is serious about making mutual fund firms process paper orders promptly.
Today the regulatory body announced
that it has ordered Pruco Securities
, a subsidiary of Prudential
], to pay $10.7 million to customers who placed mutual fund orders by mail or fax between 2003 and 2011. Finra found that Pruco often processed these paper orders more slowly than the '40 Act requires, which resulted in the customers' receiving inferior pricing for their fund shares.
The agency also fined Pruco $550,000 for the errors and for failing to have an adequate supervisory system in place to address the problem.
Pruco neither admitted nor denied the findings. The press release states that Pruco reported the pricing problem after an internal review and began paying restitution before this Finra order.
The fines relate to one of Pruco's retail brokerages, COMMAND. The unit processed paper orders using its "best efforts," sometimes taking up to two business days to complete trades, rather than by 4PM on the day the order is received, as the '40 Act requires. The restitution will go to approximately 34,000 customers.
The Finra press release is below.
FINRA Orders Pruco Securities to Pay $10.7 Million in Restitution for Improper Pricing of Mutual Fund Orders; Firm Fined $550,000
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Pruco Securities, LLC of Newark, New Jersey, to pay more than $10.7 million in restitution, plus interest, to customers who placed mutual fund orders with Pruco via facsimile or mail (paper orders) from late 2003 to June 2011 and received an inferior price for their shares. FINRA also fined Pruco $550,000 for its pricing errors and for failing to have an adequate supervisory system and written procedures in this area.
Brad Bennett, Executive Vice President and Chief of Enforcement, said, "Pruco's inadequate supervision and pricing system resulted in thousands of customers receiving inferior prices for more than seven years. Broker-dealers must ensure that their systems provide customers with accurate pricing for all products that the firms offer."
One of Pruco's retail brokerage business units, COMMAND, instituted a practice for handling mutual fund paper orders that was inconsistent with the pricing requirements of the Investment Company Act of 1940, which requires that mutual fund orders are priced on the day the order is received prior to 4:00 p.m. Instead, from late 2003 to June 2011, COMMAND priced more than 850,000 paper orders, on average, one or two days after it received complete orders prior to 4 p.m. The employees mistakenly believed that they could use "best efforts," (i.e. up to two business days) to process mutual fund paper orders and that paper orders could be priced on the date the order was processed, even if Pruco received a complete order prior to that date. As a result of these findings, approximately 37,000 accounts for 34,000 customers will receive more than $10.7 million in restitution, plus interest. The firm is in the process of calculating restitution for up to 3,240 additional customers who will receive restitution upon the firm's completion of its review. The issue was discovered after an inquiry to COMMAND personnel regarding a fax order submitted had not been executed until the day after it was received as a complete order.
FINRA also found that Pruco failed to have an adequate supervisory system to detect and prevent the mispricing of paper mutual fund orders and to ensure that customers who submitted paper mutual fund orders received the correct price. Additionally, Pruco failed to have written procedures for the pricing of mutual fund orders, and did not provide its employees with any training or training materials regarding paper mutual fund pricing requirements.
When determining the sanctions imposed in this matter, FINRA took into consideration that the firm self-reported the pricing issue, undertook an internal review, implemented changes to its policies and procedures and commenced restitution to the affected customers.
In concluding the settlement, Pruco, neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA's investigation was conducted by Gino Ercolino and Jennifer Mennella, under the supervision of Myles Orosco and Richard Best.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2011, members of the public used this service to conduct 14.2 million reviews of broker or firm records. Investors can access BrokerCheck atwww.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.
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