August 16, 2017 Comments (0) Blog, Securities Fraud

MA Commonwealth Secretary Galvin Investigates broker ‘kickbacks’

kickbacks
(Last Updated On: August 16, 2017)

New York Times op-ed piece sparks investigation into broker kickbacks

According to reports on Tuesday, Massachusetts securities regulator, William Galvin, launched an investigation into charges that brokers were receiving kickbacks for routing sales orders to certain stock exchanges.

The investigation was sparked by an oped piece in the New York Times authored by Jonathan Macey, a Yale law professor, and David Swensen, Yale’s chief investment officer. The piece claimed that brokers seeking payment for order flows — instead of choosing the exchange with the best prices for their clients — are taking money out of their clients’ pockets.

According to Macey and Swinton, “Brokers routinely take kickbacks, euphemistically referred to as ‘rebates,’ for routing orders to a particular exchange. As a result, the brokers produce worse outcomes for their institutional investor clients — and therefore, for individual pension beneficiaries, mutual fund investors and insurance policy holders — and ill-gotten gains for the brokers.”

Mr. Galvin is investigating these claims and has reportedly sent inquiry letters to Charles Schwab & Co. Inc., Scottrade Inc., TD Ameritrade Inc., Fidelity Brokerage Services, E*Trade Securities, Edward D. Jones & Co. and Morgan Stanley & Co.

According to Mr. Galvin’s statement, “Institutional brokers are responsible for placing millions of dollars of average investors’ life savings in their employers’ pension plans, as well as in mutual funds and variable annuities. If financial rebates or kickbacks create a conflict that results in less than the best deal for the investors, this practice must stop. It is the obligation of regulators to have reasonable assurance that the customer is not being harmed, and that is the reason I instructed my Securities Division to begin this investigation.”

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