Shares of the 12 financial firms caught up in a widening investigation of annuities sales in Massachusetts took a hit on Friday.
Late last week the state's Securities Division issued subpoenas to the firms, which include seven banking companies, for either "regulatory inquiries" or "complaints" about annuity sales practices, said Brian McNiff, a spokesman for the agency. He confirmed the subpoena list Friday.
On Thursday the New Hampshire Bureau of Securities proposed that American Express Financial Advisors Inc. of Minneapolis pay as much as $17.5 million in fines and restitution in an annuities-related case. The agency accuses the American Express Corp. unit of pushing proprietary and third-party mutual funds through directed brokerage arrangements with several fund companies in exchange for incentive compensation, and failing to act in the best interest of its clients in the state.
Shares of Bank of America Corp. and Wachovia Corp., both of Charlotte, and Sovereign Bancorp Inc. of Philadelphia were down almost 2% at midday Friday. They are the three largest banking companies on the Massachusetts regulator's list.
John Yiannacopoulos, a spokesman for B of A, said it was subpoenaed for activities of Quick & Reilly, the brokerage unit of FleetBoston Financial Corp.
B of A, which bought Fleet last April and folded Quick & Reilly into Banc of America Investment Services Inc., is "fully cooperating" with regulators, Mr. Yiannacopoulos said.
Wachovia got a subpoena for Wachovia Securities LLC. A spokesman declined to discuss the matter.
Dick Ehst, a spokesman for Sovereign, said Friday: "Obviously we're cooperating fully with the commonwealth. We applaud their efforts. We hope this is brought to a quick conclusion."
Banknorth Group Inc. of Portland, Maine, which received shareholder approval Friday to sell a majority stake of itself to Toronto-Dominion Bank, also received a Massachusetts subpoena.
There is "nothing to this subpoena - it's just gathering information on how we run our annuity business," said William J. Ryan, Banknorth's chief executive, in an interview Friday. "At this point we are just sending them information, and that's really fine. We don't expect any consequences to this at this time."
The other banking companies Massachusetts subpoenaed are all based in the state. They are the $1.8 billion-asset Century Bancorp Inc. of Medford, the $5 billion-asset Eastern Bank Corp. of Boston, and Medford Cooperative Bank. (The $2.1 billion-asset Brookline Bancorp Inc. bought Medford Cooperative last month.)
On the brokerage side, subpoenas went to Morgan Stanley, UBS AG, Merrill Lynch & Co., American Express, and Infinex Investments Inc. of Farmington, Conn., a unit of Infinex Financial Group.
The Massachusetts investigation is related to a Feb. 10 complaint by the state Securities Division against the brokerage unit of Citizens Financial Group Inc. The complaint alleged "dishonest and unethical practices" relating to variable annuities sales in one of Citizens' Cape Cod branches and said Citizens failed to supervise its brokerage division in general.
Citizens, based in Providence, R.I., is owned by Royal Bank of Scotland Group PLC.
Joe Schmitt, Brookline Bank's marketing director, said its officials do not know why it was subpoenaed. It does not sell variable annuities, "so we're not really sure why were involved in the inquiry," he said. "We don't have any third-party providers."
Others say the widening of the investigation has only begun.
Claire M. Percarpio of Janney Montgomery Scott LLC said early last week that an industrywide investigation into variable annuities sales practices was possible.
If the investigation were to widen, she said a Feb. 14 note, Wachovia would be on the front line. Annuity fees have constituted 1% of its revenues since it formed a securities venture in July 2003 with what is now Prudential Financial Inc., she wrote.
Last year Wachovia's annuities sales totaled $6.1 billion, about half from variable annuities, she wrote.
Ms. Percarpio reiterated her "hold" on Wachovia shares. She said that for several years the company has been building its legal reserves, which she estimated at about $100 million.
As for American Express, New Hampshire regulators said abuses had largely to do with financial plans the firm's financial advisers put together for customers.
They "were often merely a vehicle to promote and sell lackluster American Express mutual funds, when in fact … [American Express Financial Advisors] had a duty and responsibility to promote a wide variety of products available in the industry," said Jeffrey Spill, the deputy director of the state's Bureau of Securities, in a press release Friday.
The regulator proposed that the Amex unit pay for disgorgement of all fees related to revenue sharing and directed brokerage agreements and retain an independent consultant to determine the amount of restitution to be paid for investment-plan fees paid by clients. It also said Amex should pay $200,000 for the cost of the investigation.
In a Securities and Exchange Commission filing Friday, Amex acknowledged the New Hampshire action and said it intends to cooperate fully with regulators. Earlier this month it announced that it would spin off the adviser unit.
