Prudential Securities will pay $600 million to settle government allegations that former brokers and a branch manager in Boston helped investors rapidly trade mutual fund shares.
Prudential Securities, now known as Prudential Equity Group, entered into separate settlements with the Department of Justice, The Securities and Exchange Commission, the New York Attorney General's Office, New York Stock Exchange, the New Jersey Bureau of Securities and the Massachusetts Securities Division to resolve charges relating to misconduct.
The NASD found that from Jan. 1, 2001 to July 1, 2003, some of Prudential's brokers engaged in deceptive activities in order to make improper market-timing transactions in mutual funds. Because of their activity, at least 1,600 customer accounts were collectively able to purchase and sell mutual funds worth more than $116 billion. The clients each made more than $162 million in net profits and Prudential earned nearly $50 million in gross commissions.
The NASD charged that the brokers defrauded mutual funds and their shareholders by misrepresenting their own identities and the identities of their brokerage clients to engage in market timing after the mutual funds had placed blocks attempting to prohibit such trading.
Additionally, the NASD found in excess of 1,000 letters and e-mails Prudential had received from more than 50 mutual fund companies relating to the fraudulent activity of five brokers in Boston. The brokerage had been aware since 1998 that several of its offices had brokers that primarily engaged in market-timing transactions, but failed to adequately supervise them.