NEW YORK - The latest enforcement action against alleged improper mutual fund trading has affected a variety of broker-dealers, cutting across the industry's business models.
NASD of Washington last Monday hit a trio of firms, each with distinct business models, with significant fines for brokers' market timing of mutual funds.
ING Fund Distributor LLC of Scottsdale, Ariz., was fined $1.5 million and ordered to pay $1.4 million in restitution to the mutual funds. That is the largest fine NASD has imposed in a market-timing case.
"By permitting market-timing activities contrary to the firm's procedures and the funds' prospectuses, [ING Fund Distributor] and [supervisor William L. Sessions] violated NASD's rule requiring adherence to just and equitable principles of trade and high standards of commercial honor," NASD said. He was fined $25,000 and suspended from being a supervisor for 30 days.
NASD also fined Janney Montgomery Scott LLC of Philadelphia, a full-service employee broker-dealer, $1.2 million for permitting improper market timing and other violations. NASD ordered restitution of nearly $1 million to the mutual funds affected by the trades.
A former Brooklyn, N.Y., branch manager, Kenneth Rosato, was suspended one year and fined $370,000, including disgorging $185,000 in commissions.
NASD also fined an independent broker-dealer, First Allied Securities Inc. of San Diego, $408,000 for improper market-timing transactions and ordered the firm to reimburse the funds $326,500.
Gary Ferraro, a former First Allied rep, was suspended for nine months and fined $136,700. Mr. Ferraro, first at one broker-dealer and then at First Allied, from November 2001 to July 2003, negotiated deals between two mutual fund investment advisers and hedge funds for two hedge fund customers to execute more mutual fund trades than allowed in the prospectuses, according to NASD.
"This all occurred before we bought the firm," said Joel Marks, vice chairman and chief operating officer of Advanced Equities Financial Corp. of Chicago. Advanced Equities acquired First Allied in February.
Mr. Marks said he was aware of NASD's investigation at the time of the deal. The improper transactions were limited to six trades above the amount allowed in the mutual fund's prospectus, he said. "To us, it was almost a non-event," Mr. Marks said.