Prudential Pays $32.6 Million to Settle Probe of Mutual-Fund Business
17 September 2019 - 8:02AM
Dow Jones News
By Dave Michaels
WASHINGTON -- Prudential Financial Inc. agreed to pay $32.6
million to settle claims that it didn't disclose how a
reorganization of its mutual-fund business would cost the funds
millions in lost interest income.
The Securities and Exchange Commission on Monday said the 2006
reorganization -- intended to engineer tax benefits for Prudential
-- created a conflict of interest because the company benefited
while the funds lost income from securities lending. They also paid
higher taxes in certain foreign jurisdictions. In addition to
paying the fines, Prudential reimbursed over $155 million to the
funds, the SEC said in a settlement announcement.
"Investment advisers must be vigilant in monitoring for
conflicts related to actions taken by affiliates, and must act
consistently with their representations to their clients," said
Dabney O'Riordan, co-chief of the SEC's asset-management unit in
its enforcement division. Prudential's subsidiaries "acted to
benefit their parent company despite the costs those acts imposed
on their clients."
The allegations derived from Prudential's decision to recall
from 2005 through 2015 various fund securities on loan to banks and
other traders. Mutual funds routinely lend stocks or bonds they own
as a way of boosting returns. Prudential's decision to recall the
securities from borrowers allowed it to receive dividends that were
deductible for tax purposes, the SEC said.
Prudential received more than $229 million in tax benefits from
2005 through 2015 due to the practice, the SEC said. During the
same time, the funds didn't receive securities-lending revenue and
other income worth $72 million, the agency said.
Prudential neither admitted nor denied the claims but said in a
statement that it reported the conduct to the SEC and cooperated
with regulators. The company "has a long track record of being
transparent and maintaining constructive relationships with
regulators," the company said.
The SEC said in its settlement order that Prudential employees
didn't fully disclose the problem to regulators when Prudential
underwent a routine regulatory examination in 2014. The issue
surfaced after an employee of Prudential's securities-lending agent
mentioned it in 2015 to a Prudential senior compliance officer,
which triggered an internal investigation, the order said. The
company reported the problems to the SEC in 2016, the order
stated.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
September 16, 2019 17:47 ET (21:47 GMT)
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