For the first time, the NASD has suspended a firm from opening new mutual fund accounts.

The NASD sid Thursday that National Securities Corp. may not open accounts for new clients for 30 days for its involvement in deceptive market timing practices and for failing to have an adequate supervisory system to prevent deceptive market timing and late trading.

National, based in Seattle, was also fined US$300,000 and ordered to pay almost US$300,000 in restitution to the funds that were affected by the deceptive market timing. The firm was also ordered to revise its supervisory systems to correct supervisory and email retention deficiencies. Two of the firm’s executives also received $25,000 fines and suspensions.

National and its executives neither admitted nor denied the allegations or findings. The investigation of individual brokers and others involved in the misconduct is continuing.

The NASD found that from January 2001 through August 2002, National helped four hedge fund clients engage in deceptive market timing practices aimed at 13 mutual funds that had restrictions and prohibitions against these practices. The hedge fund clients transacted at least 1,000 mutual fund trades, totaling nearly US$400 million, after National had received notices that the fund companies considered the timing strategy of the clients to be disruptive and contrary to the interests of long-term investors.

“This is an example of a firm whose management totally ignored repeated red flags that its brokers were facilitating deceptive and improper market timing in mutual funds by hedge fund clients,” said NASD vice chairman Mary Schapiro in a release. “This failure, and the harm it caused to long term investors, combined with the failures of supervision warrant the extraordinary remedy of temporarily prohibiting the firm from opening new mutual fund accounts.”