NASD Fines Broker-Dealer Jefferson for Failing to Stop Market Timers

According to a release from the private regulator, Jefferson, although claiming to have a system that would ensure investors could not exceed a certain transfer-level per month, did not check to make sure the system was functioning. The company was also forced to pay $238,697 in restitution to the affected funds, which equals the profits made by certain investors when, in 2003, they exceeded transfer limits and market-timed the funds. Overall, 292 Ensemble series VUL policyholders were allowed to exceed the transfer limit.

Of the restitution amount, Jefferson already paid over $119,000 to one of its portfolios; the remainder will be paid to other funds affected by the market timing, according to the NASD.

NASD also fined an affiliate of Jefferson – Jefferson Pilot Securities Corp. – for failing to retain all e-mail communications with its registered person. The cost to the company: $125,000. The firm, against regulations, had been purging e-mails from its system every 60 days.

This is the first time that NASD has fined a company for market timing in VUL sub-accounts, according to the regulator.