In re PRUDENTIAL EQUITY GROUP

 UNITED STATES OF AMERICA 
                                                                     Before                                                                     the                                                                     
 SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  54371 / August 28, 2006 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-12400 
 
 In the Matter of 
 
 PRUDENTIAL EQUITY GROUP,   
 LLC, formerly known as  
 PRUDENTIAL SECURITIES, INC.,  
 
 Respondent. 
 
 
 
 
 
 ORDER INSTITUTING ADMINISTRATIVE  
 PROCEEDINGS, MAKING FINDINGS, AND 
 IMPOSING REMEDIAL SANCTIONS PURSUANT 
 TO SECTION 15(b) OF THE SECURITIES 
 EXCHANGE ACT OF 1934 
 
 
 I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
the public interest that public administrative proceedings be, and hereby are, instituted pursuant 
to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Prudential 
Equity Group, LLC, formerly known as Prudential Securities Inc. (“Respondent”). 
 
 II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the 
findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
proceedings, Respondent consents to the entry of this Order Instituting Administrative 
Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Section 15(b) of 
the Securities Exchange Act of 1934 (the “Order”), as set forth below. 
  
 
 

 
 
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III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
A.        Respondent        
 
 1. Prior to July 1, 2003, Prudential Securities Inc. ("PSI") was an indirect wholly 
owned broker-dealer subsidiary of Prudential Financial, Incorporated ("Prudential Financial").  
Prudential Financial is a publicly-owned holding company, traded on the New York Stock 
Exchange, whose operating subsidiaries provide a wide range of insurance, investment 
management and other financial products and services to retail and institutional customers 
including insurance brokers and investment managers.  On July 1, 2003, PSI transferred the 
assets relating to its U.S. retail securities brokerage operations to a newly formed holding 
company, now named Wachovia Securities Financial Holdings, LLC ("WSFH").  Prudential 
Financial presently owns 38% of WSFH and Wachovia Corporation owns 62% of WSFH.  Since 
July 1, 2003, PSI's former U.S. retail securities brokerage business has operated as part of 
Wachovia Securities, LLC.  Following the asset transfer, PSI converted from a stock corporation 
into a limited liability company and was renamed Prudential Equity Group, LLC ("PEG").  PEG 
is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act 
and is a member of the National Association of Securities Dealers and the New York Stock 
Exchange.  PEG provides equity research, sales and trading to domestic and international 
institutional customers and is a successor entity to PSI.  Prudential Financial continues to own 
100% of the equity interests in PEG. 
 
B.        Summary        
 
 2. This matter concerns a fraudulent market timing scheme perpetrated by PSI 
registered representatives (collectively, the “Representatives”) whose business involved market 
timing to defraud at least fifty mutual funds and their long-term shareholders.  Beginning in at 
least September 1999 and continuing through at least June 2003 (the “Relevant Period”), the  
Representatives used deceptive trading practices to conceal their identities, and those of their 
customers, to evade mutual funds’ prospectus limitations on market timing.  These practices 
included the use of multiple broker identifying numbers (known as Financial Advisor, or “FA” 
numbers) and multiple customer accounts; the use of accounts coded as confidential in PSI’s 
systems; and the Representatives’ use of “under the radar” trading to avoid notice by mutual 
funds.  Typically, mutual funds screened for market timing trades only above a designated dollar 
amount.  The practice of “under the radar” trading refers to the Representatives’ splitting of one 
trade into numerous smaller ones to avoid detection by mutual funds.    
 
 
1
  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding 
on any other person or entity in this or any other proceeding.  
 

 
 
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 3. As early as the fourth quarter 1999, several mutual fund companies identified the 
Representatives’ use of deceptive trading practices and notified PSI of the Representatives’ 
conduct.  In May 2002, PSI itself determined that its top-producing registered representative 
used deceptive trading practices to avoid notice by mutual funds.  Throughout the Relevant 
Period, PSI received hundreds of notices from mutual fund companies that identified the 
Representatives’ conduct and asked the firm to take steps to curtail their deceptive market timing 
practices.   
 
