New Hampshire securities regulators have accused the personal finance advisory unit of American Express Co. of defrauding investors by giving incentives to its advisers to push select mutual funds over other funds with better performance.
The New Hampshire Bureau of Securities Regulation, in its complaint filed on Thursday, said it is seeking a fine and restitution of $17.5 million.
"The sales force for the New Hampshire branches of the (American Express Financial Advisors unit) were heavily incentivized to sell proprietary and specially selected mutual fund investment products over other products available for sale," the complaint stated.
The regulators said that up until 2002 the unit, known as AEFA, failed to disclose to customers that its financial advisers were paid higher compensation for selling proprietary products versus outside products.
The complaint says that the failure to disclose the arrangements and the sales practices "operated as a fraud or deceit upon the customers."
American Express could not immediately be reached for comment.
Earlier this month, American Express said it would spin off the AEFA unit. AEFA has more than 12,000 advisers selling financial advice, funds and insurance to 2.5 million customers.