Law.com – Securities regulators have imposed a record $2.25 million fine on the chairman and CEO of hedge fund James River Capital Corp. for allegedly using deceptive practices in trading in thelong-term investments known as variable annuities.
The National Association of Securities Dealers, the brokerage industry’s self-policing organization, on Wednesday announced the civil penalty against Paul Saunders, a broker who is the chairman, CEO and majority owner of Richmond, Va.-based James River. Saunders neither admitted nor denied the NASD’s allegations in agreeing to the settlement, under which he also will be suspended for 60 days from working as a broker.
The NASD said the $2.25 million penalty was the largest fine it has ever imposed on an individual for alleged improper market timing — frequent “in-and-out” trading. It includes restitution of some $750,000 in illicit profits that Saunders allegedly personally made.
In June 2004, the organization fined the brokerage Davenport & Co. $450,000 and ordered it to pay some $288,000 in restitution for allegedly allowing James River and another hedge fund, TFS Capital, to engage in improper market timing in variable annuities. That was the first case against a brokerage for allowing clients to improperly engage in market timing of variable annuities, often described as mutual funds wrapped in an insurance policy. Federal and state securities regulators have brought a number of cases for improper market timing of mutual funds in recent years.