 4. Despite PSI’s increasing awareness of the Representatives’ fraudulent market 
timing practices, the firm elected to continue the business of market timing.  Rather than 
discipline or sanction any of the Representatives or even curtail their ability to open additional 
accounts for their market timing customers, PSI failed to prevent their conduct from continuing 
and actually began to track the Representatives’ gross revenues.  In 2001, for example, the 
Representatives generated more than $16 million in gross commission revenues for the firm, 
most of which was in danger of being eliminated had the firm phased out market timing at that 
time.  Similarly, the Representatives generated approximately $23 million in gross commission 
revenues in 2002, and continued to generate comparable revenues throughout the Relevant 
Period.   
 
 5. PSI’s policies and procedures were ineffective in curtailing the Representatives’ 
fraud and were largely not enforced.  Even in situations where PSI purportedly enforced any of 
these policies, PSI senior officers undermined them by granting exceptions for PSI’s largest 
producing registered representatives.  Additionally, PSI repeatedly failed to deprive the 
Representatives of their inappropriate use of hundreds of FA numbers, even though the use of 
multiple FA numbers was the primary means by which the Representatives carried out their 
fraud.  PSI finally issued a market timing policy in January 2003, but the firm did not fully 
enforce procedures in that policy to curtail the Representatives’ scheme.  PSI also failed to make 
and keep required records concerning the Representatives’ trading practices.  As a result of the 
conduct described above, PSI violated the antifraud and books and records provisions of the 
federal securities laws.   
   
C.        Background        
 
 6. Market timing includes frequent buying and selling of shares of the same mutual 
fund or buying or selling of mutual fund shares in order to exploit inefficiencies in mutual fund 
pricing.  Though not illegal per se, market timing can harm mutual fund shareholders because it 
can dilute the value of their shares, if the market timer is exploiting pricing inefficiencies, or 
disrupt the management of the mutual fund’s investment portfolio and can cause the targeted 
mutual fund to incur costs borne by other shareholders to accommodate frequent buying and 
selling of shares by the market timer.    
 
 7. Beginning in the late 1990s, many mutual funds determined that market timing 
harmed their long-term shareholders.  As a result, they began to monitor market timing in their 
funds’ shares and imposed restrictions on excessive trading.  Such restrictions limited the 

 
 
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number of trades that an account holder could place in a fund’s shares and often were set forth in 
the funds’ prospectuses.  Many funds monitored trading activity to detect any violations of these 
prospectus limitations.   
 
 8. Most mutual funds received trade instructions from PSI through the National 
Securities Clearing Corporation (“NSCC”).  NSCC is a centralized trade clearance and 
settlement system that linked the Representatives, PSI, and virtually all mutual fund companies.  
To place trades that were transmitted through NSCC, the Representatives were required to 
identify their FA number and a customer account to mutual funds on trade tickets.  PSI appended 
additional information to the Representatives’ orders and transmitted the transactions through 
NSCC to the mutual fund companies.   
 
 9. Some mutual funds screened for excessive short-term trading by reviewing FA 
and customer account numbers that the Representatives transmitted to them via NSCC.  Some 
also monitored for excessive short-term trading by trade size and principal amount and by the 
branch code attached to a trade.
2
  Typically, if a fund concluded that a shareholder had violated 
its exchange limitations, the fund would attempt to prevent, or “block” additional trades in a fund 
or fund family by that shareholder.  If a fund determined that a particular PSI registered 
representative or shareholder had violated its exchange limitations, the fund would send a “block 
letter” to PSI.  Block letters varied but generally notified PSI of the mutual fund’s intention to 
block the registered representative’s or customer’s transaction and often asked PSI to take steps 
to preclude a particular registered representative or customer account from engaging in 
additional trades in a particular fund or fund family.   
 
 10. Because these mutual funds monitored for excessive trading by FA number and/or 
customer account number, the Representatives altered their use of these numbers to defraud these 
funds and the funds’ long-term shareholders.  By altering their use of these numbers, the 
Representatives tricked mutual fund companies into accepting trades that the funds otherwise 
would have rejected.   
 
D. The Representatives’ Deceptive Conduct 
 
 11. During the Relevant Period, the Representatives engaged in a fraudulent scheme 
to circumvent blocks imposed by mutual funds on their trading privileges.  The Representatives’ 
scheme worked as follows.  The Representatives’ customers, typically hedge funds, asked the 
Representatives to purchase and sell mutual funds on a short-term basis on their behalf.  The 
Representatives, however, knew that mutual funds tracked their trades by FA number and 
customer account number, and they knew that if they placed short-term mutual fund trades for 
their customers using a single FA or account number, the mutual funds would likely determine 
 
2
  PSI assigned branch codes to each of its retail branch offices.  Branch codes identified to 
mutual funds the PSI branch office from which a particular market timing trade originated.   
 

