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To: Dealer who wrote (60530)	1/13/2004 7:13:29 PM
From: Sully-	Respond to of 65232

SEC Probe Targets Brokerages for Harming Customers Tue January 13, 2004 06:22 PM ET By Herbert Lash NEW YORK (Reuters) - A decades-old business practice between brokers and mutual fund companies has come under regulatory scrutiny because regulators say it harmed the party it was designed to help most of all: the customer. The U.S. Securities and Exchange Commission said on Tuesday it found the sale of mutual funds was abused at 13 brokerages targeted in a probe. The unnamed firms took cash payments in return for favoring the sale of certain funds, in violation of SEC and National Association of Securities Dealers rules. At the heart of the expanding probe into conflicts of interest between mutual fund companies and brokerages is whether customers have been fully informed of the fees brokers receive for offering a "preferred list" of funds. The "revenue sharing" deals were a boon to brokerages as they reduced the cost of educating brokers, narrowed the field of funds that brokers needed to know about and made it easy to present customers with a manageable list of fund choices. Mutual fund companies liked the arrangement as it gave them better shelf space in a crowded playing field. In a similar case, Morgan Stanley agreed to a $50 million settlement in November when the SEC and NASD said the brokerage had failed to properly inform investors about compensation it received for selling certain funds. Though mutual fund companies have disclosed that compensation fees might be involved in sales of their funds, it wasn't entirely clear in their prospectuses, industry analysts said. "It vaguely says something about they (mutual fund companies) may give someone extra money for distribution, but you read it 10 times and you're not quite sure if they do it or not," said Matt Snowling, an analyst at Friedman, Billings, Ramsey & Co., who covers asset management companies. The purchase of shelf space by mutual fund companies is a common industry practice and has not drawn harsh scrutiny. A Wall Street Journal article last week said Edward Jones, a major mutual fund distributor, receives hefty payments -- $100 million a year according to one estimate -- from mutual fund companies to push their funds with customers. Spokeswoman Katie Schonaerts defended the practice in an e-mail, saying Edward Jones has maintained "preferred vendors" for decades, long before revenue-sharing agreements existed. Edward D. "Ted" Jones Jr., son of the company's founder, conceived the idea to help vendors and customers, she said. "When revenue sharing became commonplace in the mid-1990s, we believed that participation was appropriate because revenue sharing came from the fees already paid to the fund companies and did not adversely impact investors," Schonaerts said. The SEC said in the Morgan Stanley case that brokerages must ensure that the information they provide to investors is complete and accurate, and that their mutual fund recommendations be made for the benefit of their customers, not themselves. But lawyers close to the industry say the SEC failed to address revenue sharing when its opinion was requested in a lawsuit involving Quick & Reilly Inc. several years ago, and now has changed the rules. "I find it very disturbing that the SEC, having failed to specify the kind of disclosure that they think brokers need to make, now accuse them of fraud for not making that disclosure," said Richard Phillips, a partner at Kirkpatrick & Lockhart LLP. "At the end of the day, what we're witnessing is a change in regulatory standards, an increased emphasis on point-of-sale disclosure and greater transparency about where the money is changing hands," said Paul Stevens, a partner at Dechert LLP. reuters.com

To: Dealer who wrote (60530)	1/14/2004 9:17:20 PM
From: Dealer	Read Replies (1) \| Respond to of 65232

17:34 After Hours Activity IBM advances 1.20 pts in after hours on report co has moved up earnings report to tomorrow morning... Excluding the ONE (+4.50) advance on takeover report and a few smaller-cap names lifting on positive guidance(IPAR +7%, DECK +4.9%), the after hours action is mostly to the downside: QQQs off 0.7%, led lower by YHOO -4% and INTC -2.5%. Negative reactions to these earnings reports creating fallout in Semi Equips AMAT -2.6%, NVLS and KLAC -1.8% and Internets CNET -3%, AMZN -1.5% and EBAY -1%... Also not experiencing a favorable reaction to earnings are APPL -5% and QLGC -6.5%.