Feds Refile Pru Market Timing Case

July 15, 2004 (PLANSPONSOR.com) - Federal regulators are taking another run at five former Prudential Securities brokers and their manager in Boston in a $1.3 billion market timing case.

The US Securities and Exchange Commission (SEC) said in its refiled complaint against the six men that they used fake identities and other tactics to help investors make more than $1.3 billion in improper mutual fund trading, according to an Associated Press report. The complaint alleges the brokers made thousands of “market timing” trades from 2001 to 2003 in virtually all of the county’s major mutual fund groups on behalf of seven hedge-fund clients.

A federal judge threw out the original complaint against the six, saying charges weren’t specific enough (See  Judge Tosses Prudential Broker Trading Suit ). The brokers are Justin Ficken, 29; Skifter Ajro, 35; John Peffer, 41; Marc Bilotti, 34; Martin Druffner, 35; and their manager, Robert Shannon. All six resigned last year.

The allegations contained in the complaint in US District Court in Boston provide new details in the fraud case against the former Prudential employees.The new filing alleges that the five brokers and their manager used different account names, broker identification numbers, and misspellings of their own names to avoid detection of the trades that would otherwise have been rejected. The SEC said the trades generated more than $5 million in brokers.

“The broker defendants profited handsomely from their misconduct,” the SEC said in the complaint.

The agency alleges the hardest-hit mutual fund was Houston-based AIM Investments, through which the brokers made $166 million in market timing trades. The next-largest sum was at Franklin Templeton Investments of San Mateo, Calif., had $87.3 million, while Putnam Investments in Boston had $42.6 million in market timing, according to the complaint.

In this case, the SEC has not alleged any wrongdoing by the fund companies, but instead portrayed them as alleged victims of the brokers.

Prudential Securities merged last year with Wachovia Securities. Wachovia Corp., the majority owner of the joint entity, has described the case as a “Prudential matter.” A spokesman for Prudential Financial Inc., which owns 38% of the company, said his company has been cooperating with regulators.

Federal and state regulators have been pursuing a wide ranging mutual fund industry probe, focusing largely on market timing and late trading as well as certain sales practices.