 
 
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the number of trades was excessive and would block any further trades by them. 
 
 12. The Representatives, therefore, devised a scheme to conduct their customers’ 
trading using dozens of customer accounts, often established under fictitious names, and multiple 
FA numbers to make it difficult for mutual funds to identify their customers’ market timing.  
When the mutual funds succeeded in blocking certain FA numbers or customer accounts from 
further trading, the Representatives then used other FA numbers and customer accounts that had 
not yet been blocked to evade the funds’ restrictions and continue to trade. 
 
 a. The Boston Registered Representatives 
 
 13. For example, one group of PSI registered representatives based in its Boston, 
Massachusetts branch office (the “Boston Representatives”) repeatedly used these deceptive 
practices to defraud mutual funds throughout the Relevant Period.  The Boston Representatives 
consisted of a group of three PSI registered representatives and several assistants.  The group had 
five customers for whom it placed market timing trades, each of whom acted on behalf of one or 
more hedge funds.  During the Relevant Period, PSI received approximately $8 million from the 
Boston Representatives’ market timing activities, of which group members received 
approximately $4.6 million.  As a result of this business, the head of the group quickly rose to 
become one of PSI’s top producers. 
 
 14. Many of the mutual funds in which the Boston Representatives traded screened 
for market timing trades by FA and customer account numbers.  Many fund companies sent 
notices to PSI that complained that the group’s trades had violated prospectus limitations.  Some 
mutual funds announced steps they had taken to preclude the Boston Representatives from 
further trading while others asked that PSI take steps to block further trades by the group in the 
fund. 
 
 15. During the Relevant Period, the Boston Representatives used at least thirteen FA 
numbers and hundreds of customer accounts (for what were, in reality, only five customers) to 
circumvent these blocks and preclude new blocks.  The Boston Representatives’ use of these 
devices in connection with market timing allowed group members to continue to place trades in 
funds that had taken steps to preclude them from further trading.  Their scheme created the 
impression that transactions originated from many registered representatives and represented 
many different customers.  In fact, what appeared to the mutual funds to be thousands of separate 
transactions submitted by many registered representatives for many unrelated customers was 
actually a systematic pattern of market timing by group members on behalf of their five hedge 
fund customers. 
 
 b. The Garden City Representative 
 
 16. Another PSI registered representative based in its Liberty Plaza and Garden City, 
New York branch offices  (the “Garden City Representative”) used these same deceptive 
practices to defraud mutual funds throughout the Relevant Period.  The Garden City 

 
 
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Representative headed a team of registered representatives and assistants, although he very rarely 
reported to work at any PSI location.  He had five customers for whom he placed market timing 
trades, each of whom acted on behalf of one or more hedge funds.  During the Relevant Period, 
PSI received approximately $9.8 million from the Garden City Representative’s market timing 
activities (of which the Garden City Representative received approximately $4.7 million).  The 
Garden City Representative was the top producing registered representative at PSI throughout 
the Relevant Period.   
 
 17. Like the Boston Representatives, the Garden City Representative traded in mutual 
funds that screened for market timing by FA and customer account numbers.  During the 
Relevant Period, approximately fifty mutual funds complained to PSI about the Garden City 
Representative’s trading activity.  Many mutual funds specifically identified to PSI his use of 
deceptive trading strategies to evade blocks the fund companies had imposed. 
 
