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NASD Fines Davenport & Co. in First Case of Deceptive Market Timing in Variable Annuities; Firm Fined $450,000, Ordered to Pay More Than $288,000 in Restitution; Probe Into Activities of Individual Brokers, Other Entities is Continuing; Improper Trading Benefited Davenport's Hedge Fund Clients.

Article Excerpt
WASHINGTON, June 1 /PRNewswire/ -- In the first case ever brought against a broker-dealer for facilitating deceptive market timing in variable annuities, NASD announced today that it has fined Davenport & Co. LLC of Richmond, VA $450,000 and ordered the company to pay more than $288,000 in restitution to the affected funds. The fine also includes Davenport's failure to establish and maintain a reasonable supervisory system and written supervisory procedures designed to prevent late trading of mutual funds.

"Deceptive market timing in variable annuity sub-accounts can dilute the value of those shares, raise transaction costs and thus harm other annuity investors," said Mary L. Schapiro, Vice Chairman of NASD. "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 the variable annuity companies, but is complicit in carrying out that deception."

From at least April 2002 through September 2003, Davenport helped two hedge funds carry out deceptive market timing in the sub-accounts of variable annuities. The brokers handling the accounts and managers at the firm were aware that the clients were engaging in market timing techniques and that the annuities' prospectuses stated that they were designed for long-term investors,...