Failing to adequately oversee ifs sales force will cost Prudential Securities. The Securities and Exchange Commission said today that the brokerage will pay $382,000 to close the books on a case in which investors were sold Class B shares inappropriately. The payments included $300,000 in civil penalties and $82,000 in compensation to investors.
Prudential neither admitted nor denied wrongdoing in settling the matter. The brokerage firm said today that it fully cooperated with the SEC investigation and that it has "revised and enhanced" its compliance practices since the period covered by the probe.
The payments will likely harm Prudential's pride more than its pocketbook or reputation. Not only are the payments small compared to revenues that Prudential has created through the sale of funds, the brokerage business itself was merged with that of Wachovia last week. The Prudential name will disappear from the unit by the end of the year.
The case reflects the current efforts by regulators to better enforce the recognition of mutual fund commission breakpoints by brokerage firms.
The SEC contended that Prudential failed to implement adequate systems to monitor and enforce policies on what fund share classes could be sold to investors. It also maintained the investors were not consistently made aware of possible commission breakpoints for purchases of A shares. By not disclosing the breakpoint information, the broker may have been steering the investors to invest in B shares with a higher broker payout. The investigation covered the years of 1998 through 2000.
The case specifically covered actions taken by Robert Ostrowski and Rees T. Harris. A separate probe into their behavior remains open. Osrtowski was a Prudential broker during the period in question and Harris was a Prudential branch office manager. Neither Ostrowski nor Harris now works for the brokerage.
SEC officials characterized Ostrowski as one of Prudential's "top mutual fund salesmen", thought they offered sales data to support their supposition.
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