 18. To evade these blocks, the Garden City Representative maintained 49 different 
FA numbers and hundreds of customer account numbers (for what were, in reality, only five 
customers).  His use of these devices to market time created the impression that the trades 
originated from many registered representatives and many customers.  By shifting trades from 
one FA number to another, or from one customer account to another, the Garden City 
Representative concealed his identity and was able to place trades in mutual funds where PSI 
previously had blocked his trading under his other FA numbers and accounts.   
 
 c. The Special Accounts Representatives 
 
 19. Another group of PSI registered representatives based in a New York office 
known within the firm as “Special Accounts” (the “Special Accounts Representatives”) also used 
deceptive practices to defraud mutual funds throughout the Relevant Period.  The Special 
Accounts Representatives consisted of a group of two PSI registered representatives and several 
assistants.  The group had three customers for which it placed market timing trades.  During the 
Relevant Period, PSI received gross revenue of approximately $6.5 million from the Special 
Accounts Representatives’ market timing activities, of which group members received 
approximately $2.5 million. As a result of this business, the heads of the group quickly achieved 
membership in PSI’s Chairman’s Club, a select group consisting of the largest producing 
registered representative within the firm. 
 
 20. Like the Boston Representatives and the Garden City Representative, the Special 
Accounts Representatives knew that most mutual funds identified excessive trading by FA and 
customer account numbers.  They also understood that mutual funds screened for market timing 
by reviewing only those trades at or exceeding certain dollar amounts.  The Special Accounts 
Representatives used at least 20 FA numbers and hundreds of customer accounts (for what were, 
in reality, only three customers) to avoid detection by mutual funds.  The Special Accounts 
Representatives also used “under the radar” trading to disguise their customers’ trading in funds 
that previously had taken steps to stop them.  The Special Accounts Representatives use of these 
devices in connection with market timing deceived mutual funds into accepting trades they 

 
 
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otherwise would have rejected.  Like the Boston Representatives and the Garden City 
Representative, their scheme perpetuated the impression that transactions originated from many 
registered representatives and represented many different customers.   
 
E. PSI Failed to Prevent the Representatives From Obtaining Multiple Broker 
Identifying and Customer Account Numbers 
 
 21. PSI failed to prevent the Representatives from obtaining several different forms of 
broker identifying numbers.  Consequently, the Representatives used these numbers to perpetrate 
their scheme to defraud.  When registered representatives began their employment with PSI, PSI 
assigned them an FA number.  Registered representatives used FA numbers to open customer 
accounts, execute trades, and track their commissions.  When registered representatives worked 
as a team to service common customers, PSI provided “Joint” numbers.  Joint numbers 
ostensibly represented a commission split between two or more registered representatives.  Here, 
the Representatives acquired and used Joint numbers for improper purposes.  The numbers were 
not used to split commissions, but rather to facilitate the Representatives’ ability to trade after 
their other broker identifying numbers had been blocked from trading.  PSI also provided the 
Representatives with “Also” numbers.  The purported purpose of “Also” numbers was to allow 
the Representatives’ customers to access only those portions of a given registered 
representative’s portfolio that belonged to that customer or to provide certain customers with 
commission discounts.  The Representatives, however, used Also numbers improperly in the 
same manner as they used FA and Joint numbers – to circumvent blocks that had been imposed 
on their other FA numbers.  Indeed, at least one mutual fund became so frustrated by its inability 
to identify the Representatives that it threatened to curtail the trading privileges of all registered 
representatives within a PSI branch to remedy the conduct.       
    
 22. Each of the Representatives maintained numerous FA, Joint, and Also numbers, 
and used these numbers interchangeably to execute trades for their customers.  For example, the 
Boston Representatives used 13 broker identifying numbers to place market timing trades and 
the Garden City Representative used 49 broker identifying numbers.  When one of the 
Representatives’ FA, Joint, or Also numbers was blocked from trading by a particular mutual 
fund, he used another number assigned to him to place the trade in that fund.  Although each 
Joint number ostensibly represented a unique commission split, in fact each team of 
Representatives split commissions from mutual fund purchases according to a single ratio, 
irrespective of which broker identifying number was used to enter the trade. 
 
 23. PSI failed to prevent the Representatives from opening hundreds of customer 
account numbers.  The Representatives’ customers maintained multiple accounts with PSI, many 
of which bore fictitious names that had no relation to the actual customer’s name.  The 
Representatives used these customer accounts interchangeably to execute trades.  When one 
customer account was blocked from trading by a particular mutual fund, the Representatives 
substituted another account for that same customer to place the trade for that customer, thereby 
creating the appearance that the trade originated from another customer.   
 

