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Advisory Firm Settles Charges Related to Breaches of Fiduciary Duties

Dec. 23, 2020

File No. 3-20190

December 23, 2020 - The Securities and Exchange Commission today announced that Pruco Securities, LLC, a dually-registered investment adviser and broker-dealer based in New Jersey, agreed to settle charges for breaches of its fiduciary duty to its advisory clients in Pruco's wrap fee programs. The settlement provides for over $15.75 million to be included in a fund for distribution to Pruco's harmed advisory clients.

According to the SEC's order, contrary to its disclosures, Pruco failed to monitor client accounts to determine whether the wrap fee programs continued to be suitable for clients and miscalculated the advisory fees it charged clients. The order also finds that Pruco received revenue sharing from both bank deposit cash sweep vehicles and mutual funds it recommended to clients, and avoided paying transaction fees by investing clients in no-transaction fee mutual funds. As set forth in the order, Pruco did not disclose these conflicts of interest to its clients. In addition, the order finds that Pruco received 12b-1 fees from certain mutual funds recommended to clients. The order finds that while Pruco updated its Form ADV brochure in June 2014 to disclose the conflict with respect to its receipt of 12b-1 fees, it failed to identify the new disclosure as a material change to the brochure until March 2016. As a result, according to the order, legacy clients were not informed of the conflict until that time. The order further finds that Pruco violated its duty to seek best execution by causing certain advisory clients to invest in certain mutual funds that charged higher expenses when share classes of the same funds were available to the clients that presented a more favorable value under the particular circumstances at the time of the transactions.

The order finds that Pruco willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the SEC's findings, Pruco consented to a cease-and-desist order, a censure, and to pay disgorgement of $12,690,585, prejudgment interest of $3,061,786 and a civil penalty of $2,500,000, all of which will be placed in a fund for distribution to harmed clients.

The SEC's investigation was conducted by Stephen B. Holden with assistance from John Farinacci, and was supervised by Corey Schuster, all from the Enforcement Division's Asset Management Unit.

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