U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19496 / December 16, 2005
Securities and Exchange Commission v. Martin J. Druffner, et al., Civil Action No. 03-12154-NMG (D.Mass.)
Commission Settles Fraud Charges Against Former Prudential Broker in Connection with Market Timing Trades
The Commission announced today that, on December 8, 2005, a Massachusetts federal court entered a final judgment by consent against John S. Peffer of Newburyport, Massachusetts, a defendant in a civil injunctive action filed by the Commission on November 4, 2003. The Commission alleged that Peffer, a former registered representative of broker-dealer Prudential Securities, Inc., committed fraud in connection with his market timing trades in dozens of mutual funds. The final judgment enjoined Peffer from future violations of the federal securities laws and ordered him to pay over $50,000 in disgorgement and post-judgment interest.
The Commission filed its complaint against Peffer, four other former Prudential Securities registered representatives, and their former branch manager, on November 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Peffer was part of a two-person group of registered representatives, known as the "Peffer Group," that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $300 million for two customers from at least January 2001 through September 2003. According to the amended complaint, Peffer knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, Peffer Group members disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only two customers.
Without admitting or denying the allegations in the Commission's amended complaint, Peffer consented to the judgment entered by the U.S. District Court for the District of Massachusetts, which permanently enjoins him from future violations of 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 judgment holds Peffer liable for $408,904 in disgorgement and $39,384 in pre-judgment interest, but waives payment of all but $50,000 of that amount plus post-judgment interest of $1,734.41 and does not impose a civil monetary penalty based on Peffer's sworn representations of his financial condition. Peffer also offered to settle related administrative proceedings, and the Commission instituted a settled Order on December 16, 2005, barring Peffer from association with any broker, dealer, or investment adviser, with the right to reapply for association after three years.
For further information, please see Litigation Release Numbers 18444 (November 4, 2003) and 18784 (July 15, 2004) and Exchange Act Release Number 52962 (December 16, 2005).