SEC And Prudential Agree Settlement

by Glen Shapiro, LawAndTax-News.com, New York

30 August 2006

The US Securities and Exchange Commission on Monday announced settled enforcement proceedings against Prudential Equity Group, formerly known as Prudential Securities Inc., alleging 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 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, $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 Department of Justice, and $5 million will be paid as a civil penalty to the Massachusetts Securities Division.

The Commission's Order against PEG found that from at least September 1999 through June 2003, former PSI registered representatives deceived mutual funds in order to engage in market timing in the mutual funds' shares.

The Order revealed 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.

These deceptive practices included the use of multiple FA numbers and multiple customer accounts, many of which bore fictitious names that had no relation to the actual customer's name; the use of accounts coded as "confidential" in PSI's systems; and the use of "under the radar" trading to avoid notice by mutual funds.

When the mutual funds succeeded in blocking certain FA numbers or customer accounts from further trading, the registered representatives used other FA numbers and customer accounts that had not yet been blocked to evade the mutual funds' restrictions and continue to trade.

In a related matter, the Commission additionally filed an unsettled civil injunctive action in the United States District Court for the Southern District of New York against former PSI registered representatives Frederick J. O'Meally, Jason N. Ginder, Michael L. Silver, and Brian P. Corbett. The Commission previously sued five former PSI registered representatives and the former branch manager of PSI's Boston, Mass., branch office for similar conduct.

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