Prudential Unit to Pay $600M in Fines -Prudential Unit to Pay $600M in Fines -
it shows broker criminal wrongdoings -
its a crime - each responsible should go to jail -
100 years - what a bunch circus clowns -
pay a million fine -
for every billion they rob from Investors? -
what a bad joke - the US Court system is !!!
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Prudential Unit to Pay $600M in Fines
Monday August 28, 5:31 pm ET
By Michael J. Sniffen, Associated Press Writer
Prudential Subsidiary Agrees to Pay $600M in Fines, Restitution for Deceptive Market Timing
WASHINGTON (AP) -- Prudential's brokerage subsidiary agreed Monday to pay $600 million in fines and restitution for deceptive market timing in trading mutual fund shares for wealthy clients.
The settlement with the Justice Department is one of the largest resulting from a broad probe of market timing using computerized stock sales that has rocked the fund industry for the past three years. In 2004, Bank of America Corp. agreed to a $675 million deal.
Prudential's brokerage subsidiary, Prudential Equity Group., LLC, admitted to criminal wrongdoing from 1999 until September 2003 and agreed to pay the $600 million. The department agreed to withhold filing a charge of securities fraud if PEG and its parent, Prudential Financial, Inc., honor a pair of agreements for five years.
At least two dozen brokers at PEG or its predecessor, Prudential Securities, Inc., generated $57 million worth of commissions and more than $100 million in illicit profits for their clients just during 2001-2003, the government said.
It said thousands of computerized late market trades were generated on behalf of 15 Prudential clients, almost all of them hedge funds. These small, highly speculative funds typically require their wealthy clients to invest a minimum of $250,000 to more than $1 million.
"This is a major victory," particularly for small investors, Deputy Attorney General Paul McNulty told a news conference. "Mutual fund shares now represent a large portion of the life savings of the average American."
Of the $600 million, $270 million will go to a fund administered by the Securities and Exchange Commission to compensate the victims.
Prudential Financial Inc., entered a separate agreement with the department. The parent agreed to cooperate in ongoing investigation of individuals and entities, to maintain policies and procedures to ensure its affiliated entities obey the law and to report regularly to the government on those policies.
"We take these matters very seriously and deeply regret the conduct of some former employees that led to these problems," Prudential Chairman and CEO Arthur F. Ryan said in a statement. "We have strengthened our compliance programs. Prudential cooperated with the authorities throughout the process. This settlement represents our desire to do the right thing."
Securities and Exchange Commission enforcement director Linda Thomsen said the victimized mutual funds sent more than 1,000 letters and e-mails to senior managers at Prudential Securities complaining about the tactics.
The funds tried to block trading by these suspect brokers, but the government said the brokers created hundreds of broker numbers and false customer accounts to make it appear that trades for a few clients were coming from many more unrelated clients. One broker opened 300 accounts for a single client.
Some funds even dropped out of the automated trading system because of this conduct, said U.S. Attorney Michael Sullivan of Boston.
Prudential failed to discipline these brokers even when senior managers were aware of their misconduct, McNulty said. But he said the department opted for a deferred prosecution agreement because the ownership and management of Prudential's brokerage unit had changed since 2003 and the company had taken some remedial steps on its own.
Sullivan said, "The deceptive conduct here allowed brokers and their hedge fund clients to reap millions of dollars in commissions and trading profits while harming the investment return of the average long-term mutual fund shareholders."
Market timing is the use of computerized trades late in the day to move money in and out of funds quickly, taking advantage of different closing times for markets around the world. The value of funds on an exchange is calculated once a day. Traders can buy shares at a price set by one exchange that does not reflect favorable developments after that market's close and then sell them for the higher price later set by other markets.
Most funds forbid this because it takes part of the gain from long-term investors, who are typically less wealthy than hedge fund investors.
Thomsen said the SEC has brought nearly 90 civil cases against the practice and obtained more than $3 billion to distribute to victims.
Two former brokers and a manager in Prudential's Boston office have pleaded guilty to various wire and securities fraud charges. The government said similar activity occurred in the New York branch and headquarters offices.
McNulty declined to say whether any hedge fund managers or investors were among the individuals still under investigation.
Thomsen said the SEC filed civil actions Monday against four more former brokers.
The rest of Prudential's payment includes a $325 million criminal penalty -- $300 million to the U.S. Treasury and $25 million to the U.S. Postal Inspection Service's Consumer Fraud Fund, to help deter future frauds -- and a $5 million civil penalty to the state of Massachusetts.
Prudential Equity Group also was censured by New York Stock Exchange regulators.