Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

Feds Accept Pru Settlement Offer

Your article was successfully shared with the contacts you provided.

A broker-dealer partly controlled by Prudential Financial Inc. has agreed to pay $600 million to resolve a market-timing investigation.

The U.S. Securities and Exchange Commission says it has accepted a settlement offer from the broker-dealer, Prudential Equity Group L.L.C., which was formerly known as Prudential Securities Inc.

Prudential, Newark, N.J., sold control over Prudential Securities to Wachovia Corp., Charlotte, N.C., in 2003. Prudential now owns a 38% interest in Prudential Equity, according to the SEC order that outlines the terms of the settlement.

Prudential Equity is not “admitting or denying the findings” in the order, “except as to the [SEC]‘s jurisdiction over it and the subject matter of these proceedings,” according to the order.

But Prudential Equity has entered into a deferred prosecution agreement with the U.S. Department of Justice in which the company “has admitted to criminal wrongdoing,” according to the Justice Department.

Under the agreement with the SEC, Prudential Equity will be censured and must pay a $300 million criminal penalty to the U.S. Treasury.

The broker-dealer also will pay $270 million to a fund that will compensate parties affected by the alleged market timing, $25 million to a federal fund that fights consumer fraud, and $5 million in civil penalties to the Massachusetts Securities Division, according to the order.

Other provisions call for Prudential Equity to hire an independent distribution consultant to oversee distribution of the $270 million “disgorgement” fund and for the company to cooperate with the SEC “in any litigation, ongoing investigation, or other proceedings relating to or arising from the matters described in the this order.”

Prudential Equity has agreed to produce documents at the request of the SEC and to try to make employees available for interviews by members of the SEC staff.

In addition to the SEC, parties involved in the settlement include the U.S. Department of Justice, the National Association of Securities Dealers Inc., the New Jersey Bureau of Securities, the New York attorney general’s office and the New York Stock Exchange.

The Justice Department says it has negotiated a separate compliance agreement with Prudential Equity’s former corporate parent, Prudential.

Under the terms of the Justice Department agreement, Prudential will cooperate with the department’s investigation of the matter and have its general counsel report regularly to the U.S. attorney in Massachusetts about the effectiveness of company compliance programs.

Although the SEC has accepted the Prudential Equity settlement offer, it is continuing to pursue legal action against former Prudential Securities employees.

The agency has filed civil cases in the U.S. District Court in New York against Frederick O’Meally of Bay Shore, N.Y.; Jason Ginder of New Fairfield, Conn.; Michael Silver of Woodcliff Lake, N.J.; and Brian Corbett of Sea Cliff, N.Y.

The defendants are former Prudential Securities representatives who worked in Prudential Securities offices in the New York area.

SEC officials say the individuals named as defendants made conscious efforts to time the market in certain mutual funds and to evade mutual funds’ restrictions on market timing between September 1999 and June 2003.

Market timing is the practice of engaging in rapid trading in an effort to profit from inefficiencies in the flow of information.

The SEC is seeking injunctive relief from the defendants in the new actions, disgorgement of gains obtained through any illegal activities, interest, penalties “and such equitable relief as the court deems appropriate.”

The defendants could not immediately be reached for comment.

In the past, the SEC has filed suits incorporating similar market-timing allegations against former employees of Prudential Securities’ Boston office. A former office manager and 2 former reps have pleaded guilty to criminal charges in connection with those allegations.

Prudential has issued a statement welcoming the settlement announcement.

Prudential Equity already has set aside reserves to cover the cost of the settlement, and the settlement “resolves these investigations as to all Prudential companies without further proceedings, as long as the terms of the settlement are followed,” Prudential says.

Prudential Chairman Arthur Ryan says the company has cooperated with authorities throughout the investigation.

Prudential “takes these matters very seriously and deeply regrets the conduct of some former employees that led to these problems,” Ryan says in a statement. “Let me assure you that as part of our ongoing review of business practices, we have strengthened our compliance programs.”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.