THE PRUDENTIAL
A Nest on Shaky Ground
Sightings from The Catbird Seat
~ o ~
June 6, 2007
Prudential Shuts Equity Division
Forbes, Associated Press
Prudential Financial Inc. said Wednesday it is shutting down Prudential Equity Group, the insurer's stock research, sales and trading business.
The Newark, N.J.-based financial services conglomerate did not say why it is closing the unit, which last year turned a profit of $34 million before taxes.
Prudential Equity Group trades stocks for institutional investor clients like pensions and mutual funds. The business distributes research reports about stocks, politics, the economy and investment strategies to these clients to help them decide how to invest their money.
Last year, the division reported revenue of $260 million, a small fraction of the company's $32.49 billion in revenue.
Prudential did not say how many people will lose jobs because of the move. Prudential Equity Group will be "substantially wound down" by the end of the month, the company said.
Prudential expects shutting the business down to cost $110 million, with severance pay to fired workers costing about $75 million. These costs will be recorded as accounting charges this quarter, Prudential said.
The division has offices in New York, Washington, San Francisco, Chicago, Philadelphia, Cleveland, Atlanta, Boston and Kansas City, Mo. Outside the U.S., Prudential Equity Group has offices in London, Zurich, Paris and Tokyo.
Last year, Prudential Equity Group agreed to pay $600 million in fines and reimbursements following a Securities and Exchange Commission investigation that concluded Prudential brokers defrauded at least 50 mutual funds between 1999 and 2003.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
More On This Topic: Companies: PRU
http://www.forbes.com/feeds/ap/2007/06/06/ap3793197.html
January 2, 2007
MetLife Pays $19 Million to Settle Spitzer Investigation
By Mark Johnson
MetLife Inc., the largest group life insurer in the nation, will pay $19 million and change some of its business practices to end an investigation of payments made to brokers to steer clients its way, Attorney General Eliot Spitzer said Friday.
The settlement came as part of a multiyear investigation of bid rigging and price fixing in the insurance industry. Spitzer has argued that "contingent commissions'' paid to brokers and agents to steer business to insurance companies are the equivalent of kickbacks that unfairly increase the prices paid by insurance clients.
New York-based MetLife will ban contingent commissions and disclose broker payments as part of the settlement. The company will pay $16.5 million in restitution to policyholders and penalties of $2.5 million.
MetLife instructed its sales personnel to "leverage'' commission agreements by telling brokers how close they were to meeting certain targets for business provided to MetLife. If met, the targets would guarantee the brokers additional money, Spitzer's office said.
MetLife also arranged lucrative compensation agreements with certain brokers who directed major insurance contracts to MetLife, according to the settlement.
The company, which has more than 70 million customers worldwide, is not admitting to any liability in the settlement. Spokesman John Calagna said MetLife cooperated with Spitzer's investigation and has already changed some of its business practices.
"MetLife believes that resolving this matter is in the best interests of its shareholders, customers and policyholders,'' Calagna said a statement.
Spitzer's probe of the industry began in 2004 and more than 20 insurance companies have agreed to pay more than $3 billion so far.
Earlier this month, Prudential Insurance Co. agreed to pay $19 million in restitution and penalties to settle a similar investigation. Last month, UnumProvident Corp. in Chattanooga, Tenn., agreed to pay $15.5 million in restitution and penalties.
http://www.insurancejournal.com/news/national/2007/01/02/75530.htm
September 30, 2006
From The Catbird’s Forum:
Author: Vampire Hunter
Subject: Prudential and Travelers Fraud
Hey there.
The 600 page report on Claude Ballard, Burt Kanter, and Robert Lisle has been posted up. These guys are sleazy!
http://www.ustaxcourt.gov/InOpHistoric/IRA.TCM.WPD.pdf
http://www.romingerlegal.com/fifthcircuit/opinions/01-60640-cv0.wpd.html
Thanks for everything. Without your info these guys would slip by into their coffins without doing one thing right in their lives.
Please keep me anonymous. Just post the links if you want...
Regards.
