Pruco Securities LLC has been ordered to pay more than $10.7 million to customers who were hurt by the New Jersey-based broker-dealer's alleged mispricing of mutual fund orders.
Wall Street's industry funded-watchdog, the Financial Industry Regulatory Authority, said on Wednesday that one of Pruco's retail brokerage business units mishandled more than 850,000 paper orders from late 2003 to June 2011, resulting in "inferior" pricing for customers. FINRA also fined Pruco $550,000 for its pricing errors and an inadequate supervisory system.
FINRA found that the company did not adequately train its employees to properly handle mutual fund pricing for paper orders - those received by fax or mail.
"The training and supervision of issues like this are very important in the securities industry," said Chicago-based attorney Andrew Stoltmann, who represents investors in investment fraud lawsuits and arbitration cases.
"The pricing of mutual funds and assets is the heart and soul of what a ... brokerage firm is supposed to do," said Stoltmann, who said he expects to see more enforcement actions taken against firms that improperly price securities.
The Investment Company Act of 1940 requires that mutual fund orders be priced before 4 p.m. on the day the order is received. Pruco's brokerage unit, COMMAND, allegedly priced the paper orders, on average, one or two days late.
Approximately 34,000 customers will receive compensation for the roughly 37,000 accounts impacted. The firm is in the process of calculating restitution for up to 3,240 additional customers who will receive compensation upon the firm's completion of its review, FINRA said.
In concluding the settlement, Pruco neither admitted nor denied the charges but consented to the entry of FINRA's findings.
"We cooperated fully with FINRA on this," said Pruco spokesman Bob DeFillippo, who noted that the issue was first discovered by the firm.
"Our interest is to ensure that everyone harmed receives the proper restitution, plus interest," he said, noting that the firm is working to resolve the matter. "The error that occurred was one that wasn't always in our favor. In some cases, it was in the favor of the consumer."
Pruco Securities, based in Newark, is a subsidiary of Prudential Financial Inc.
(Reporting by Ashley Lau in New York; Editing by Chelsea Emery, Phil Berlowitz and Jim Marshall)