NASD Charges Prudential Brokers with Aiding Deceptive Market Timing

The National Association of Securities Dealers (NASD) has charged two former Prudential Securities Inc. (PSI), brokers in Utah for aiding a hedge fund manager’s deceptive practices to market time through variable annuities.

According to a press release, the agency alleges that Jeffrey Doerr and David Corn helped Paul Saunders, a hedge fund manager and Chairman, CEO and majority owner of James River Capital Corporation of Richmond, Virginia, skirt insurance company restrictions on market timing.

NASD alleges that the two brokers helped Saunders bring in approximately $5.2 million in profits by executing an estimated 900 variable annuity sub-account exchanges between 2001 and 2003 that violated insurance restrictions or limitations. Doerr and Corn reaped $45,000 each in commissions.

Particularly, NASD claims that the two opened 20 brokerage accounts for Saunders at PSI between 2000 and 2003 in the names of numerous limited partnerships that had the same beneficial owners as his market timing hedge fund. The agency says Doerr and Corn knew or should have known that Saunders would use these accounts for market timing and that the partnerships had the same beneficial owners.

Doerr and Corn helped Saunders, who it fined $2.25 million in October 2006, to evade the insurance company restrictions against market timing by using four separate broker identification numbers. After an insurance company placed a restriction on one account, Doerr and Corn would open a new one with a different number.

NASD also charged the brokers’ branch manager, Darrel Trost, with failing to supervise their activities.