Former brokers at Prudential Securities who face charges that they made millions in improper trades had plenty of outside help, Massachusetts regulators say.
A complaint being filed today, a copy of which was obtained by the Herald, claims sales representatives at several unnamed mutual fund firms encouraged the abusive trades.
Sales representatives at the unnamed fund firms coached the brokers on how to avoid detection through tactics including bogus identification numbers and names, the complaint says.
Charges are being filed today against three ex-Prudential brokers and two former managers, but a source familiar with Secretary of State William Galvin’s investigation says it isn’t over.
Galvin’s office sent subpoenas last month to employees at Fidelity Investments, Morgan Stanley and Franklin Resources Inc.
Today’s complaint describes how the brokers in Boston made millions of dollars from 1998 to 2003 by “market-timing” for clients – including hedge funds Chronos Asset Management and Head Start.
Martin Druffner led the group, which included Justin Ficken and Skifter Ajro, and became the top producer for the Boston office, the complaint says.
It also claims former Boston branch managers Michael Vanin and Robert Shannon, who took over for Vanin in November 2001, encouraged the trades, which helped generate revenue for the Boston office.
Galvin and the Securities and Exchange Commission are expected to file fraud charges against Prudential later this month. Galvin’s complaint claims executives at Prudential Securities – a part of Wachovia Securities since July – were aware of the market-timing and didn’t try to stop the practice. For example, they received many letters from mutual fund firms warning about the brokers’ activities.
The complaint also says Prudential didn’t have controls in place that would prevent illegal after-hours trading of funds.
The SEC is also expected to file fraud charges against former Prudential employees today. But it was unclear yesterday whether the SEC would name the same people.
Representatives for the SEC and for Galvin declined to comment.
Galvin seeks to fine the five former Prudential employees and revoke their trading licenses.
All the defendants, except Vanin, were among a group of employees forced out in September amid the probes.
Representatives for Wachovia Corp., the majority owner of Wachovia Securities, and Prudential Financial Inc., a minority shareholder, declined to comment.
Gary Crossen, a lawyer for Vanin, said the trading practices in question were “approved at the highest levels of the company.”
Steven Fuller, a lawyer for Shannon, said his client acted consistently with Prudential policies.
Daniel M. Rabinovitz, who represents the three brokers, said his clients will be vindicated.
