NationsBank Corp. just can't seem to shake the troubles in its brokerage business.
Last Friday, the Texas Securities Board scheduled a July 15 hearing to decide whether to revoke the broker-dealer registration of NationsSecurities. The state probe centers on allegations that the brokerage misled investors about the risks associated with two closed-end mutual funds.
Texas is the latest in a string of states to look into such charges - but this time more is at stake for NationsBank. Its Texas brokerage, with 46 offices and 79 brokers, is the largest in a network that spans nine states and the District of Columbia.
NationsBank officials said they will fight the charges, as they have already done with some success in other states.
"We believe that there is no justification for this, and we'll vigorously defend ourselves against the allegations in the notice," said spokesman Ellison Clary. "We want to continue to operate in Texas."
A consumer advocate called the latest allegations troubling. "Bankers say that the problems of risk disclosure are being improved upon," said Robert Schneider, senior counsel with the Texas office of Consumers Union. "But what we see with NationsBank is that these problems, at least in Texas, are continuing."
The securities board is looking into allegations that between September 1993 and December 1994, NationsSecurities brokers failed to properly disclose the risk of investing in two proprietary closed-end funds. Such investments - cousins of the open-end mutual funds more commonly sold by banks and brokerages - have a fixed number of shares, and are traded like stocks.
The board also said that some NationsSecurities offices were not properly registered and that brokers were not adequately supervised.
Mr. Clary of NationsBank said he was "surprised and disappointed" by the board's action because the bank has already reached a state-approved settlement with some customers who had invested in the funds.
NationsBank customers who said they have been following the developments in local press reports offered up mixed reactions in interviews Tuesday.
"If I was that person that invested, I would be ticked off," said a customer at a Dallas branch, who declined to give his name. "I will probably continue to bank there, but I wouldn't invest that kind of lump sum in mutual funds there."
But Dilip Shah, who owns the Elm Street Market next to one of NationsBank's downtown branches, was more sanguine. "My main dealing is with business checks, and with that, they have been very good to me," he said.
James C. Allen in Dallas and John Kimelman in New York contributed to this report.
