NU Online News Service, June 1, 2004, 6:12 p.m. EDT, Washington — NASD Inc., Washington, has fined a broker-dealer $450,000 in what NASD calls its first case involving allegations of market timing abuses in variable annuities.[@@]
The broker-dealer, Davenport & Company L.L.C., Richmond, Va., is charged with facilitating deceptive market timing. In addition to the fine, Davenport was ordered to pay $288,000 in restitution to the affected funds.
"Deceptive market timing in variable annuity subaccounts can dilute the value of those shares, raise transaction costs and thus harm other annuity investors," says Mary Schapiro, vice chairman of NASD, in a statement.
"This is an improper and objectionable trading practice that rises to a higher level of abuse when the firm not only knows that its clients intend to deceive variable annuity companies, but is complicit in carrying out that deception," she says.
But, in a statement, Davenport & Company says that at the time the alleged market timing occurred, it believed that the trades NASD has questioned were appropriate.
The market timing at issue involved a small number of trades made by 2 of its sophisticated institutional customers, the company says.
"As part of our own internal review, Davenport has determined that it will no longer accept accounts of market timers and has terminated its relationship with the 2 institutional customers in question," the company says.
Davenport adds that from the outset of NASD's review, it cooperated fully, Indeed, it says, it was Davenport that called NASD's attention to these particular issues and the related transactions.
As part of an agreement with NASD, Davenport does not either admit or deny the allegations.
