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SEC, Mass. Charge 6 Ex-Prudential Workers

Nov 4, 2003 | AP

The growing mutual fund scandal struck Prudential Securities Inc. on Tuesday as state and federal regulators filed civil charges against five former brokers and a former branch manager at Prudential's Boston office alleging improper trading.

The complaints by the Securities and Exchange Commission and Massachusetts Securities Division allege that former brokers Martin J. Druffner, Justin F. Ficken, Skifter Ajro, John S. Peffer and Marc J. Bilotti used false identities for themselves or their customers to defraud mutual funds and their shareholders. The complaint alleges the defendants made thousands of short-term, in-and-out trades known as market timing.

"Our complaint alleges that by concealing or misrepresenting their own identities or the identities of their clients, the defendants were able to circumvent restrictions intended to protect mutual fund shareholders against excessive market timing," said Stephen M. Cutler, director of the SEC's Division of Enforcement. "That's fraud, plain and simple."

Prudential, though not named as a defendant in the SEC complaint, is the latest company embroiled in the growing scandal over mutual fund market timing. Last week, the SEC and Massachusetts regulators brought civil enforcement actions against Boston-based Putnam Investments for allegedly turning a blind eye to market timing trades by some customers and employees.

A source familiar with the matter told The Associated Press on Monday that Prudential was expected to be added as a defendant within a few weeks, and the Massachusetts complaint criticized the company even though it did not name it as a defendant.

"Prudential management welcomed the business and sought to accommodate the Druffner Group's market timing business by allotting the representatives additional assistants, a personal fax machine and designated staff in the wire room available on a daily basis to assist with the late day volume of trades and exchanges," the complaint states.

The action came a day after the head of the SEC's Boston office resigned following criticism his office did not respond aggressively enough to a whistleblower's complaint about alleged improper market timing at Putnam Investments, which was cited in complaints filed by the regulators last week.

A Prudential spokesman did not immediately return a phone message seeking comment. On Monday, when it was first reported the civil actions were to be filed imminently, the company said it was cooperating fully but had no further comment.

The SEC complaint alleges the brokers violated federal securities law and that former branch manager Robert Shannon "substantially assisted" the brokers by, among other things, approving market timing trades.

The SEC said it would seek injunctive relief, penalties and disgorgement, a request common in such proceedings to refund investors for any lost profits.

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