on Thursday said it has charged A.B. Watley Direct Inc.
and its two former brokers with facilitating late trading and improper market timing of mutual funds on behalf of hedge fund customers.
The regulator also charged the New York-based firm's president, Robert Malin
and executive vice president, Linus Nwaigwe
, with supervisory lapses.
and Kenneth Ng
were brokers registered with ABW Direct and A.B. Watley Inc.
, an affiliated entity that was formerly a broker-dealer but was expelled by NASD in 2004 for failing to pay fines imposed in prior disciplinary actions. ABW Direct and ABW Inc. are subsidiaries of A.B. Watley Group Inc.
In its investigation, NASD found that Conway and and his assistant Ng facilitated late trading from July 2002 to September 2003. The two, according to the regulator, used a computerized trading platform to enter orders on behalf of hedge fund clients for at least an hour after the 4:00 p.m. market close without observing the forward pricing requirements.
ABW Direct and ABW Inc. did not maintain required books and records for mutual fund transactions, the complaint further alleged.
During the same period, Conway and Ng also helped their customers engage in deceptive market timing, NASD said. The regulator alleged that in at least 405 instances, Conway and Ng submitted transactions through accounts at ABW Direct and ABW Inc. where they either knew or should have known that the transactions violated restrictions set by funds on market timing.
"Market timing in violation of a mutual fund's limitations and late trading of fund shares are both unethical and harmful to fund shareholders," said James Shorris
, executive vice president and head of enforcement at NASD, in a statement. "Firms cannot enrich a few favored customers at the expense of a fund's long-term shareholders."
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