August 28, 2006
Prudential settles market timing
charges for $600M
Brokerage unit admits criminal wrongdoing, DOJ says
By Alistair Barr & Robert Schroeder, MarketWatch
WASHINGTON (MarketWatch) -- Prudential Financial Inc.'s brokerage unit agreed on Monday to pay $600 million to settle charges that former employees defrauded mutual fund investors by helping clients rapidly trade funds.
The payment -- the largest market-timing settlement involving a single firm -- ends civil and criminal probes and allegations by the Department of Justice, the Securities and Exchange Commission and several other regulators including New York Attorney General Eliot Spitzer.
Prudential Equity Group, a subsidiary of Prudential Financial (PRU) admitted criminal wrongdoing as part of its agreement with the Justice Department. Prudential Equity Group was formerly known as Prudential Securities.
"This resolution goes a long way in restoring the public trust," Deputy Attorney General Paul McNulty told reporters at the Justice Department.
Prudential will pay $270 million to victims of the fraud, a $300 million criminal penalty to the U.S. government, a $25 million fine to the U.S. Postal Inspection Service and a $5 million civil penalty to the state of Massachusetts, according to the Justice Department.
"We take these matters very seriously and deeply regret the conduct of some former employees that led to these problems," Prudential Chief Executive Arthur Ryan said in a statement. "We have strengthened our compliance programs."
Prudential shares climbed 1.1% to close at $73.72 on Monday.
Federal and state authorities alleged that from 1999 through June 2003, a number of brokers at Prudential Securities deceptively placed thousands of prohibited market timing trades of mutual funds for their clients, who were usually hedge funds, the SEC and the DOJ explained in their statements on Monday.
By placing their trades in multiple accounts, often with multiple identities, the brokers were able to evade efforts by the mutual funds to block the market timing, the regulators said.
Market-timing isn't necessarily illegal. But most funds forbid it because heavy trading of fund shares often weakens profits for long-term fund shareholders. Market-timing involves quickly shifting large amounts of money in and out of a fund.
Mutual fund and financial-services companies, including Bank of America (BAC), Alliance Capital (AB), and Amvescap (AVZ ) division Invesco, have paid more than $3.5 billion in fines and disgorgement since the mutual fund market-timing schemes were uncovered by Spitzer and other regulators.
Prudential's $600 million payment has only been topped by Bank of America, which paid $675 million in a settlement that included FleetBoston, a bank it acquired in 2003. Alliance Capital, which is now called AllianceBernstein, paid $600 million.
Prudential has had expensive run-ins with regulators before. In the 1990s, the company paid billions of dollars to regulators and customers after life insurance sales violations and misleading investors about the risks of limited partnerships.
Three individuals from the Boston branch of Prudential Equity Group have pleaded guilty to wire and securities fraud charges.
Also on Monday, the SEC filed civil charges in federal court against four other former Prudential Securities representatives
January 7, 2006
State investigates firm after
kickback allegations
By Rick Daysog, Advertiser Staff Writer
The state is investigating one of Hawai'i's largest real estate companies after a federal agency alleged that the company offered illegal kickbacks.
The company, Prudential Locations LLC, paid $48,000 in September to settle an investigation by the U.S. Department of Housing and Urban Development. Prudential did not admit to any wrongdoing in agreeing to the settlement and said it settled to avoid a costly and time-consuming legal battle.
HUD alleged that Prudential held a party in 2003 for real estate agents who had referred at least $1 million of business to an affiliated company, Wells Fargo Home Mortgage LLC. Prizes given away at the party included use of a Mercedes-Benz for three years and trips to Thailand, Las Vegas and San Francisco.
Under federal and state law, it's illegal for a real estate agent to accept payment from a lender in exchange for steering clients to that lender. The laws were enacted to prevent agents from directing consumers to a particular lender, who may not be the best choice for the consumer.
Jo Ann Uchida, complaints and enforcement officer with the state Regulated Industries Complaints Office, said her staff began its investigation shortly after Prudential settled with HUD. Uchida declined to discuss specifics of the state probe, saying it was a pending matter.
Prudential CEO William Chee said yesterday that the state investigation was a routine matter that arose as a result of the HUD investigation. Chee said the state will find no wrongdoing just as the HUD investigation had found no wrongdoing.
In September, Chee denied HUD's kickback allegations. He said the trips and the use of the Mercedes-Benz had nothing to do with business referrals but were awarded to agents who took part in a drawing at a 2003 "First Annual Wells Fargo Friends Party."
