The NASD announced that it has imposed a $408,000 fine on San Diego-based First Allied Securities for allowing and aiding three hedge fund customers to take part in market timing transactions. NASD also ordered the firm to pay $326,500 to compensate the affected funds.
Gary Ferrarro, a First Allied salesman, was fined $136,000 because he was the broker for the three hedge fund customers. In addition, he has been suspended for nine months.
Ferraro allegedly approved "sticky asset" deals with two mutual fund investment advisors, and by doing so allowed them to trade more than was allowed in the fund's prospectuses.
The agreement was that the customers invest money on a long-term basis into one mutual fund complex, and in exchange, they were given the opportunity to market time millions of dollars.
In addition, Ferraro opened an account for a customer, who then market timed funds in one mutual fund family, earning $110,000 in illegitimate profits.
The NASD found that First Allied knew that Ferraro's customers were involved in market timing.
In settling with the NASD, First Allied and Ferraro neither admitted nor denied the allegations.
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