In addition, according to the news release , the firm must pay nearly $950,000 in restitution to the fund. The settlement also resolves charges of email retention failures and supervisory breaches.
Prior to June 2003, certain registered representatives at Diversified were aware that two groups of accounts had been opened for the purpose of market timing and had entered into agreements with Diversified Investment Advisors, Inc., the funds’ investment advisor and Diversified’s parent company, the release said. The agreements permitted the accounts to market time, subject to certain restrictions. While these market timing agreements were in place, the fund’s prospectus was amended to discourage large volume exchange market timing. NASD found that despite new prospectus restrictions, Diversified permitted the two groups of accounts to continue their market timing activity.
These accounts engaged in approximately 400 market
timing round-trip exchanges, purchasing and selling shares
valued at over $160 million from July through October,
according to the release.
NASD also found that while the prospectus
limitations were not applied to
the two groups of accounts with market timing
agreements, approximately 80 letters of warning were sent
by a Diversified registered representative to other
identified market timers, including investors
who purchased and sold as little as $5,000 per trade.
In settling with NASD, Diversified neither admitted nor denied the allegations, but consented to the entry of NASD’s findings.