Chee said the trips and the car were like door prizes. He said that Prudential held just one party and stopped the practice after HUD began its investigation in 2004.
The 2003 party was attended by up to 200 real estate agents from Prudential and other firms.
Chee said the gifts were randomly selected from a koa bowl. He said the prizes weren't used to induce new business because they were a last-minute addition to the event.
Brokers were not aware in advance that the prizes would be given out when they did business with Wells Fargo, he said.
September 24, 2005
Prudential: Settlement Avoids
Costly Legal Fight
By Rick Daysog, Honolulu Advertiser
The head of one of the state’s largest real estate agencies said yesterday his company agreed to settle a federal investigation for $48,000 to avoid a costly and time-consuming legal battle.
William Chee, Prudential Locations LLC’s chief executive officer, denied allegations by the U.S. Department of Housing and Urban Development that a Prudential affiliate paid kickbacks to real estate agents in exchange for the agents referring business to the affiliate.
Chee signed a settlement with HUD under which Prudential agreed to pay $48,000. The settlement brought to a close HUD’s investigation, which alleged that Prudential provided “kickbacks” in the form of trips to Las Vegas, San Francisco and Thailand, use of a Mercedes-Benz for three years and other prizes to sales agents who referred more that $1 million in business to Wells Fargo Home Mortgage Hawaii LLC, which is affiliated with Prudential.
In agreeing to the settlement, Prudential did not admit any wrongdoing.
It’s illegal for a real estate agent to accept payment from a lender in exchange for steering clients to that lender....
For more, GO TO > > > Predators of Paradise
February 23, 2005
Lawsuit Accuses Insurers of
Rigging Bids, Fixing Prices
Two small businesses allege that insurers paid
independent agents a second commission
By Rene Stutzman, Orlando Sentinel
SANFORD - Two small Seminole County businesses are suing some of the insurance industry’s most prominent players, including the Chubb Corp. and Prudential Financial Inc., accusing them of rigging bids and fixing prices.
The suit, which seeks class-action status, names two-dozen insurance companies or insurance brokerages that do business in Florida.
It accuses the insurers of paying independent agents a second commission, or “contingent commissions,” to lock up more business.
Independent agents are supposed to work strictly for their clients, according to the suit, selling the insurance policy that best fits their needs.
The second commission though, skews that, causing agents to push the insurance line that pays them what amounts to a “kickback,” according to the suit. It accuses the insurers and brokers of racketeering, bid rigging and anti-competitive behavior.
As a consequence, customers - all of them businesses - have been cheated out of “hundreds of millions, if not billions, of dollars” since 1994, according to the suit.
The suit makes the same allegations that New York Attorney General Eliot Spitzer did four months ago, when he launched an investigation that, so far, has won guilty pleas from nine insurance company or insurance brokerage executives, including those associated with two of the companies named in the Seminole County suit.
Those two companies are American International Group, also known as AIG, and ACE Insurance.
Shortly after Spitzer announced his investigation, Florida Attorney General Charlie Crist began one of his own. Crist has issued subpoenas to nearly two-dozen insurance companies and brokers, according to Bob Sparks, a spokesman in Crist’s office.
The Seminole County suit was filed Feb. 16 in state Circuit Court here by Palm Tree Computer Systems Inc., a small Oviedo company that sells and services computers and provides Web page design and hosting; and Delta Research Institute Inc., a Longwood financial-research company.
Officers with neither company would discuss the suit. Each, though, is represented by Longwood lawyer Mark Nation....
A tiny, independent insurance agency in Winter Park, First Market International Inc., is one of the defendants. It sold insurance from The Hartford to Palm Tree.
First Market President Tom Rossello called the allegations “ridiculous.”
“No, we don’t get contingent commissions,” he said.
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Prudential Insurance Retired
Employees Pension Plan Lawsuit
In a lawsuit entitled Dupree, et al. v. The Prudential Insurance Co., et al., No. 99-8337-CIV (AJJ) (S.D. Fla.), Lieff Cabraser, along with co-counsel, represents a group of retired employees of Prudential who are participants in Prudential’s Retirement Plan.
