The state Bureau of Securities Regulation is seeking at least $17.5 million in penalties from American Express Company, alleging its American Express Financial Advisors unit illegally rewarded financial advisers who steered clients toward underperforming in-house mutual funds.

The bureau said in an administrative complaint that the American Express unit violated state and federal securities laws requiring advisers to act in clients’ best interests and to disclose conflicts of interest that could taint their recommendations. American Express practices between 1999 and 2003 were the subject of the investigation.

American Express Financial Advisers has about 30 offices in New Hampshire.

The bureau said that American Express Financial Advisors awarded bigger bonuses for selling the proprietary funds. It also said that e-mails collected by the state show supervisors praising advisers who sold American Express funds and chiding those who didn’t.

In one sales contest, American Express offered advisers free one-year leases on Mercedes-Benzes as prizes for promoting a new in-house fund, according to the bureau.

“American Express had a pervasive sales culture that was established and managed with one thing in mind — to push American Express products and other products that in many cases benefited American Express at the expense of its clients,” Mark Connolly, the bureau’s director, told The Wall Street Journal.

Connolly said investors were harmed because over the five years ended Jan. 31, fewer than 25 percent of American Express funds beat the average investment performance of comparable funds, according to Chicago researcher Morningstar Inc.

The bureau called the company’s disclosures of the incentives “inadequate, obscure and misleading.” It also said the firm “failed to reveal the extensive and insidious nature” of the conflicts and “shifted the burden of due diligence onto the investor.”

American Express Financial Advisers Inc. spokesman David Kanihan said the company was cooperating with regulators. He also disputed some charges.

“We have been cooperating with the state of New Hampshire on this matter and we will continue to work with the state to help bring this matter to a resolution,” said Kanihan.

Earlier this month, American Express – which previously disclosed it was under investigation by the Securities and Exchange Commission — said it planned to spin off Minneapolis-based American Express Financial Advisors, which analysts value at about $10 billion.

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