NASD has, for the first time, suspended the authority of a regulated firm to open mutual fund accounts for new clients - imposing the 30-day penalty on National Securities Corp. of Seattle in connection with its alleged tolerance of market timing in mutual funds.
National Securities also was fined $300,000 Thursday and ordered to pay almost $300,000 in restitution to the funds affected by the deceptive market timing. The company was ordered to revise its supervisory systems to correct supervisory and e-mail retention deficiencies.
And its president, Michael A. Bresner, was fined $25,000 and given a one-month supervisory suspension. David M. Williams, the company's former chief operating officer, also was fined $25,000 and got a four-month supervisory suspension.
"This is an example of a firm whose management totally ignored repeated red flags that its brokers were facilitating deceptive and improper market timing in mutual funds by hedge fund clients," said NASD vice chairman Mary L. Schapiro.
NASD, the securities industry's self-regulatory body, said it found that from January 2001 through August 2002 National Securities helped four hedge fund clients do at least 1,000 trades in 13 mutual funds, totaling nearly $400 million, after it had gotten notices that the fund companies considered the timing strategy of the clients to be disruptive and contrary to the interests of long-term investors. The hedge funds reaped profits of about $300,000 at the expense of long-term investors, NASD said.
In settling these allegations, National Securities, Mr. Bresner, and Mr. Williams neither admitted nor denied them.
