Richmond, Virginia-based broker dealer Davenport
has been ordered by the NASD
to pay $450,000 in fines and $288,000 in restitution to the affected funds for aiding abusive trading practices.
The brokers at Davenport allegedly helped two hedge fund clients market time and frequently trade variable annuities and mutual funds during the period between April 2002 to September 2003. The broker dealer neither admitted nor denied the allegations.
Even after the brokers were notified by insurance and fund companies that their clients' activities were disruptive, Davenport brokers continued to sell the products to their clients.
The allegations of wrongdoing extend to cover up: Davenport allegedly swapped names on hedge fund accounts to avoid detection by insurance and fund companies.
The NASD stated that the broker-dealer, despite converting to trading system in July 2002 that accepting fund trades until 4:30pm, did not take measures to prevent or monitor late trade orders.
Davenport also received at least 10 letters from insurance companies about excessive trading in their variable annuities sub-accounts, the NASD reported.
"The investigation of individual brokers and other entities involved in this market timing activity is continuing," stated the NASD.
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