The brokerage unit of Prudential Financial Inc has agreed to pay $600 million to settle investigations of improper mutual fund trading, avoiding criminal prosecution.
Prudential Equity Group admitted to "criminal wrongdoing" in connection with deceptive trading between 1999 and 2003 as part of the pact that also resolves probes by the Securities and Exchange Commission and several states, the US Justice Department said on August 28.
"Investors were dealt a bad hand by corporate con-men who stacked the deck against them," Deputy Attorney General Paul McNulty said. According to a statement of facts accompanying the agreement, a group of Prudential brokers defeated efforts by mutual funds to block abusive frequent trades, known as market timing, using multiple accounts and identities.
Market timing is illegal when a fund publicly forbids it but then quietly allows selected investors to engage in it. That can raise fund costs at the expense of long-term investors. The settlement is comparable to a $675 million payment by Bank of America in 2004 to resolve a mutual fund trading probe. The amount included payments by FleetBoston Financial Corp that the bank bought the same year.
Prudential Equity will pay a $325 million criminal penalty, and $270 million will go to an SEC-administered fund to compensate investors who were harmed.
The Massachusetts Securities Division will receive a $5 million civil penalty. Probes by the New York attorney general, the New Jersey Bureau of Securities, brokerages regulator NASD and the New York Stock Exchange were also settled. Prudential shares ended 1.1 percent higher at $73.72 on the New York Stock Exchange on August 28.
In November 2003, Massachusetts Secretary of the Commonwealth William Galvin, along with the SEC, charged seven former Prudential employees in connection with illegal rapid trading of mutual funds.
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