According to the announcement, Prudential Securities reached separate settlements with NASD, the Department of Justice, the Securities and Exchange Commission (SEC), the New York Attorney General’s Office, New York Stock Exchange Regulation, the New Jersey Bureau of Securities and the Massachusetts Securities Division.
Prudential Securities has been ordered to pay $270 million into a distribution fund administered by the SEC which will be used to compensate affected mutual funds and shareholders for losses resulting from the improper market timing activity. The Department of Justice imposed an additional fine of $325 million, and the Massachusetts Securities Division imposed a separate $5 million civil penalty, the announcement said.
In late 2003, Massachusetts Secretary of State William Galvin charged Prudential Securities with widespread late trading of mutual funds by ignoring former brokers in its Boston office who carried out more than 1,200 late-trading transactions in the prior 2 1/2 years, creating profits of more than $162 million. Galvin’s complaint charged that the brokers hid their trades by linking them to fake order numbers, different branch codes, misspelled or false names, and altered faxes that, although sent after the close of the markets, listed the trading price at the 4 p.m. closing (see Prudential Securities Charged with Late Trading ).
According to the NASD announcement, about 1,600 customer accounts were collectively able to purchase and sell shares worth more than $116 billion. In addition to the clients earning more than $162 million in profits, Prudential Securities earned more than $50 million in gross commissions from the transactions.
Earlier this year Robert Shannon was charged in federal court with aiding and abetting securities fraud in connection with his role as manager of the Boston branch office of Prudential Securities, Inc. and Wachovia Securities LLC where fraudulent market timing in mutual funds occurred. Shannon and five brokers he managed were accused of using fake identities and other tactics to help investors make more than $1.3 billion in improper mutual fund trades (See Former Prudential Securities Manager Charged with Fraud ). Two of the brokers previously pled guilty to wire and securities fraud charges (See Ex-Pru Broker Pleads Guilty to Market Timing Allegations ).
In addition to the market-timing misconduct, according to its announcement, NASD found Prudential Securities failed to have an adequate supervisory system and written supervisory procedures relating to market timing activities, mutual fund exchanges and detecting and preventing any late trading of mutual fund shares. Prudential Securities also failed to maintain accurate books and records relating to mutual fund transactions.
Prudential Securities neither admitted to nor denied NASD’s charges.
Prior to Prudential Securities’ settlement, 15 firms have reached settlements totaling more than $3.5 billion.
Nevin Adams/Rebecca Moore
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