Waddell facing NASD lawsuit

Waddell & Reed Financial Inc., a US money manager of about $33 billion, was accused in a suit by the National Association of Securities Dealers of failing to properly advise clients on variable annuity investments, costing customers as much as $47 million in fees and commissions.

Waddell advised 6,700 clients to switch their variable annuities from one insurer to another, forcing them to pay $10 million in so-called surrender fees, the NASD said in a statement. The NASD, the US brokerage industry's self-regulatory group, wants the asset manager to return $37 million in commissions it earned from the transactions and compensate affected customers. Waddell chairman Keith A. Tucker said the NASD's complaint contains "factual misrepresentations, factual omissions and half-truths."Waddell, of Overland Park, Kan., engaged in an "aggressive campaign" to switch the variable annuity contracts of its customers from those produced by United Investors Life Insurance Co. to those of Nationwide Insurance between January 2001 and August 2002, the complaint said. The NASD named Robert Hechler, Waddell's president at the time, and national sales manager Robert Williams, in the suit. Waddell, Hechler, and Williams may file a response and request a hearing before an NASD disciplinary panel.Separately, investment bank and brokerage A.G. Edwards Inc. said yesterday the Securities and Exchange Commission and the NASD have requested information about market timing and late-trading issues.

The Massachusetts Secretary of the Commonwealth and the Illinois Secretary of State also have issued subpoenas seeking information about mutual fund transactions, the company said. A company spokeswoman declined to comment beyond what was contained in the regulatory document.