The Securities and Exchange Commission charged two subsidiaries of Prudential Financial Inc. on Monday with failing to disclose conflicts of interest and making misleading disclosures to the boards for 94 insurance-dedicated funds they advised.
The subsidiaries, AST Investment Services Inc. and PGIM Investments LLC (PI), served as investment advisors to the funds.
They were ordered to pay a civil monetary penalty of $5 million and disgorge $27.6 million, in addition to $155 million they have already voluntarily reimbursed.
In 2006, the funds were converted from being taxed as regulated investment companies (RICs) to partnerships for federal income tax purposes so that Prudential Financial and its affiliates could receive certain tax benefits; however, the benefits came with negative consequences to the funds, according to the SEC’s complaint.
The 94 series funds were offered through the Advanced Series Trust and The Prudential Series Fund, which are open-end series trusts that served as investment vehicles for participating insurance companies writing variable annuity and variable life insurance contracts.
First, the complaint states, AST and PI cost the funds tens of millions of dollars in interest income when they temporarily recalled securities the funds had out on loan, the complaint states.
“AST and PI did not disclose, to the funds’ boards of trustees or the beneficial owners of the funds’ shares, the conflict of interest between Prudential and the funds in connection with the recalls.”
Second, the funds’ reorganization subjected them to less favorable tax treatment in certain foreign jurisdictions, but Prudential did not timely reimburse the funds for resulting losses despite AST and PI’s assurances it would do so, the SEC said.