The Plan provides pension benefits to thousands of retirees who used to work for Prudential. Those benefits are protected by a federal statute called the Employee Retirement Income Security Act (ERISA), which was enacted by Congress to prevent employers from exercising improper control over the assets of their retirement plans.
The plaintiff retirees allege that Prudential violated ERISA by using (and continuing to use) the Retirement Plan’s assets to benefit Prudential, instead of its retirees.
Trial commenced on February 17, 2004, and concluded in March. The Court heard closing arguments on January 20, 2005. Plaintiffs request that the Court make Prudential restore to all Plan participants the funds allegedly taken out of the Retirement Plan in violation of the law....
LIEFF CABRASER HEIMANN & BERNSTEIN, LLP
E-Mail: mail@lchb.com
Firm Website: www.lieffcabraser.com
www.lieffcabraser.com/prudentialretirees.htm
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November 18, 2004
INSURANCE COMMISSIONER JOHN GARAMENDI SUES BROKER
AND 4 MAJOR INSURERS OVER SECRET COMMISSIONS AND
KICKBACK SCHEMES THAT NETTED “MILLIONS OF DOLLARS”
The Commissioner’s suit seeks to end the unethical practices that have
harmed consumers while generating millions for the defendants
SAN DIEGO - Commissioner John Garamendi on Thursday announced a major lawsuit against Universal Life Resources of San Diego and four major insurers accused of hiding millions of dollars in secret commissions....
Commissioner Garamendi began investigating this problem in February. The suit, filed in California Superior Court in San Diego, names MetLife Inc., Cigna Corporation, Prudential Financial Inc., and UnumProvident Corporation as defendants. They are accused of collaborating with ULR to carry out the schemes that caused financial harm to California consumers.
“Employers and consumers put their trust in brokers to help them find the best insurance at the best price,” said Commissioner Garamendi. “But that trust has been broken. This lawsuit is one of many steps I will take to ensure that insurance consumers don’t suffer because of backroom kick-back deals.”...
“These brokers and insurers are lining their pockets at the expense of consumers,” said Commissioner Garamendi.
“This is a scandal that has disillusioned consumers from coast to coast. Confidence must now be restored.”
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November 5, 2004
SEC, Dept. of Labor join insurer probe
Prudential says agencies ask
about payments, bid-rigging
by Alistair Barr, CBS MarketWatch
SAN FRANCISCO - The Securities and Exchange Commission and the Department of Labor have begun investigating the same insurance industry practices uncovered by New York Attorney General Eliot Spitzer.
Prudential Financial, one of the largest U.S. life insurers and annuity providers, said in a filing late Thursday that the SEC and the Department of Labor asked it for information about broker commissions and other practices that could violate antitrust regulations.
Prudential, which has also been subpoenaed by Spitzer and Connecticut Attorney General Richard Blumenthal, said that a number of other insurance companies have received the same requests....
Spitzer sued Marsh & McLennan on Oct. 14 for allegedly rigging bids and accepting payments in return for steering business to favored insurers.
The suit, which implicated the largest firms in the industry including American International Group (AIG), Ace Ltd (ACE) and Hartford Financial (HIG), has spawned other investigations by attorneys general in California, Florida, Massachusetts, Ohio and Connecticut.
Prudential’s comments are among the first indications that Federal regulators are becoming involved.
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October 27, 2004
Questions on conflicts of interest
State pension official wants details
of execs' investments
By Alistair Barr, CBS MarketWatch
A North Carolina state pension official has asked executives of his fund's major holdings if they have the same apparent conflicts of interest found at Marsh & McLennan, the embattled insurance broker.
Marsh & McLennan officials have been found to invest in businesses that provide services to their company, according to a letter distributed Wednesday by North Carolina Treasurer Richard Moore.
The North Carolina state retirement system, with $60 billion in total holdings, owns $16 million of Marsh & McLennan shares.
Moore said that allowing executives to hold economic interests in customers or service providers is "fraught with potential and real conflicts of interests and can result in transactions that misappropriate value rightly belonging to shareholders."
Among the companies Moore contacted are Citigroup (C), Prudential Financial (PRU) and Wells Fargo (WFC).
