Seattle, Washington-based National Securities Corp was fined $300,000 andordered to pay almost $300,000 in restitution to the funds that wereaffected by the deceptive market timing. In addition, National was orderedto revise its supervisory systems to correct supervisory and email retentiondeficiencies.
NASD said that from January 2001 through August 2002, National helped fourhedge fund clients engage in market-timing practices at 13mutual funds that had restrictions and prohibitions against these practices. The hedge fund clients transacted at least 1,000 mutual fund trades, totaling nearly $400 million, after National had received notices that thefund companies considered the timing strategy of the clients to bedisruptive and contrary to the interests of long-term investors. Thesenotices were ignored as the hedge fund clients reaped profits ofapproximately $300,000 at the expense of long-term investors, according to NASD.
“This is an example of a firm whose management totally ignored repeated redflags that its brokers were facilitating deceptive and improper markettiming in mutual funds by hedge fund clients,” said NASD Vice Chairman MarySchapiro. “This failure, and the harm it caused to long term investors, combined with the failures of supervision warrant the extraordinary remedy of temporarily prohibiting the firm from opening new mutual fund accounts.”
In addition to the penalties levied against the firm, National’s president, Michael Bresner, was fined $25,000and received a one-month supervisory suspension for the firm’s supervisoryfailures. David Williams, the firm’s former chief operating officer,also was fined $25,000 and received a four-month supervisory suspension.
In settling these matters, National, Bresner and Williams neither admittednor denied the allegations or findings. The investigation of individualbrokers and others involved in the misconduct is continuing.