Edward Jones Case to Be Tried in State Court

A federal judge has ruled in favor of state Atty. Gen. Bill Lockyer in his fraud suit against brokerage Edward Jones & Co., ordering that the case be tried in state, rather than federal, court.

U.S. District Judge Garland E. Burrell Jr. in Sacramento on Friday remanded Lockyer’s case back to state Superior Court in the capital, where the suit was filed in December. Jones had sought to have the case shifted to federal court.

In the suit, Lockyer alleged that the brokerage defrauded investors by failing to properly disclose so-called revenue-sharing arrangements it has had with a handful of favored mutual fund firms. The arrangements meant that Jones brokers were prodded to sell funds of certain firms even if those funds weren’t necessarily the best choices for customers, Lockyer alleged.

The case was the first Lockyer had filed against a brokerage under a state anti-fraud law that took effect last year.

St. Louis-based Jones, one of the nation’s largest brokerages, has denied wrongdoing. It sought to move the case to federal court on the grounds that its chief regulator, the Securities and Exchange Commission, is a federal agency.

Judge Burrell said the brokerage’s arguments “fail to justify” a federal venue for the case.

A spokesman for Jones said Monday that “the issue of venue is a procedural matter that doesn’t address the merits of the case.”

A spokesman for Lockyer said, “We consider this a positive development for our case.”

In March, Lockyer also sued Capital Research & Management, the parent of Los Angeles-based American Funds, over revenue-sharing disclosure issues. In a counter suit, American Funds, the nation’s third-largest mutual fund company, asserted that its disclosures have been proper under federal law and that Lockyer was encroaching on federal regulatory turf.

Both of those suits are pending in Los Angeles County Superior Court.

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-- Tom Petruno