Amsouth Bancorp's problems with its brokerage unit are far from over despite a settlement with the National Association of Securities Dealers announced last Friday.

Amsouth Investment Services Inc. was censured by the NASD and agreed to pay a $150,000 fine to settle allegations of violations involving record keeping, mutual fund sales practices, and commission splitting between brokerage and bank employees.

Although Amsouth neither admitted nor denied wrongdoing, observers said the regulatory action could add fuel to a class action filed against the bank in April, alleging that its brokers misled customers about investment risk.

And Amsouth's settlement will do nothing to blunt an ongoing investigation by the Alabama Securities Commission and a separate NASD probe of two brokers who have since left Birmingham, Ala.-based Amsouth. James Underwood, senior vice president for media relations, said the company is cooperating in both investigations.

"This is one little piece of a much larger puzzle," said F. Ronald O'Keefe, law partner at Hahn Park & Loeser, Cleveland.

When this many people are poring over regulatory issues,"there starts to be a microscope effect," Mr. O'Keefe said. "The more you look, the more wrong things you find that were going on."

In the regulatory action announced last week, the NASD

"It's a significant penalty for what we consider to be serious violations," said Andrew Favret, regional counsel for NASD Regulation Inc.'s district five office in New Orleans.

Mr. Underwood downplayed the allegations, saying that the incidents in question were mainly paperwork problems that occurred before 1993 when bank-brokerage rules were unclear.

"We wanted to get this behind us," Mr. Underwood said. By settling instead of fighting, he said, the bank saved the costs of a protracted battle and can focus instead on its investment products business.

Meanwhile, Alabama authorities, who aided the NASD's investigation of Amsouth, are continuing their own examination of the bank's brokerage.

"We're still gathering facts and evaluating them," said Carl R. Salle, senior special agent with the Alabama Securities Commission. Mr. Salle declined to predict when the investigation, which began last fall, would be concluded or what enforcement action might result.

In addition, Amsouth agreed to bring in an independent auditor to review its brokerage compliance and supervisory practices. Amsouth will select the outside firm within 30 days and undergo the compliance audit within six months, Mr. Underwood said.

Compensation of bank employees for referrals to registered brokers, a continuing hot button with regulators and bankers, was a key issue in the Amsouth settlement.

"In this case, the fees were actually being approved by the broker- dealer and were deducted from what the registered representative was earning," the NASD's Mr. Favret said.

Other bank brokers who have engaged in similar practices will wonder whether they also could be penalized.

"I'm sure other banks have done this, but they haven't been subjected to suits or in-depth examination by regulators," Mr. O'Keefe said. "A lot of banks probably have this skeleton in their closets."

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