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Brokers Resign in Prudential Probe

Oct 1, 2003 | AP

A dozen employees at Prudential Securities brokerage offices in Boston and the New York City area were asked resign amid an internal probe of improper mutual fund trading, an industry source said Wednesday.

The two office managers, one in Boston, one in Long Island and 10 brokers in offices in Boston, Long Island and Manhattan were subjects of an internal probe of improper trades involving market timing, the source said, speaking on condition of anonymity.

It was not clear when the alleged improper trades occurred.

The offices are owned by Wachovia Corp., which in July completed a merger of its retail brokerage operations with those of Prudential Financial Inc., creating one of the nation's largest brokerage firms. The new firm is known as Wachovia Securities, though offices continue to operate under the Prudential name.

Tony Mattera, a spokesman for Richmond, Va.-based Wachovia Securities, said the company would not comment publicly on personnel matters. He said Wachovia constantly reviews its employees' compliance with its business practices.

Massachusetts securities regulators said last month they were examining whether brokers in Prudential's Boston office made improper trades. Such trading, which tries to take advantage of short-term movements in stock prices, is not illegal. But it goes against the rules of most mutual fund companies, which try to manage funds from a long-term perspective.

A memo sent early last month by Wachovia to 12,000 brokers in 750 U.S. offices stated that market timing in funds is prohibited and that the rule against it replaced any prior Prudential policy.

Investigations involving other aspects of alleged market timing transactions are under way at other major fund operations, including those of Bank of America, Janus and Alliance. The Securities and Exchange Commission, the New York attorney general and the National Association of Securities Dealers are involved.

Last month, New York Attorney General Eliot Spitzer charged a Bank of America broker with larceny and fraud. The Charlotte-based bank has dismissed three employees named in Spitzer's investigation.

Two workers at Alliance Capital Management Holding LP have been suspended following an internal probe, Alliance said Tuesday. The company said it is cooperating with authorities investigating market timing transactions.

Meanwhile, Janus Capital Group plans to return about $1 million in fees it made from short-term trading to the affected funds, Mark Whiston, the Denver-based company's chief executive officer, said in a letter Tuesday to shareholders.

Janus has confirmed 12 market-timing arrangements, though only four of them were active and all have been terminated, the company said in a Wednesday filing with the Securities and Exchange Commission.

Whiston said the trading involved seven of its mutual funds and about $350 million in assets. Any losses to shareholders will be made up if an audit uncovers damage from the short-term trades, Whiston said.

The employees who were involved in the trades are no longer with the company, he said.


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