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Former Prudential Workers Charged

Nov 5, 2003 | USA TODAY

Regulators on Tuesday accused seven former Prudential Securities employees of using dozens of fake identities to evade mutual fund rules against market timing, reaping millions in profits.

Five former Boston-based Prudential brokers and two managers were named in the civil securities fraud charges by Massachusetts regulators and the Securities and Exchange Commission. From 1998 until they resigned in September, the brokers used at least 62 financial adviser numbers to conceal their identities, the Massachusetts complaint alleges. With help from mutual fund employees, they evaded rules against rapid trading, called market timing, and enriched themselves and offshore hedge fund clients, the document claims.

Three brokers made nearly $5 million in commissions in 2002 alone, according to the SEC. In July 2003, a former Prudential broker informed Massachusetts regulators that brokers were skirting rules and that Prudential had failed to stop it, the Massachusetts complaint says.

At least 68 fund companies sent Prudential some 30,000 notices about the market timing, regulators say. "Despite the incredible influx, Prudential never took any action," the Massachusetts complaint says.

The document alleges that senior Prudential executives were reluctant to pass up profits. Management gave the brokers assistants, a fax machine and staff to help with the volume of late-day trades, the document says.

Market timing is not illegal unless it violates a financial firm's rules against the practice or it is used to benefit select investors. The regulatory action is the latest disclosure involving trading irregularities that have rocked the $7 trillion fund industry.

Though Prudential was not charged, Massachusetts regulators are considering taking action, according to a source close to the probe. The agency also is pursuing a case against the mutual fund company employees who helped the brokers, the source says. New York Attorney General Eliot Spitzer is investigating several former New York-based Prudential brokers for similar irregularities.

A spokesman for Prudential Financial says the firm is cooperating. The Massachusetts complaint charges former Prudential brokers Martin Druffner, Justin Ficken, Skifter Ajro and former managers Michael Vanin and Robert Shannon. The SEC did not charge Vanin but charged brokers John Peffer and Marc Bilotti.

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