IFD is the wholesale distributor of ING mutual funds and is owned by ING Group. In 2000, ING Group acquired Pilgrim Funds, which had entered into agreements with three different clients - two registered representatives and an independent investment advisor - to allow them to engage in market timing in their accounts. After the acquisition, language was added to ING fund prospectuses stating that the funds were not short-term trading vehicles and that excessive trading, or market timing, could harm ING funds. The new prospectus language also alerted investors that IFD could prohibit excessive exchanges of more than four per fund per year.
At about the same time, IFD adopted procedures for identifying accounts that effected more than four exchanges in a fund year and prohibiting them from making further exchanges. But NASD found that despite the fund prospectus language and IFD's own internal procedures, IFD and Sessions permitted one client to engage in excessive trading until 2001 and the other two clients to engage in excessive trading until September 2003.
Sessions was a registered principal of IFD responsible for overseeing the implementation of IFD's market timing procedures and was heavily involved in the firm's efforts to detect and prevent market timing. NASD found that Sessions sent numerous restriction letters to other brokers stating that excessive market timing activity had been detected, that such trading activity was "detrimental to the overall effectiveness of the investment objectives of the ING Funds," and that the identified accounts were prohibited from engaging in further exchanges. Sessions also placed stop transfer and stop purchase orders on identified accounts. Nevertheless, he permitted extensive market timing activity by the three clients - far in excess of the limits set by IFD and described in the prospectuses for ING funds, and through numerous accounts - to continue.
By permitting market timing activities contrary to the firm's procedures and the funds' prospectuses, IFD and Sessions violated NASD's rule requiring adherence to just and equitable principles of trade and high standards of commercial honor. NASD also found that IFD failed to implement and enforce its own internal procedures intended to detect and prevent market timing. As a result, a large number of excessive trades by customers other than the three receiving favorable treatment were allowed to occur because they went undetected.
NASD also found that, prior to August 2003, IFD did not have an adequate system for retaining e-mail communications and failed to ensure that e-mails were kept for the requisite time periods, in violation of recordkeeping rules. As a result of those deficiencies, IFD was unable to produce all of its e-mails to NASD investigators.
In settling with NASD, IFD and Sessions neither admitted nor denied the allegations, but consented to the entry of NASD's findings.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches and request almost 190,000 reports for existing brokers or firms. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com . Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2005 National Association of Securities Dealers, Inc.")
