The NASD today made a statement: Brokers who try to game the system will be severely smote. Today the NASD fined Paul Saunders, a registered rep, CEO and majority owner of James River Capital Corporation (JRCC) in Richmond, Va., $2.25 million. That sum represents the largest fine against an individual for marketing timing, including disgorgement of about $750,000 in illegal profits.

In ominous tones in the NASD press release announcing the fine, the regulatory body said, “Probe Continues Into Activities of Individual Brokers.” James Shorris, executive vice president and head of enforcement at the NASD, said in a statement, “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.”

Edward Siedle, a former SEC attorney and founder of Benchmark Financial Services, which investigates abuses in the asset-management and securities business, says it’s unusual for an NASD fine to exceed the amount that was illegally gained. “Usually in securities scams the guy gets to keep more money than he’s fined for.” But in this case, Saunders was hit hard.

JRCC is general partner and trading manager of the Jazzman Fund, a hedge fund established specifically to engage in market timing, the NASD says. Saunders, who has also been suspended for 60 days by the NASD, personally invested in Jazzman and went on to create 19 limited partnerships to increase the hedge fund’s ability to market time mutual fund subaccounts of variable annuities, the NASD charges.

Each partnership appeared to be a separate entity, with a different name and tax identification number, but the partnerships all had common owners—a fact that Saunders did not disclose to insurance companies that offered the variable annuities, according to the NASD.

Siedle believes the NASD should also name the insurance companies involved in the case, saying their lack of awareness should be questioned. “There was lots of activity going on but nobody whispered, ‘Hey, something is up’,” he says, “It’s unlikely the insurance company didn’t know or realize what was going on and [the insurance company] is being let off the hook and the hedge fund guy is the easy target,” he adds.

The NASD was not available at press time to comment on the insurance companies involved. But the self-regulator is cracking down on individuals involved in market-timing schemes. It has previously sanctioned 16 individual brokers, supervisors and principals for impermissible market timing, with fines ranging from $10,000 to $375,000 and suspensions from 23 days to one year.