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Portfolio > Mutual Funds

Prudential Agrees to Pay $600 Million

By Melanie Waddell

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Prudential Equity Group (PEG), formerly known as Prudential Securities Inc., has agreed to pay $600 million in fines and restitution to resolve charges relating to improper market timing.

The charges against PEG allege that former PSI registered representatives defrauded mutual funds by concealing their identities, and those of their customers, to evade mutual funds’ prospectus limitations on market timing. PEG has been ordered to pay a total of $600 million pursuant to a global civil and criminal settlement with the United States Attorney’s Office for the District of Massachusetts, the Securities and Exchange Commission, the Massachusetts Securities Division, NASD, the New Jersey Bureau of Securities, the New York Attorney General’s Office, and the New York Stock Exchange.

Under the terms of the settlement, the SEC says that $270 million will be paid to a distribution fund administered by the Commission for the benefit of those harmed by the fraud, $325 million will be paid as a criminal penalty to the U.S. Department of Justice, and $5 million will be paid as a civil penalty to the Massachusetts Securities Division.

According to the SEC, from at least September 1999 through June 2003, former PSI registered reps deceived mutual funds in order to engage in market timing in the mutual funds’ shares. An SEC release announcing the PEG fine states that “on numerous occasions when mutual funds tried to prevent or block the registered representatives from market timing under certain broker identifying numbers, known as Financial Advisor, or FA numbers, at PSI, or in certain customer accounts, the registered representatives used deceptive market timing practices to evade the mutual funds’ restrictions and continue to trade.”

In settling the Commission’s charges, the SEC states that PEG has also agreed to be censured and to retain the services of an independent distribution consultant for the distribution of the $270 million disgorgement. PEG has consented to the issuance of the SEC’s Order without admitting or denying the findings contained therein, according to the SEC.

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