Prudential fires brokers, managers following inquiry
12 employees in Boston and New York were scrutinized by regulators
By HELEN STOCK Bloomberg News
Thursday, October 2, 2003
Prudential Securities fired a dozen brokers and managers in its Boston and New York offices after regulators alleged that some brokers traded in and out of mutual funds for quick profits at the expense of long-term investors, people familiar with the situation said.
The employees included Robert Shannon, manager of its Boston office, and Boston brokers Martin Druffner, Justin Ficken, Marc Bilotti, John Peffer and Skifter Ajro, their lawyers said. Prudential, part of the third-largest U.S. brokerage by assets, also dismissed six employees in two offices on Long Island and in Manhattan, a person familiar with the matter said.
Prudential was the fourth company to fire or suspend employees since New York Attorney General Eliot Spitzer last month started a probe of the $6.9 trillion mutual fund business. He has accused companies including Bank of America Corp. of giving New Jersey hedge fund Canary Capital Partners LLC improper trading advantages in exchange for investing in their funds.
“Every organization in the business is turning over every stone, making sure everything is in order,” said Robert Reynolds, vice chairman and chief operating officer at Fidelity Investments, the biggest U.S. mutual fund company, at a news briefing in New York.
Massachusetts Secretary of the Commonwealth William Galvin alleged last month that Prudential brokers in Boston violated securities laws by making short-term trades in mutual funds for some customers at the expense of long-term investors.
Spitzer, the National Associationof Securities Dealers and the Securities and Exchange Commission also are investigating Prudential, the company has said.
Prudential Securities became part of Wachovia Securities on July 1, when life insurer Prudential Financial Inc. sold it to Wachovia Corp. in a cashless transaction, keeping a 38% stake in the combined brokerage. The new entity has 12,000 brokers in 700 offices and 330 bank branches.
Shannon’s lawyer, Steven Fuller, said his client had no comment. Michael Collora, who is representing Druffner, Ficken, Bilotti, Peffer and Ajro, said his clients are cooperating with the SEC and Galvin’s office. They were asked to resign because of a disagreement over whether they followed the company’s policy requiring that any restrictions on the timing of trades listed in an individual funds prospectus must be followed, he said.
“Prudential’s policy was you’re supposed to follow the language” in the prospectuses, Collora said. The wording “varied from very restrictive language to very unclear.”
Tony Mattera, a spokesman for Wachovia Securities, confirmed that there had been some departures.
“We continually review our business practices and occasionally as a result of these reviews take action if appropriate,” Mattera said. Dennis Schmidt is going to be acting branch manager for the Boston office, he said.
Short-term trading increases transaction costs at funds, which are shared by all shareholders, and also complicates the jobs of fund managers.
Bank of America has dismissed at least five employees since Spitzer filed his initial complaint on Sept. 3. Janus Capital Group Inc., which was also accused of giving Canary special trading privileges, said it earned $1 million by allowing some investors to make short-term trades. The company said certain employees who were “central” to the trading agreements are no longer there.
Alliance Capital Management LP, a New York-based unit of France’s Axa SA, have also suspended or fired employees over the matter. Alliance suspended Gerald Malone, manager of the $3 billion AllianceBernstein Technology Fund, and Charles Schaffran, a hedge fund marketing executive, The Wall Street Journal reported without identifying its sources.