 
 
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 24. PSI failed to prevent the Representatives from obtaining accounts for their 
customers that were coded as “Confidential.”  Confidential accounts did not identify the 
beneficial owner of the account on the transaction data provided to the mutual funds.  Although 
such a designation could have a legitimate purpose, here the Representatives used confidential 
accounts improperly to impede the mutual funds’ ability to identify which PSI registered 
representative or customer was market timing their funds.   
 
 25. PSI also failed to prevent the Representatives from obtaining customer account 
numbers with multiple branch identifiers.  Typically, registered representatives located in one 
PSI branch office had customer accounts that had a prefix used to identify the branch location.  
Here, the Representatives established accounts for their hedge fund customers using multiple 
branch codes, which effectively impeded the mutual funds’ ability to identify the particular PSI 
office location, as well as registered representative, that was market timing their funds.  The 
Representatives used branch identifiers improperly as another mechanism to conceal their 
identities and the identities of their customers to mutual funds.       
         
F. PSI Received Notifications of the Representatives’ Deceptions 
 
 26. During the Relevant Period, mutual fund companies sent more than a thousand 
letters and e-mails to PSI concerning market timing by the Representatives.  Many of these 
communications asked PSI to take steps to stop further trading by a particular customer account 
or FA number.  Others expressly notified PSI that the Representatives used deceptive trading 
practices to continue placing market timing trades.  
 
 27. High level officers of PSI were aware during the Relevant Period that mutual 
funds were accusing the Representatives of using deceptive practices to evade the mutual funds’ 
attempts to block the Representatives’ market timing trades.  For example, an individual who 
joined PSI in 1997 and rose to become the chief administrator of PSI’s Private Client Group 
(“PCG”) in January 1999, then to executive director of PCG in November 2000, and finally to 
president of PCG in December 2002 (the “Senior Officer”), received repeated notices of 
wrongdoing by the Representatives throughout the Relevant Period, but did not take adequate 
steps to stop the Representatives’ fraud.  Among other things, the Senior Officer received the 
following indications that the Representatives were committing fraud.  In some cases, certain 
other senior managers or high level officers of PSI also received notices that the Representatives 
were committing fraud. 
 
 28. On November 21, 1999, a senior executive in the PSI Mutual Fund Operations 
Division forwarded to the Senior Officer a string of e-mails concerning a complaint from a 
mutual fund complex that the Garden City Representative had evaded a block on two of his 
accounts by simply opening new accounts.  Among other things, the e-mail stated: 
 
It appears that [the Garden City Representative] circumvented this 
restriction by requesting new BIN [account] #s and fund accounts 
be established, funded by transferring shares into these new 

 
 
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accounts on 11/8/99.   Subsequently on 11/10/99, an exchange out 
of the money fund into our stock funds was processed, beginning 
market timing again. 
 
The cover e-mail commented, “[T]his seems to be a serious matter that will only get worse.” 
 
 29. On January 19, 2000, the manager of PSI’s Mutual Fund Operations Division 
forwarded to the Senior Officer an e-mail from another mutual fund complex complaining that a 
member of the Boston Representatives had evaded a trading restriction by opening a new 
account, stating: 
 
It appears that [the member] set up another account in December 
for the same client we restricted on 11/22. 
 
 30. On March 30, 2001, the head of PCG risk management sent the Senior Officer an 
e-mail that attached a letter from another mutual fund complex complaining that “excessive 
trading activity” by PSI registered representatives in its mutual funds “has become detrimental to 
both the funds and shareholders of the funds involved.”  The letter described the tactics used by 
PSI registered representatives to avoid having their trades canceled as follows: 
 
Since trade cancellation began on February 26th, 2001, we have 
noticed several types of reactions by Prudential Financial Advisors 
in order to circumvent our attempts to terminate excessive trading.  
Originally, your Financial Advisors established new identification 
numbers so that they would not be recognized as a repeat offender.  
Secondly, Financial Advisors would transfer a fund(s) position 
from account to account, in order to disguise their identity.  Lastly, 
your Financial Advisors have attempted to reduce the dollar 
amount of the exchange orders while simultaneously increasing the 
number of exchanges (in the same fund and account) in the hopes 
of not being identified. 
 
 31. On June 28, 2001, the Senior Officer received an e-mail from the manager of the 
Special Accounts branch warning him that the Special Accounts Representatives were obtaining 
multiple FA numbers in order to conduct their market timing, stating that: 
We will have an issue soon with joint FA numbers:  in order to get 
around the MF [mutual fund] timing issue they are starting to 
request 99/01 split numbers with their junior partners to help them 
get around being shut down by some MF companies on timing. 
 
