The National Association of Securities Dealers Inc. has imposed $2.25 million in penalties on a fund manager who traded frequently through variable annuities.
Paul Saunders, a registered broker who is chairman, chief executive officer and majority owner of James River Capital Corp., Manakin Sabot, Va., and its James River Securities Corp. affiliate, used large numbers of VA accounts to get around VA issuers' restrictions on market timing, according to officials at the NASD, Washington.
The penalties include a $1.5 million fine for use of "deceptive practices to market time through variable annuities," $750,000 in disgorgement of profits made through market timing, and a 60-day suspension of Saunders from his post as an executive at the James River Securities Corp.
"In settling with NASD, Saunders neither admitted nor denied the allegations, but consented to the entry of NASD's findings," NASD officials say.
Saunders acknowledges through a spokeswoman, Laura Rhoads, that he has entered into a settlement with the NASD regarding market timing.
But "we believe the NASD's release was not a fair description of the settlement and was overly aggressive," Saunders says in a statement released through Rhoads.
Speculators who time the market buy and sell rapidly in an effort to benefit from inefficiencies in the flow of financial information. The practice is not necessarily illegal, but the U.S. Securities and Exchange Commission discourages money managers from allowing unfettered marketing timing without thorough disclosures to investors because of concerns that market timing drives up fund costs for buy-and-hold shareholders.
NASD officials have noted that James River Capital Corp. is general partner and trading manager of the Jazzman Fund, a hedge fund established specifically to engage in market timing.
