November 29, 2007
FINRA Sanctions Brokerage Firm for Facilitating Late Trading by Hedge Funds
FINRA announced today that it has sanctioned Rafferty Capital Markets, LLC, for facilitating improper market timing practices and for failing to have an adequate supervisory system to prevent deceptive market timing and late trading, among other violations. FINRA ordered Rafferty Capital to refrain for 90 days from opening new mutual fund brokerage accounts for any new or existing customers. The firm was also fined $350,000 and ordered to pay $59,605 in restitution to two mutual fund families in connection with customer profits derived from improper market timing. In addition, Rafferty Capital was ordered to review its procedures and certify that it has established systems and procedures to prevent late trading and deceptive market timing, to retain electronic communications, and to record the times of receipt and entry of mutual fund orders.
FINRA found that from about January 2001 through August 2003, the firm assisted six hedge fund customers in circumventing market timing restrictions and escaping detection by opening and using multiple related customer accounts, as well as by using different broker branch codes for market timing, among other methods. In concluding this settlement, Rafferty Capital neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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