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Regulation and Compliance > State Regulation

Pru Discloses VA Problems To NASD

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NU Online News Service, Jan. 30, 2004, 1:17 p.m. EST – Prudential Financial Inc. says it took the initiative to disclose possible variable annuity marketing problems to NASD, Washington.[@@]

NASD announced Thursday that it has ordered Prudential Equity Group Inc. and Prudential Investment Management Services L.L.C., 2 Prudential units, to pay $2 million in fines and return $9.5 million to customers in connection with allegations about problems with annuity sales in New York state.

The Prudential units have agreed to the settlement without either admitting or denying the allegations.

But NASD admits that it learned about the alleged problems from Prudential, and Mary Flowers, a spokeswoman for the Newark, N.J., insurer emphasizes that Prudential itself disclosed the matter.

“We found it through our controls and procedures,” Flowers says.

Prudential already has paid back $8 million of the $9.5 million that it is supposed to return to investors, Flowers says.

The allegations involve Regulation Number 60, a New York state regulation that governs replacement sales of variable annuities.

The regulation requires the seller to show that it gave the customer detailed information that the customer could use to compare the old annuity with the new annuity. The seller also must show that it had 2 separate meetings or other contacts with the customer, to prove that the customer had time to think about the decision to replace the old annuity.

NASD says some Prudential employees got around the regulation between 1998 and mid-2002 by having each customer sign all required forms at the first meeting but leave the dates off. Employees later wrote in dates themselves in a way that gave the impression that customers had taken the time to think about replacing their annuities, NASD says.

Prudential completed 906 replacement sales during the period in question, and a “substantial number” of the replacements seem to have involved violations of Regulation Number 60, NASD says.

Some Prudential employees also prepared and used incorrect annuity performance illustrations, NASD says.


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