NASD Fines Chase $290K: In Market-Timing Case
December 19, 2005
The NASD last week fined Chase Investment Services $150,00 and ordered it to repay $140,262 to investors for allowing one of its hedge fund clients to market time 19 mutual funds between at least February 2002 and August 2003.
"Deceptive market timing, by hedge funds or any other market participant, is both unfair and harmful to other mutual fund shareholders," said Barry Goldsmith, NASD executive vice president and head of enforcement, in a statement. "In this case, Chase's failure to have systems and controls in place to enforce trading limits set by the mutual funds themselves resulted in a hedge fund gaining an impermissible advantage over other fund shareholders."
The NASD found that 19 mutual funds sent notices of trading restrictions against the hedge fund to Chase between at least February 2002 and August 2003, but Chase failed to stop the trades, and the hedge fund continued to market time the mutual funds simply by opening up new accounts. Chase did not have adequate supervisory systems or controls designed to ensure that the block letters would be enforced and failed to conduct any follow-up of the hedge fund customers' accounts.
Some of the funds affected by the $140,262 in illicitly obtained profits include American Funds, Vanguard and TIAA-CREF. The NASD did not name the other fund families affected.
Chase settled the matter without admitting or denying the charges.
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