Marsh & McLennan (MMC) was sued by New York Attorney General Eliot Spitzer on Oct. 14 for allegedly rigging bids and accepting payments for steering business to favored insurers.
Moore's objections referred to MMC Capital, the private-equity arm of Marsh & McLennan that has raised more than $3 billion to invest in the insurance industry.
Jeffrey Greenberg, the deposed chief executive of Marsh & McLennan, and other top company executives and board members have invested in MMC Capital, the New York Times reported this week.
In recent years, MMC Capital has invested in at least 12 insurers, including Ace Ltd. (ACE), a company run by Evan Greenberg, Jeffrey's brother; XL Capital Ltd. (XL); and Axis Capital (AXS), the New York Times reported. Those companies could do business with Marsh & McLennan, which would raise the appearance of a conflict of interest.
Charles Davis, chief executive of MMC Capital, is also a director on Marsh & McLennan's board and sits on the board of Axis.
Jeffrey Greenberg used to be chief executive of MMC Capital from 1996 to 2002, the newspaper added.
Moore is not alone in his concern. The largest U.S. pension fund, the California Public Employees' Retirement System, has voted against such directors as Warren Buffett for having business holdings on both sides of a transaction.
Marsh & McLennan shares closed 18 cents lower at $28.69 Wednesday.
For more, GO TO > > > Ace Up The Sleeve; Claims By Harmon; The Great Nest Egg Robberies; The Kamehameha Schools Retirement Plan; Marsh & McLennan: The Marsh Birds; The Poop on Aon; Vampires in the City
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July 15, 2004
Complaint Alleges
Fund Trading Fraud
Associated Press, www.forbes.com
Five former Prudential Securities brokers and their manager in Boston used fake identities and other tactics to help investors make more than $1.3 billion in improper mutual fund trading, the Securities and Exchange Commission said in a new complaint.
The allegations contained in the complaint filed late Wednesday in U.S. District Court in Boston provide new details in the fraud case against the former Prudential employees. The case is also the latest development in the trading scandal sweeping across the $7 trillion mutual fund industry, ensnaring dozens of fund companies and executives.
The SEC initially accused the former Prudential employees of wrongdoing in November, but was forced to refile when a federal judge said the complaint wasn’t specific enough. The new filing alleges that the five brokers and their manager used different account names, broker identification numbers, and misspellings of their own names to avoid detection of the trades that would otherwise have been rejected. The SEC said the trades generated more than $5 million in commissions for the brokers.
“The broker defendants profited handsomely from their misconduct,” the SEC said in the complaint.
The brokers were Justin F. Finken, 29; Skifter Ajro, 35; John S. Peffer, 41; Marc J. Bilotti, 34; Martin J. Druffner, 35; and their manager Robert E. Shannon. All six resigned last year....
The complaint alleges the brokers made thousands of “market timing” trades from 2001 to 2003 in virtually all of the country’s major mutual fund groups on behalf on seven hedge-fund clients.
Market timing is the use of quick, in-and-out trades that skim profits from longer-term shareholders, often taking advantage of different closing times for markets around the world. The practice is not illegal, but regulators have recently cracked down on companies that officially forbid market-timing but made selective exceptions for big clients or their own managers.
In the past 12 months, several major fund complexes – including Alliance Capital Management, Janus Capital Group and Bank of America Corp. – have paid hundreds of millions of dollars to settle improper trading charges brought by regulators. Fund executives, managers and traders have also been accused of wrongdoing.
In this case, the SEC has not alleged any wrongdoing by the fund companies, but instead portrayed them as alleged victims of the brokers.
The agency alleges the hardest-hit mutual fund was Houston-based AIM Investments, through which the brokers made $166 million in market timing trades. The next-largest sum was at Franklin Templeton Investments of San Mateo, Calif., had $87.3 million, while Putnam Investments in Boston had $42.6 million in market timing, according to the complaint.
Prudential Securities merged last year with Wachovia Securities LLC. Wachovia Corp., the majority owner of the joint entity, has described the case as a “Prudential matter.”
A spokesman for Prudential Financial Inc., which owns 38 percent of the company, said his company has been cooperating with regulators.
