Massachusetts state securities
regulators are investigating the Boston office of Prudential
Securities Inc. for making improper mutual fund trades.
The office of Massachusetts Secretary of State William Galvin
has been investigating Prudential for several weeks, said
spokesman Brian McNiff. No charges are imminent at this time, he
said. McNiff didn’t know whether regulators have talked with
executives at Prudential, a unit of Wachovia Corp.
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The regulators are looking at trades involving market timing,
when investors make short-term trades to take advantage of
anticipated changes in share values. Galvin’s investigation of
Prudential follows the charges of fraud he filed last month against
Morgan Stanley for not disclosing that its brokers were paid more
to sell the company’s own mutual funds.
“We’re very interested in all aspects of mutual fund sales
and trading,” Galvin said in an interview with Bloomberg News.
“We think it’s an instrument many average investors are involved
in because there’s a perception of safety. We’re very concerned
about dishonesty and illegal sales tactics.”
Galvin wouldn’t provide details of the investigation.
Jim Gorman, a Prudential spokesman, said the company is
cooperating with regulators. He declined further comment.
The shares of Wachovia, based in Charlotte, N.C., have gained 17 percent this year, in line
with the rise in the Standard & Poor’s 500 Index.
The Massachusetts probe coincides with New York State
Attorney General Eliot Spitzer’s investigation into mutual fund
trading abuses by Canary Capital Partners LLC, a Secaucus, N.J.-based hedge fund.
Canary is returning $30 million in profits and paying a $10
million fine for making improper mutual fund trades that also
involved market timing, Spitzer said recently.
Janus Capital Group Inc., Bank of America Corp., Bank One
Corp. and Strong Capital Management Inc. also were named in Spitzer’s complaint. Spitzer alleges that the firms cooperated
with Canary in timing trades, enabling Canary to buy mutual fund
shares at prices not available to most investors.
The investigation into Prudential was reported earlier in the
Boston Globe and Boston Herald newspapers.
The Globe, citing unidentified industry sources, reported
that Prudential brokers in Boston focused on international mutual
funds, attempting to buy funds at the end of the day and resell
them at higher prices the next morning. If a mutual fund firm
objected, the Globe said, the Boston brokers would shop for other
funds with less stringent policies on market timing.
Bloomberg News