 32. On April 4, 2002, the manager of PSI’s Mutual Funds Operations division sent an 
e-mail to other senior managers forwarding an e-mail from another mutual fund complex 
complaining that certain PSI registered representatives were using multiple accounts and FA 
numbers to evade restrictions on their market timing.  The e-mail stated: 

 
 
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What we have seen scares us.  It appears certain representatives are 
changing account registrations, tax id numbers, and branch and rep 
numbers in an effort to time the [mutual fund complex’s] funds.  
All of these accounts have been stopped, but each day “new” ones 
pop up. 
  
When the PSI chief compliance officer saw the above e-mail, he showed it to the Senior Officer. 
The head of PCG risk management also discussed the e-mail with the Senior Officer. 
 
 33. On April 29, 2002, the Senior Officer met with an internal PSI working group that 
had been analyzing market timing issues.  The group described for the Senior Officer the mutual 
fund companies’ restrictions on excessive trading, the fund companies’ block letters to PSI, and 
the deceptive trading strategies used by certain PSI registered representatives, including multiple 
accounts and FA numbers. 
 
 34. On at least two occasions in May 2002, an employee of PSI’s risk management 
division detailed for the Senior Officer several deceptive practices used by the Garden City 
Representative.  The employee’s analysis noted that in one 37-day period, the Garden City 
Representative had 19 different mutual fund companies request that accounts under the 
representative’s control, or the representative as an FA, be blocked from their funds.  The 
analysis concluded that the Garden City Representative had circumvented these requests by 
changing his FA number to an Also or Joint Number to avoid detection by the fund, or by 
changing customer account numbers and moving the assets from the blocked account to a newly 
established account. 
 
 35. On February 5, 2003, the director of strategic planning at PCG sent the Senior 
Officer (then the President and most senior officer of PCG) a string of e-mails from another 
mutual fund complex complaining that certain PSI registered representatives were using multiple 
customer accounts and FA numbers for market timing.  One of the e-mails stated: 
 
I have spoken to these reps a few times over the past several 
months about stopping their timing activity to no avail.  Over the 
past several months, we have placed stops on 325 of their accounts 
as of 11/30/02 and continue to add accounts daily.  We see new 
accounts/rep id combinations being opened and have determined 
that we are not able to continue chasing them within our funds.  
We feel our only course of action to protect our fund shareholders 
is to prohibit the attached list of reps from doing business with [our 
funds]. 
 
Another e-mail in the string stated: 
 
These reps have multiple rep ids and have continued to add new 

 
 
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ones as we block the ids within the NSCC trading system for our 
fund complex ...  These reps created close to $3 billion in 
exchanges last year with $75 million of assets during a time in 
which we placed stops on 350 of their accounts. 
 
The director of strategic planning added his own warning to the Senior Officer: 
  
I just wanted to give you a heads up on an issue that is sure to 
reach your desk in the next day or two.  As you can see from the 
attached string of notes, the senior leadership team at [a mutual 
fund complex] are completely frustrated with some of the 
tactics/strategies of FA’s [the Garden City Representative and the 
Boston Representatives].  Previous attempts to curtail timing 
activity in the [mutual fund complex’s] funds by blocking account 
activity have been thwarted by the establishment of additional FA 
numbers.  It appears that [the mutual fund complex] is now making 
overtures that continued activity of this nature will threaten the 
relationship between Prudential and the fund company. 
 
 36. On February 11, 2003, a PCG risk officer sent an e-mail to the Senior Officer 
(then the President and most senior officer of PCG) that forwarded an e-mail from the Garden 
City branch manager about the Garden City Representative’s market timing business.  The 
branch manager questioned the effectiveness of the Mutual Fund Operations Division’s internal 
blocking system and raised several other concerns about the Garden City Representative’s 
activities: 
 
Blocking of individual accounts by fund companies is extremely 
short-sighted in consideration of the fact that each “entity” 
maintains multiple accounts with our Firm. 
 
There have been repeat offenses, at least in spirit . . .  
 
