U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19813 / August 28, 2006
SEC v. Frederick J. O'Meally, et al., Civil Action No. 06 Civ. 6483 (LTS) (S.D. N.Y.)
Commission Files Fraud Charges Against Former Prudential Securities Registered Representatives in Connection with Market Timing of Mutual Funds
The Securities and Exchange Commission today announced a civil fraud action against four registered representatives formerly employed by broker-dealer Prudential Securities Inc. (APSI@), now known as Prudential Equity Group, LLC ("PEG") in connection with the registered representatives' market timing trades in numerous mutual funds. The Commission alleges in its complaint that, from at least 2001 through September 2003, the former PSI registered representatives defrauded more than 25 mutual funds and their shareholders in thousands of market timing trades worth more than $2.5 billion. The former PSI registered representatives accomplished their fraud by misrepresenting their identities and the identities of their hedge fund customers. The former PSI registered representatives are Frederick J. O'Meally, of Bay Shore, NY; Jason N. Ginder, of New Fairfield, CT; Michael L. Silver, of Woodcliff Lake, NJ; and Brian P. Corbett, of Sea Cliff, NY.
According to the Commission's complaint, filed in U.S. District Court for the Southern District of New York, from at least 2001 through September 2003, certain mutual fund companies detected market timing activity by the defendants and attempted to block the defendants or the defendants' hedge fund customers from further trading in their funds. The complaint alleges that the defendants used fraudulent and deceptive trading practices to conceal their and their customers' identities and thereby evade these blocks, including their use of multiple broker identifying numbers and multiple customer accounts; their establishment and use of accounts coded as Aconfidential@ in PSI=s systems; and their use of Aunder the radar@ trading to avoid notice by mutual funds. The complaint further alleges that the defendants= use of these trading practices was designed to, and did, trick the mutual fund companies into accepting transactions they otherwise would have rejected. This action follows a previous civil injunctive action filed in November 2003 in the U.S. District Court for the District of Massachusetts against five former Boston-based PSI registered representatives and their former branch manager who were charged with similar conduct.
The Commission's complaint alleges that O'Meally, Ginder, Silver, and Corbett violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking injunctive relief, disgorgement, prejudgment interest, penalties, and such equitable relief as the court deems appropriate.
In a related action, the Commission today instituted settled administrative proceedings against PEG, in which PEG agreed to pay $270 million to settle Commission charges concerning deceptive market timing trading by former PSI registered representatives.
The Commission's investigation as to other individuals involved in this matter is continuing.
For further information, please see Administrative Release No. 3-12400 and Litigation Release Numbers 18444 (November 4, 2003)[charges filed against five other registered representatives and their branch manager] and 18784 (July 15, 2004)[amended complaint filed against five other registered representatives and their branch manager].