The Financial Industry Regulatory Authority has ordered a NewJersey company to pay more than $10.7 million in restitution, plusinterest, to customers who placed mutual fund orders with PrucoSecurities, LLC, via facsimile or paper orders from late 2003 toJune 2011 and received an inferior price for their shares.

|

FINRA also fined Pruco $550,000 for its pricing errors and forfailing to have an adequate supervisory system and writtenprocedures in this area.

|

“Pruco’s inadequate supervision and pricing system resulted inthousands of customers receiving inferior prices for more thanseven years. Broker-dealers must ensure that their systems providecustomers with accurate pricing for all products that the firmsoffer,” said Brad Bennett, executive vice president and chief ofenforcement at FINRA.

|

One of Pruco’s retail brokerage business units, COMMAND,instituted a practice for handling mutual fund paper orders thatwas inconsistent with the pricing requirements of the InvestmentCompany Act of 1940, which requires that mutual fund orders arepriced on the day the order is received prior to 4 p.m. Instead,from late 2003 to June 2011, COMMAND priced more than 850,000 paperorders, on average, one or two days after it received completeorders prior to 4 p.m.

|

The employees mistakenly believed that they could use “bestefforts” to process mutual fund paper orders and that paper orderscould be priced on the date the order was processed, even if Prucoreceived a complete order prior to that date. As a result of thesefindings, approximately 37,000 accounts for 34,000 customers willreceive more than $10.7 million in restitution, plus interest. Thefirm is in the process of calculating restitution for up to 3,240additional customers who will receive restitution upon the firm'scompletion of its review. The issue was discovered after an inquiryto COMMAND personnel regarding a fax order submitted had not beenexecuted until the day after it was received as a completeorder.

|

FINRA also found that Pruco failed to have an adequatesupervisory system to detect and prevent the mispricing of papermutual fund orders and to ensure that customers who submitted papermutual fund orders received the correct price. Additionally, Prucofailed to have written procedures for the pricing of mutual fundorders, and did not provide its employees with any training ortraining materials regarding paper mutual fund pricingrequirements.

|

When determining the sanctions imposed in this matter, FINRAtook into consideration that the firm self-reported the pricingissue, undertook an internal review, implemented changes to itspolicies and procedures and commenced restitution to the affectedcustomers.

|

FINRA, the Financial Industry Regulatory Authority, is thelargest independent regulator for all securities firms doingbusiness in the United States.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.