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Prudential Brokers Forced to Resign Amid Probe

Twelve leave as an internal investigation finds evidence of improper mutual fund trading, sources say.

October 02, 2003|From Reuters

A dozen stockbrokers and managers at Prudential Securities were forced to resign this week after an internal investigation found evidence of improper mutual fund trading, people familiar with the situation said Wednesday.

Two former managers and 10 stockbrokers who worked in Boston, Garden City, N.Y., and a Manhattan office were asked to resign from the nation's third-largest brokerage.

A spokesman for Wachovia Corp., Prudential's corporate parent, said the company does not comment on personnel matters publicly, but said the company conducted an internal review of practices in many of its offices.

The departures come as federal and state regulators, including New York Atty. Gen. Eliot Spitzer, are picking up the pace of an investigation into whether hedge funds and other big clients were allowed to buy and sell mutual fund shares at a rapid-fire pace, something regulators say cost Main Street investors billions of dollars.

Prudential last month was named by Massachusetts regulators as a target in their investigation into "market timing," a practice that is not illegal but is discouraged by many large mutual fund firms, which impose fines on clients engaging in it.

NASD, which regulates all 5,300 U.S. brokerage firms, is also involved in investigating Prudential, sources said, noting that the group is looking into a number of areas of problematic conduct.

Massachusetts regulators also are looking into whether the No. 5 mutual fund firm, Putnam Investments, a unit of No. 1 insurance broker Marsh & McLennan Cos., was involved. On Tuesday, Alliance Capital Management suspended two fund executives for improper trading, and a number of other high-profile executives at other fund companies also have lost their jobs as regulators find new information.

A former employee at Prudential's Boston office said market timing had been a common practice at the office for years, describing that a flood of orders came in daily, minutes before the markets closed.

Sources also said that because the Boston office covers one of the country's top 20 markets for Prudential, senior executives were well aware of the market-timing practices employed there. They speculated that more senior managers would soon be asked to leave.

A Wachovia spokesman declined to comment on what actions may be taken next.

Wachovia's stock rose 88 cents to $42.07 in New York Stock Exchange trading.

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