The National Association of Securities Dealers announced today that it has filed a complaint against a brokerage firm and two of its former registered representatives charging them with facilitating late trading and improper market timing of mutual funds on behalf of hedge fund clients. It also charged a couple of the firm’s executives with supervisory lapses.

The allegations in its complaint have not been proven. In its complaint, the NASD charged that from approximately July 2002 until September 2003, two reps at A.B. Watley Direct Inc. facilitated late trading through a computerized trading platform that enabled them to enter orders for at least an hour after the 4:00 p.m. market close without observing the forward pricing requirements. In addition, the complaint also alleges that they also helped their clients engage in deceptive market timing.

“Market timing in violation of a mutual fund’s limitations and late trading of fund shares are both unethical and harmful to fund shareholders,” said James Shorris, NASD executive vice president and head of enforcement. “Firms cannot enrich a few favored customers at the expense of a fund’s long-term shareholders.”

Under NASD rules, a firm or individual named in a complaint can file a response and request a hearing before and NASD disciplinary panel. Possible remedies include a fine, censure, suspension, or bar from the securities industry, and disgorgement of gains associated with the violations.