Investors File Suit Against A.G. Edwards - April, 2005


ST. LOUIS (AP)--A lawsuit filed on behalf of investors accuses brokerage company A.G. Edwards & Sons Inc. of taking millions of dollars in "secret kickbacks" over the past five years to push certain mutual funds to clients.

The lawsuit claims that the alleged payments, known as revenue sharing, created a conflict of interest between the St. Louis financial services holding company and its customers.

Revenue-sharing fees are legal, but the arrangements must be properly disclosed.

A.G. Edwards has denied having such a "preferred" list of mutual funds it aggressively promotes to investors, as the lawsuit, which was filed Tuesday in St. Louis city court, alleges.

The lawsuit, which seeks class-action status, identifies as its lead plaintiffs an Arizona woman and two Pennsylvanians, all with accounts with the company. It does not specify the amount of the supposed kickbacks.

"The complaint speaks for itself," attorney Jules Brody of Stull, Stull & Brody of New York, one of three law firms representing the plaintiffs, said Wednesday. He declined to elaborate.

An A.G. Edwards spokeswoman said Wednesday the company had not seen the lawsuit and could not discuss it.

A.G. Edwards Inc.'s (AGE) shares fell 54 cents, or 1.3%, to $41.78 in afternoon trading Wednesday on the New York Stock Exchange. The shares have traded in a 52-week range of $31.09 to $45.70.

In March, the Securities and Exchange Commission fined Citigroup Inc. (C) $20 million and Marsh & McLennan Cos. (MMC) $40 million to resolve allegations that they concealed from customers the fact that brokers were paid to recommend certain mutual funds, creating a conflict of interest.

In a related move, the National Association of Securities Dealers disclosed that Citigroup, American Express Financial Advisors Inc. and JPMorgan Chase & Co. (JPM) had agreed to pay a total $21.25 million for alleged violations in sales of mutual funds.

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