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NASD Eyes Prudential Securities in Late Trading Probe

Nov 5, 2003 | Wall Street Journal

Prudential Securities is being investigated by the National Association of Securities Dealers for issues involving so-called late trading of mutual funds.

Specifically, the NASD is investigating whether late trading, which is illegal, took place in the firm's Boston office, and whether Prudential Securities conducted the proper oversight of mutual-fund orders needed to determine whether they had been properly placed.

Separately, the Securities and Exchange Commission and the Massachusetts Securities Division yesterday filed civil charges against a group of former Prudential brokers and managers from the firm's Boston office in connection with the regulators' continuing fund investigations. According to the charges, which had been expected, the brokers enabled improper trading of fund shares by misrepresenting their identities or the identities of their customers, in some cases with help from employees of mutual-fund companies.

Prudential Securities, which is majority owned by banking concern Wachovia Corp. wasn't charged. However, Massachusetts regulators are investigating the possibility of filing charges against Prudential, said a person familiar with the matter. "Senior Prudential officials knew and encouraged this activity and were reluctant to pass up the profits generated by courting multimillion- dollar accounts," the Massachusetts complaint reads.

Wachovia spokeswoman Mary Eshet declined to comment on the SEC and Massachusetts charges but said that since the bank acquired control in July, it has been diligent about preventing inappropriate market-timing. The brokerage firm's minority owner, Prudential Financial Inc., Newark N.J., said only that it was "cooperating" with the inquiry. Ms. Eshet said Wachovia is indemnified by Prudential Financial for any damages that could result from the complaints.

A Prudential spokesman said the firm is cooperating with the NASD inquiry. A Wachovia spokeswoman said the bank had no additional comment.

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