The Securities and Exchange Commission has fined two former executives of Shawmut Investment Advisers Inc. for their role in Shawmut's failure to disclose the use of $1.8 million of advisory clients' brokerage commissions to pay for client referrals.
Michael J. Rothmeier, the unit's former president, agreed to a $15,000 penalty and not to work for an investment adviser for nine months. Donald C. Berry, its chief investment officer, agreed to a $5,000 penalty and a six-month suspension.
Beginning in mid-1993 Mr. Rothmeier and other Shawmut officers directed clients' trades to brokers who referred new client accounts to Shawmut, the SEC said. The practice itself is legal as long as the investment adviser seeks best execution of trades, a standard that includes factors such as best price.
But Shawmut did not disclose the practice to clients, said James B. Adelman, associate district administrator of the SEC. The commission said that in a disclosure document signed by Mr. Rothmeier Shawmut fraudulently represented to its clients that it had selected brokers to execute clients' transactions based on research the brokers provided.
Mr. Berry, who was responsible for overseeing Shawmut Advisers' compliance with broker selection procedures from September 1994 until December 1995, knew or had reason to know this, the SEC said.
The commission also slapped Craig Janutol, former owner and president of East West Institutional Services Inc. of Harper Woods, Mich., with a $5,000 penalty for failing to reasonably supervise a registered representative who benefited from the referrals.
He agreed to a six-month suspension from association with a broker or dealer and a subsequent 12-month suspension from serving in a supervisory role.
Reached at his home in West Hartford, Conn., Mr. Berry said he is retired and declined to discuss the case. Mr. Rothmeier of Wellesley, Mass., and Mr. Janutol of Grosse Pointe, Mich., could not be reached. None of the parties admitted or denied wrongdoing.
The settlement, announced Thursday, came seven months after Fleet Investment Advisors Inc., the registered investment adviser of Fleet Financial Group, agreed to pay $1.9 million to settle charges of fraud by a predecessor firm.
Fleet Financial bought Shawmut National Corp. of Hartford, Conn., in December 1995, and its investment unit was liable as Shawmut Investment's successor, the SEC said. Fleet Financial Group merged last fall with BankBoston Corp. and has been renamed FleetBoston Financial Corp.
Also in September, the SEC settled charges against two Shawmut traders, Karen Michalski and Christopher D. Sargent. Each agreed to pay $5,000 and be barred from association with an investment adviser. They can reapply after 15 months. The two did not admit or deny liability.
Mr. Adelman said the SEC has claims pending against the Shawmut salesman who made the referral arrangements, Mr. Berry's predecessor, the broker from East West, and East West itself. Mr. Adelman said he did not expect to settle these charges and that trial is scheduled Sept. 18 before an administrative law judge in Boston.