07/21/97 WHERE BROKERS PARK YOUR CASH

WHERE BROKERS PARK YOUR CASH

TWO WALL STREET FIRMS have sweetheart deals with money-market funds that work against the firms' clients, alleges a class action filed in Manhattan federal court. At issue: a common practice of broker-dealers called ''automatic sweeps,'' where spare cash in clients' accounts--from stock sales or dividends--is swept into money funds to earn interest.
In particular, the suit charges that Bear Stearns and the Pershing Div. of Donaldson, Lufkin & Jenrette get payments (of half a percentage point or more of a sweep account) from Alliance Capital to shunt the cash into laggard Alliance funds. Says plaintiffs' attorney Stuart Wechsler, a partner in Wechsler Harwood Halebian & Feffer: ''This is a kickback, plain and simple.''
The suit claims that Bear and Pershing don't adequately disclose what's going on--something that might prompt their clients to demand funds with better returns. Indeed, Alliance Capital Reserves, which Wechsler paints as a typical Alliance fund Bear uses, ranks 399 among the 476 taxable money funds tracked by IBC Financial Data; it paid 1.29 points less in interest than the No.1 fund over the past 12 months.
Bear and Pershing, who deny getting kickbacks, say the payments are standard expense reimbursements to broker-dealers who bring in business. Moreover, Bear and Pershing clients receive a prospectus from the money funds disclosing this, defendants say. Alliance won't comment. If the suit survives a move to dismiss it, the court would mull certifying a class of alleged victims.
EDITED BY LARRY LIGHT