to comment on the letter. But spokeswoman Lee Cross said the agency is planning to write back "as soon as possible."
NationsBank has repeatedly said its practices are proper, but has not addressed any of the specific complaints in the suits. The bank did not return a call seeking comment on the letter. Many in the industry had expected Rep. Gonzalez to make an inquiry about the complaints, which have been widely reported.
Still, they added, the letter raises the prominence of the dispute. "It turns up the heat because it demonstrates that Congress is watching," said Charles M. Horn, an attorney in Washington, D.C., with Mayer, Brown & Plait.
"This type of inquiry illustrates the symbiotic relationship between private litigation and congressional and regulatory attention," added Donald Smith, a law partner at Kirkpatrick & Lockhart.
Several congressmen, including Rep. Gonzalez, have expressed anxiety in the past year about the growth in the number of banks selling investments to consumers. Their concern is that bank customers will fall prey to confusion between insured deposits and uninsured investments.
