Pru retail brokerage settles charges over mutual fund pricing

Unit to pay nearly $11M to close Finra action; B-D platform allegedly failed to place orders in a timely fashion

Dec 26, 2012 @ 3:33 pm

By Liz Skinner

Pruco Securities LLC will pay more than $10.7 million to customers who placed orders for mutual fund shares via facsimile or through the mail and allegedly received inferior pricing over a seven-year period.

The Financial Industry Regulatory Authority Inc. said Pruco, part of Prudential Financial Inc., priced more than 850,000 paper orders from late 2003 through June 2011 one or two days after they were received. The orders, which were handled by a Pruco retail brokerage platform called Command, should have been priced on the day the orders were received as long as it was before 4 p.m.

Newark, N.J.-based Pruco also will pay a $550,000 fine for pricing errors and for having inadequate supervisory systems and procedures, Finra said.

“Pruco's inadequate supervision and pricing system resulted in thousands of customers receiving inferior prices for more than seven years,” said Brad Bennett, Finra's enforcement chief. “Broker-dealers must ensure that their systems provide customers with accurate pricing for all products that the firms offer.”

Employees at Command mistakenly thought they could use “best efforts,” or up to two business days, to process these funds orders, Finra said. About 37,000 accounts for 34,000 customers will receive restitution, plus interest. The company is still calculating restitution for about 3,240 additional customers who will get money back after Pruco finishes its pricing review.

Apparently, Pruco discovered the pricing issue after Command personnel were asked about a fax order that wasn't executed until the day after it was received. Finra said it took into consideration that the firm reported the pricing issue to the regulators and has already made changes to its policies and procedures.

Prudential spokesman Bob DeFillippo said that after the company discovered the pricing delay and reported it to Finra, it also moved quickly to make sure it couldn't happen again, and to identify customers who deserve restitution.

“The errors were not always in our favor, but of course we're not trying to recover anything,” Mr. DeFillippo said. “Our intent is to make sure anyone harmed is made whole, plus interest.”

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