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February 17, 2004
Prudential Insurance Retired
Employees Pension Plan Lawsuit
In a lawsuit entitled Dupree, et al. v. The Prudential Insurance Co., et al., No. 99-8337-CIV (AJJ) (S.D. Fla.), Lief Cabraser, along with co-counsel, represents a group of retired employees of Prudential who are participants in Prudential’s Retirement Plan. The Plan provides pension benefits to thousands of retirees who used to work for Prudential. Those benefits are protected by a federal statute called the Employee Retirement Income Security Act (ERISA), which was enacted by Congress to prevent employers from exercising improper control over the assets of their retirement plans.
The plaintiff retirees allege that Prudential violated ERISA by using (and continuing to use) the Retirement Plan’s assets to benefit Prudential, instead of its retirees....
Plaintiffs request that the Court make Prudential restore to all Plan participants the funds allegedly taken out of the Retirement Plan in violation of the law.
www.lieffcabraser.com/prudentialretirees.htm
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U.S. Pension Bailout
Has $11.2 Billion Deficit
By Leigh Strope, The Associated Press
WASHINGTON - The deficit for the government’s pension insurance program ballooned to a record $11.2 billion last year, more than triple the previous year’s total, and officials are warning that taxpayers could be called on for a bailout.
The Pension Benefit Guaranty Corp.’s financial woes are driven by an increasing number of bankrupt pension plans, from such companies as Bethlehem Steel and US Airways, and record-low interest rates, officials said.
Outgoing Executive Director Steven Kandarian said Thursday that the agency could continue to pay pension benefits to retirees in bankrupt plans “for a number of years,” but the growing deficit “puts at risk the agency’s ability to continue to protect pensions in the future.”
Kandarian, who spent more than two years at the helm, urged Congress to act soon to reform the nation’s private pension system, which also is being squeezed by low interest rates, a subdued stock market and laws that do not require employers to maintain full funding levels in their retirement plans.
Underfunding for all pension plans is estimated at more than $350 billion.
The agency’s single-employer program posted a net loss of $7.6 billion for its 2003 financial year ending Sept. 30, adding to a $3.6 billion shortfall in 2002....
Kandarian warned that “the taxpayer might be called upon to make those payments” to workers if the PBGC falls further into debt, a remedy he said he does not favor.
His agency, the Labor and Treasury departments and others are crafting reform plans. Kandarian said the plan is in its final stages and could be offered to Congress soon.
PBGC was created in 1974 to guarantee payment of some benefits earned in traditional pension plans, which are offered by employers and promise workers a set benefit based on salary and years of service. Workers are not required to make contributions as they do in 401(k) plans.
The agency is financed by insurance premiums paid by companies that sponsor pension plans and by PGCG’s investment returns.
PBGC took over 152 pension plans in 2003 covering 206,000 people, up from 144 plans and 187,000 participants the previous year.
It paid a record $2.5 billion in benefits last year, an increase of nearly $1 billion.
PBGC also guarantees pension benefits earned by workers in multi-employer pension plans, which often are collectively bargained by employers and unions. For the first time in more than 20 years, PBGC’s multi-employer program rang up a deficit – $261 million, the largest ever.
Rep. John Boehner, a Republican from West Chester and chairman of the House Education and Workforce Committee, called the PBGC’s growing deficit “startling.”
He pledged to work on a comprehensive reform package this year that would “strengthen the defined benefit system for workers and employers and put the PBGC on sound financial footing so that it can protect the pension benefits of American workers who rely on defined benefit plans for theior retirement security.”
The House already has approved nearly $26 billion in temporary relief to companies struggling to keep up with pension plan payments, while lawmakers consider permanent reforms....
For more, GO TO > > > The Great Nest Egg Robberies
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December 12, 2003
Prudential Securities
Fraud Charged
By Brooke A. Masters and Carrie Johnson, Washington Post
Massachusetts securities regulators charged Prudential Securities yesterday with securities fraud for allegedly allowing several of its Boston brokers to place at least 1,212 illegal after-hours mutual fund trades worth $162 million.
Secretary of the Commonwealth William F. Galvin alleged in an administrative complaint that the giant brokerage firm failed to stop the Boston office from helping clients break a law that requires fund purchase and sales orders placed after 4 p.m. to be filled at the next day’s price. Such “late trades” allowed the firm’s clients to capitalize improperly on news announced after the New York markets closed....
