The fine for Jazzman hedge fund manager Paul Saunders is the largest penalty ever levied against an individual for "deceptive market timing" and the NASD is also investigating the activities of brokers who assisted the market timing trades.
Mr Saunders is also the chief executive of James River Capital and manages a $350 million hedge fund that was reportedly created to engage in market-timing activity, generating more than $5 million in profits from trades.
The Richmond, Virginia-based company particularly traded in variable annuities of insurance companies and Mr Saunders is accused of making $750,000 personally as a result of illicit trades. He has refused to admit or deny the charges but agreed to pay the NASD fine.
NASD head of enforcement, James Shorris, said: "The enforcement action announced today makes clear that brokers, including those who operate as hedge fund managers, will be held accountable for this kind of misconduct and will be required to disgorge their profits and pay a substantial penalty."
The NASD has also fined McLaughlin, Piven and Vogel Securities $50,000 this week for charging more than 1,500 customers excessive fees for the transfer of brokerage accounts to other dealers under the Automated Customer Account Transfer System.