Prudential Agrees to Pay $600 million in Global Settlement of Fraudulent Market Timing Scheme

The SEC announced that Prudential Equity Group, formerly known as Prudential Securities, Inc., agreed to pay a total of $600 million in a global settlement with the SEC, the United States Attorney’s Office for the District of Massachusetts, the Massachusetts Securities Division, the NASD, the New Jersey Bureau of Securities, the New York Attorney General’s Office and the New York Stock Exchange. The SEC’s complaint alleged violations of the antifraud and reporting provisions of the federal securities laws in connection with the activities of four of the firm’s former registered representatives who engaged in an illegal market timing scheme. The complaint, of course, does not claim that market timing in and of itself is fraudulent. Rather, the SEC’s complaint claims that the defendants used a variety of fraudulent and deceptive trading practices to conceal their market timing activities and the identity of their hedge fund clients, once again demonstrating that conduct which is not illegal in and of itself can, in effect, become so because of a cover up and related activates (see Blog post of August 10, 2006 re: backdating options). In settling the action the firm agreed to the entry of injunctive relief, disgorgement, prejudgment interest and penalties. At the same time an action was filed against the four former registered representatives.