Bad timing for Prudential

Losses & Lawsuits

A National Association of Securities Dealers (NASD) investigation revealed at the end of August that more than $116 billion in mutual fund transactions was conducted through 1,600 customer accounts in a market timing scheme. The firm was also found to have deficient procedures relating to prevention of late trading.

Prudential agreed to pay the NASD, federal and state regulators and the Department of Justice a total of $600 million in monetary sanctions and disgorgement. It was ordered to pay $270 million into a distribution fund administered by the Securities and Exchange Commission, which will be used to compensate the affected mutual funds and shareholders for their losses.

The Department of Justice imposed an additional fine of $325 million, and the Massachusetts Securities Division imposed a separate $5 million civil penalty.

The NASD says Prudential brokers defrauded mutual funds and their shareholders by misrepresenting their own identities and the identities of their brokerage clients to engage in market timing after the mutual funds had placed blocks attempting to prohibit such trading.

The brokers are said to have used multiple customer account numbers and representative numbers to evade the trading restrictions certain mutual funds imposed on market timing transactions.

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