SACRAMENTO -- Franklin Templeton Investments agreed to pay $18 million to settle complaints that the mutual fund distributor failed to tell investors it paid brokers who recommended its funds, Attorney General Bill Lockyer said yesterday.
The San Mateo-based mutual fund agreed to refund $14 million of that amount to investors who weren't told their brokers were getting commissions. The company admitted no wrongdoing.
Lockyer launched a probe into three mutual fund companies in January, concerned about practices such as direct brokerage, where mutual funds pay commissions to brokers for sales, and "shelf space" arrangements, where the funds pay brokers for spots on lists of recommended buys. The Securities and Exchange Commission banned direct brokerage in August.
An independent consultant will determine how to allocate the $14 million to investors. The company will also pay a $2 million civil penalty and reimburse the attorney general's office $2 million. And Franklin Templeton will fully inform investors about any payments it makes for "shelf space."
"Most mutual fund investors are families with modest incomes," Lockyer said. "They work hard for their money, and when they invest it they deserve to be told the whole truth."