3 Firms Pay $5.8 Million in Market-Timing Probe

Three brokerage firms have agreed to pay a total of $5.8 million to resolve regulators’ allegations that they allowed improper trading in mutual funds by favored clients to the detriment of long-term shareholders.

The NASD, the brokerage industry’s self-policing organization, on Monday announced the separate settlements over allegations of so-called market-timing abuses by First Allied Securities Inc., ING Fund Distributors and Janney Montgomery Scott. The firms neither admitted nor denied wrongdoing under the agreements.

First Allied, based in San Diego, agreed to pay a $400,000 civil fine and to repay the affected mutual funds some $325,000.

The NASD said the $1.5-million civil fine to be paid by New York-based ING Fund Distributors, a unit of Dutch financial-services company ING Groep, is the largest the NASD has levied in such a case. The company also will pay $1.4 million in restitution.

The NASD, formerly known as the National Assn. of Securities Dealers, also sanctioned individuals at each of the firms.

The regulators’ moves were the latest enforcement actions stemming from a crackdown on alleged abuses in the trading and marketing of mutual funds.

Philadelphia-based Janney Montgomery Scott is paying a $1.2-million fine and returning $1 million.

Market timing, which involves rapid purchases and sales of fund shares in order to benefit from short-term market fluctuations, is not illegal but is prohibited by many mutual funds because it can disadvantage ordinary shareholders.

Market-timing abuses in the $8-trillion fund industry cost fund investors an estimated $5 billion a year before the crackdown by the industry, federal and state regulators.