Fund companies have been misled as to the identity of the FA’s of 
record...  Recently, [a mutual fund company] was provided with 
information which was at best misleading to effect the removal [of] 
a block. 
 
[T]here is frequent journaling of funds between accounts. 
 
At the present time, [the Garden City Representative and an 
assistant] either have or have had a total of 48 FA #s including 
single, joint and also numbers. 
 
 

 
 
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G. PSI’s Procedures to Limit Market Timing Were Ineffective 
 
 37. Although PSI senior officers issued policies and procedures ostensibly designed 
to proscribe the Representatives’ conduct, these policies and procedures were ineffective in 
scope and were never fully enforced.  Moreover, even in situations where these policies and 
procedures purportedly were enforced, PSI senior officers undermined them by granting 
exceptions for its largest producing registered representatives.  As a result, the Representatives’ 
deceptions continued even after these policies and procedures were promulgated. 
 
 a. PSI’s June 2002 Procedure Concerning Issuance of FA Numbers 
 
 38. In June 2002, PSI instituted a procedure concerning the issuance of FA numbers, 
in a purported effort to hinder the Representatives’ ability to obtain “Joint” numbers and “Also” 
numbers to evade limitations on market timing (the “June 2002 Procedure”).  The June 2002 
Procedure provided, simply, that requests for “Joint” and “Also” numbers would require a 
documented business request and a PSI Regional Business Manager’s approval.  The June 2002 
Procedure failed to preclude the Representatives from misusing previously issued Joint and Also 
numbers to evade blocks imposed by mutual fund companies nor did it preclude them from 
obtaining new FA numbers to facilitate their fraud.  Indeed, the Garden City Representative 
obtained 12 new Joint and Also numbers just days before the procedure took effect, purportedly 
to assist him in transferring customer accounts from one PSI branch office to another.  The June 
2002 Procedure also did not subject the Representatives to any form of discipline or sanction if 
they continued to use Joint and Also numbers to evade blocks in violation of its terms. 
 
 b. PSI’s January 2003 Market Timing Policy 
 
 39. After protracted discussion involving PSI senior officers during the Fall of 2002, 
PSI issued a market timing policy on January 8, 2003 (the “Market Timing Policy”).  PSI 
considered, and rejected, defining market timing in the Market Timing Policy as a certain 
number of trades because of concerns that doing so would have too great an impact on the 
Representatives’ revenues.  PSI also rejected an absolute prohibition on the business of market 
timing.  Instead, the Market Timing Policy provided that “inappropriate timing activities [would] 
continue to be monitored” by mutual fund companies and not by PSI itself.     
 
 40. Unlike other PSI policies concerning market timing, the Market Timing Policy 
expressly provided for the imposition of sanctions, including termination of employment, for the 
Representatives’ use of “manipulative techniques” to evade mutual fund trading restrictions.  
Any imposition of sanctions was to be decided by a committee consisting of members of PSI’s 
Legal, Compliance, and Risk Management divisions.  Despite notifications of continuing 
deceptive practices received by PSI after it issued the Market Timing Policy, PSI did not form 
this committee and failed to take action against any of the Representatives to stop their use of 
“manipulative techniques” to market time.  
 
 41. The Market Timing Policy also provided that, in the event a mutual fund company 

 
 
13
asked PSI to block any one of a registered representative’s FA numbers, all numbers belonging 
to the registered representative similarly would be blocked from trading.  However, PSI senior 
officers determined not to implement this critical aspect of the Market Timing Policy.  In fact, 
despite the policy’s clear language, PSI interpreted mutual fund block requests after it issued the 
Market Timing Policy in the same manner as it had previously – as narrowly as possible, 
blocking only the specific FA number or customer account number identified by mutual fund 
block requests.  Thus, even after issuance of the Market Timing Policy, the Representatives were 
able to continue their fraudulent scheme of switching to unblocked FA numbers or customer 
accounts to evade blocks imposed by mutual fund companies.   
 
H. PSI Profited From the Representatives’ Deceptive Acts 
 
 42. PSI identified the Representatives as early as 2000 and monitored their revenues 
and ranks within the firm throughout the Relevant Period.  The firm’s Mutual Fund Operations 
Division, which processed the Representatives’ trades in mutual funds, monitored the 
Representatives’ activity because their rapid trading required the dedication of additional staff 
within the department to process the trades and strained the firm’s trade processing and 
settlement systems.  
 
