NEWARK
– Prudential Securities, Inc. has
been ordered to cease and desist from violations
of the New Jersey Uniform Securities Law
and to pay $270 million in restitution as
part of a joint civil settlement that included
the New Jersey Bureau Securities, under
the terms of a consent order announced today
by Attorney General Zulima V. Farber, Consumer
Affairs Acting Director Stephen B. Nolan
and Bureau of Securities Chief Franklin
L. Widmann.
The
Bureau worked jointly on this civil matter
with the Massachusetts Secretary of the
Commonwealth, New York Attorney General,
NASD, the New York Stock Exchange and the
U.S. Securities and Exchange Commission,
and in cooperation with the U.S. Department
of Justice.
From
September 1999 through June 2003, agents
from various Prudential Securities offices
allegedly engaged in a fraudulent scheme
to conduct trading using multiple names
and account numbers to avoid detection of
excessively buying and trading shares by
mutual fund companies. The agents also used
“under the radar” trading, which
refers to the dividing of one trade into
numerous smaller ones to avoid detection
by mutual funds.
The
Bureau of Securities found that even after
repeated notification of the agents’
deceptive conduct, Prudential Securities
failed to supervise its agents or to establish
and enforce necessary procedures to detect
and/or prevent their deceptive trading practices.
The agents altered their identification
and customer account numbers to trick mutual
fund companies into allowing them to continue
trading in accounts that had exceeded the
trading limit imposed by the mutual fund
companies.
“These
agents operated to evade the securities
laws to the detriment of investors,”
said Acting Director Nolan. “Their
employer did nothing to stop them and, therefore,
allowed agents to defraud investors and
manipulate what should be a fair trading
market.”
For
example, agents of one office fabricated
at least 13 financial advisor identification
numbers and hundreds of customer accounts,
when they actually only had five customers,
to avoid being blocked from trading. Prudential
Securities failed to prevent this deceptive
conduct, thereby allowing the agents to
continue to engage in the market timing
of mutual funds.
Overall,
Prudential Securities received hundreds
of notices from mutual fund companies reporting
the activities of the agents and asking
Prudential to take action to stop their
deceptive market practices.
“This
case is a prime example of cooperation among
regulators and most importantly, the $270
million in restitution will be paid to those
who suffered losses through a plan of distribution
administered by an independent distribution
consultant,” Widmann said. “The
Bureau is pleased that so much money will
be returned to compensate victims of this
misconduct.”
Prudential
Securities will also cooperate with the
Bureau in any investigation or litigation
relating to the allegations of the consent
order.
The
investigation was conducted for New Jersey
by Chief of Enforcement Richard Barry and
Investigating Attorney Julian Leone of the
Bureau of Securities.
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