The Massachusetts regulator’s solo action suggests that rivalry between state and federal regulators continues to infect efforts to clean up the $7.1 trillion mutual fund industry. Galvin and SEC officials split publicly last month when he roundly criticized the commission’s decision to reach a partial settlement with Boston-based Putnam Investments over allegations of predatory trading by firm insiders....
According to the complaint, the Boston brokers would take preliminary fund orders from hedge fund clients before the 4 p.m. cutoff, time-stamp the documents and put them aside. After the markets closed, the clients would call in to confirm or pull their orders. The brokers then would fax the approved trades to New York for execution.
“This is yet another example of Wall Street putting the interests of favored clients ahead of retail investors. It’s a dismaying but by now a familiar pattern,” Galvin said.
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November 4, 2003
Funds warned Prudential with
massive letter campaign
BOSTON, Nov 4 (Reuters) - You have mail. Make that you have lots and lots and lots of mail.
In what may be one of the biggest letter-writing campaigns in financial history, mutual fund companies from Massachusetts to Texas fired off between 25,000 and 30,000 letters to Prudential Securities Inc. last year, Massachusetts officials said on Tuesday.
The letters warned Prudential that its brokers, many working in Boston, were involved in market timing, a practice by which investors try to buy and sell mutual fund shares fast to profit from stale prices.
Market timing is prohibited at many fund companies because it is seen as driving up trading costs and watering down long-term investors' profits.
The letters, if laid end to end, would ring Boston's financial district, the hub of the world's mutual fund industry. Had they been sent in one batch, a single U.S. letter carrier would have hauled nothing but these warnings for 13 straight days. Altogether they would have cost about $9,000 to post.
Trouble is, no one acted on the letters, Massachusetts regulators said on Tuesday when they accused a handful of former Prudential brokers of civil securities fraud.
Prudential Securities is jointly owned by Wachovia Corp (WB) and Prudential Financial (PRU).
Executives at several mutual fund companies said this warning message was important enough to call for a real letter, not e-mail. But when they learned the entire industry had sent so many, it left people stunned.
"We have sent roughly 200 letters to a number of account holders, including Prudential Securities, in the last year to inform them that they were caught breaking our company rules," said Meg Pier, a spokeswoman for Eaton Vance Corp., the Boston-based company known for its no-nonsense approach in kicking market timers out of its accounts.
She said the total number of letters sent by the industry surprised her. "And we thought we had sent a large number of letters," she added.
© 2003 Reuters
For another Prudential “letter-writing campaign”, GO TO > > > The Kamehameha Schools Retirement Plan
* * *
November 4, 2003
Mutual fund probe hits
ex-Prudential brokers, Janus
By Herbert Lash, Reuters
NEW YORK, Nov 4 (Reuters) - Federal and state authorities on Tuesday accused seven former Prudential Securities employees of fraud related to mutual fund trading, on the same day that the outrage over improper trading hit Janus Capital Group Inc.
The U.S. Securities and Exchange Commission and Massachusetts securities regulators filed charges against five brokers and two managers in Prudential's Boston office, saying they raked in millions of dollars with their superiors' blessing.
In the first sign that Janus (JNS) will feel investors' wrath, Colorado's biggest public employee pension fund said it was dropping Janus' flagship mutual fund from its employee retirement plan.
And Putnam Investments, which has been in the eye of the mutual fund storm since regulators charged it with fraud last week, could see more hemorrhaging of assets.
The treasurer of California urged the state's two giant pension funds to pull their assets from Putnam.
In another development, New York Attorney General Eliot Spitzer is investigating whether the U.S. arm of Deutsche Bank AG , Germany's biggest bank, helped investors make illegal trades, a person familiar with the situation said Tuesday. The probe could lead to either criminal or civil charges, the person said.
A Deutsche spokesman, Ted Meyer, declined to comment.
In the Prudential case, the alleged fraud was so rife that state authorities said the brokerage received 25,000 to 30,000 letters from clients in the past year warning Prudential about the improper trading.
Massachusetts' top securities regulator, Secretary of the Commonwealth William Galvin, said Prudential executives openly encouraged market timing, which mutual funds discourage.