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Tuesday, November 04, 2003|
Five Prudential Brokers Busted
Massachusetts investigators plan to accuse Prudential Securities Inc. of ignoring more than 25,000 letters from mutual fund companies regarding its brokers' market timing activities, the Wall Street Journal reports.
These allegations are expected to be included in the civil securities fraud charges that could be filed by Massachusetts regulators and the SEC sometime next week.
According to the complaint, Massachusetts regulators plan to charge five former Prudential employees with civil fraud charges in lieu of charging the firm itself. Instead, regulators are expected to allege that the company ďknew of and had the ability to terminateĒ market timing activities by three of its brokers but did not. For example, the complaint will note how a letter from a Hartford Mutual Fund employee complaining about how the behavior of several Prudential brokers disrupted the companyís funds was ignored.
The complaint will also allege that three brokers in particular---Martin J. Druffner, Justin F. Ficken and Skifter Ajro---manipulated controls by trading under at least 62 different identification numbers but were not disciplined once, even after a policy change earlier this year warned that market timing would not be tolerated and employees found timing would be fired.
Frederick O'Meally, a former broker in Prudential's Garden City, N.Y. office who is currently under investigation by the SEC and New York regulators for his involvement in market-timing of mutual funds by a senior trader at Millennium Partners LP was also named. The fifth broker has not been identified.
To add insult to injury, the complaint will also allege that two branch managers in Prudentialís Boston office condoned and aided in the market timing activities of brokers because of the commissions involved.
The trio allegedly began soliciting clients interested in market timing---generally big hedge funds--- in 1998 and were able to generate $33 million in commissions this year alone. Druffner was the groupís head and was billed as one of Prudentialís highest-producing brokers.
Two hedge funds will also be named for their market timing activities through Prudentialís Boston branch, they are Chronos Asset Management, which was funded by Candian Imperial Bank of Commerce and Head Start. A source told the Wall Street Journal that Head Start was an offshore fund whose beneficiaries regulators havenít identified. However, the complaint will not allege that the funds did anything improper.
The funds traded through the trio generally werenít Prudential funds; typically they went with outside funds including Putnam and Hartford Mutual fund offerings. The complaint alleges that some of these funds suspsected that the Prudential brokers were timing and repeatedly tried to block them from trading by terminating their trading priviledges but were not successful.
The complaint also alleges that the brokers were successful in getting around the blocks by executing trades under threshold amounts, using different names or relying on mutual-fund wholesalers to tip them off about funds that werenít closely monitored.
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