Fleet Investment Advisors Inc., the registered investment adviser of Fleet Financial Group, agreed Thursday to pay $1.9 million to settle charges of fraud by a predecessor firm.

The Securities and Exchange Commission said Shawmut Investment Advisers Inc. and eight individuals, including Michael J. Rothmeier, its former president, failed to disclose it used $1.8 million of its advisory clients' brokerage commissions to pay for client referrals. In addition, the SEC said Shawmut cost clients more than $63,000 by failing to seek the best execution of trades, a standard that includes factors such as best price.

Fleet, which bought Shawmut National Corp. of Hartford, Conn., in December 1995, is liable as Shawmut's successor, the SEC said.

"This sends a very strong message. Complete and full disclosure of brokerage practices is required under the federal securities laws," said Juan Marcel Marcelino, the district administrator of the SEC's Boston office.

However, Fleet played no part in the alleged fraud and is only being required to provide restitution to former Shawmut clients, he added.

The $106.9 billion-asset banking company said it has already repaid $1.7 million and will pay an additional $200,000. The Boston-based company, which voluntarily disclosed the alleged abuses to the SEC, neither admitted nor denied liability.

The SEC said that beginning in mid-1993 Mr. Rothmeier and other Shawmut officers directed clients' trades to brokers who referred new client accounts to Shawmut. Though the practice itself is legal, Shawmut did not disclose it to clients, which is illegal.

Mr. Rothmeier, who the SEC charged with "causing and aiding and abetting violations of the Investment Advisers Act," among other things, did not return a phone call to his home seeking comment.

The SEC also 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 with a right to reapply after 15 months. They also did not admit or deny liability.

Observers said the SEC's action sends a signal to other investment advisers to ensure their houses are in order.

"It is a very significant case because it follows a trend in recent years by the SEC to scrutinize and enforce investment advisory regulations," said Richard A. Levan, the former chief litigator in the SEC's Philadelphia district office, who is now a partner at Drinker Biddle & Reath.

It also sends a message to acquisitive companies to be extra careful during the due diligence process, said David B. Bayless, the former head of the SEC's San Francisco district office.

"You have to make sure you do your due diligence on the compliance side, not just the financial side," said Mr. Bayless, a partner with Morrison & Foerster in San Francisco.

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