Staff Statement at Joint Press Conference on Global Settlement with Prudential Securities, Inc.
Linda Chatman Thomsen
Director, Division of Enforcement
U.S. Securities and Exchange Commission
August 28, 2006
Today's actions reflect the latest step in a sustained effort at the federal, state and self-regulatory levels to address harm to mutual fund investors. The actions just described by the Deputy Attorney General and the United States Attorney for the District of Massachusetts reflect the seriousness of the misconduct that occurred in this matter. In addition to these actions, the Massachusetts Securities Division, the NASD, the New Jersey Bureau of Securities, the New York Attorney General, the New York Stock Exchange and the Securities and Exchange Commission have initiated proceedings relating to the illegal behavior by Prudential Securities, Inc., the predecessor of Prudential Equity Group, and its registered representatives. I'd like to commend all of the individuals at the Department of Justice, especially those in the District of Massachusetts, at the United States Postal Service, those in the state offices in Massachusetts, New Jersey and New York, at the NASD, the New York Stock Exchange and, of course, my colleagues at the SEC, for all of the diligence and hard work today's actions reflect.
Today, the Securities and Exchange Commission has filed two actions. The first is a settled administrative action against Prudential in connection with the active and aggressive acts of deception by its brokers. These practices were designed to hide the brokers' identities and the identities of their hedge fund customers to place market timing trade in mutual funds when those mutual funds were attempting to block market timing which was harming its investors. For example, when a mutual fund complex tried to stop market timing activity, the Prudential representatives concealed their identities and the identities of their customers by using numerous other broker identification numbers or other customer account numbers for the same customers. Mutual fund companies sent more than a thousand letters and emails to Prudential, many of them notifying the company that its representatives were using deceptive trading practices and asking Prudential to stop the activity. High level officers of Prudential were aware of the complaints but the company failed to take action to stop the fraud. As a result of this settled action, $270 million will be distributed to harmed mutual funds and their shareholders.
Today's second SEC action is an unsettled civil action against four former brokers of Prudential whom we allege engaged in this fraud: Frederick O'Meally, Brian Corbett, Michael Silver, and Jason Ginder. I should note that previously, in November of 2003, we filed suit against six other individuals five other former Prudential brokers and their branch manager for similar activity. In today's action against the individual brokers, we allege that each of the defendants engaged in an array of deceptive conduct all designed to allow hedge fund customers to engage in market timing in mutual funds when those funds were actively attempting to prevent harm to their investors by halting such trading. Among other things, we allege that the defendants used more that 750 different customer accounts to process transactions, using dozens, and in one instance, hundreds, of different account numbers for the same customer. In this action, which has been filed in federal court in New York, we seek the full panoply of available remedies including injunctions, disgorgement and penalties.
As I mentioned at the outset today's actions are part of a sustained effort by many in law enforcement to address mutual fund abuse. To date, the SEC has brought dozens of actions and collected over $3 billion for fair fund distribution. Many, many dedicated individuals have contributed to this effort. Today's SEC actions are the result of the work of an intrepid team in our Boston office David Bergers, John Dugan, Beth Lehman, Stuart Feldman, Frank Huntington, Maureen Harrington, and Kara Ramos.