 43. In 2000, PSI began to track each quarter the gross commission revenues generated 
by the Representatives.  PSI prepared these reports to determine the amount of income that 
would possibly be reduced if the firm determined to eliminate market timing as a business.  In 
2001, for example, the Representatives generated more than $16 million in gross commission 
revenues for the firm, most of which would have been eliminated had the firm phased out market 
timing at that time.  Similarly, the Representatives generated approximately $23 million in gross 
commission revenues for 2002, and received another $10 million in gross commission revenues 
during the first half of 2003. 
 
 44. As PSI senior officers became increasingly aware of the Representatives’ use of 
deceptions, the firm elected to continue the business of market timing.  Indeed, some of the 
firm’s senior officers were aware that the June 2002 Procedure concerning the issuance of 
multiple FA numbers and the January 2003 Market Timing Policy were wholly ineffective at 
eradicating the Representatives’ deceptions and the Representatives and their hedge fund 
customers continued this activity.  During the Relevant Period, the Representatives generated 
approximately $50 million in gross revenues as a result of this conduct.  
 
I. PSI Failed to Make and Keep Required Books and Records 
 
 45. PSI was required to make and keep current trade orders and trade tickets 
concerning the Representatives’ mutual fund trading.  PSI also was required to make and keep 
current a trade blotter that reflected the Representatives’ mutual fund trading.  During the 
relevant period, PSI failed to maintain these required books and records, and, in instances where 
PSI did maintain these items, they did not give the actual time at which the orders were received 
or the time of entry.   

 
 
14
 
J. Violations of the Antifraud and Books and Records Provisions of the Federal 
            Securities            Laws  
 
 46. As a result of the conduct described above, PSI willfully violated Section 17(a) of 
the Securities Act of 1933, which prohibits fraudulent conduct in the offer or sale of securities.   
 
 47. As a result of the conduct described above, PSI also willfully violated Section 
10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in 
connection with the purchase or sale of securities.   
 
 48. PSI also willfully violated Section 17(a) of the Exchange Act and Rules 17a-3 and 
17a-4 thereunder.  Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder 
required PSI to make and keep certain books and records relating to its business, including trade 
blotters and trade tickets related to mutual fund trading.  Implicit in the Commission’s 
recordkeeping rules is a requirement that information contained in a required book or record be 
accurate.  PSI failed to maintain complete and current copies of trade blotters concerning mutual 
fund trading and trade tickets related to mutual fund trading in a readily accessible place.  In 
instances where PSI did maintain trade tickets, information included on them did not represent 
the actual time at which the orders were placed.  
 
K.        Undertakings                
 
 In determining whether to accept the Offer, the Commission has considered these 
undertakings: 
 
            49.            Cooperation.  Respondent shall cooperate fully with the staff of the Commission 
in any litigation, ongoing investigation, or other proceedings relating to or arising from the 
matters described in the This Order.  In connection with such cooperation, Respondent has 
undertaken: 
 
 a. to produce promptly, without service of a notice or subpoena, any and all 
documents and other information requested by the Commission’s staff in 
Respondent’s possession and control; 
 
 b. to use its best efforts to cause its employees to be interviewed by the 
Commission’s staff at such times as the Commission may reasonably request; and 
      
 c. to use its best efforts to cause its employees to appear and testify truthfully and 
completely without service of a notice or subpoena in such investigations, 
depositions, hearing or trials as the Commission’s staff reasonably may request; 
and that in connection with any testimony of Respondent to be conducted at 
deposition, hearing, or trial pursuant to a notice or subpoena, Respondent 
 

 
 
15
i. agrees that any such notice or subpoena for Respondent’s 
appearance and testimony may be served by regular mail on its 
attorney:                    
 
                                                Bingham            McCutchen            LLP            
                                                Attn:            Neal            E.            Sullivan,            Esq.            
                                                2020            K            Street,            N.W.            
                                                Washington,            DC            20006;            and            
 
                                    ii.            Agrees            that            any            such            notice or subpoena for Respondent’s      
    territorial limits imposed by the Federal Rules of Civil Procedure. 
 
            50.            Independent Distribution Consultant.  Respondent shall retain, within 60 days of 
the entry of this Order, the services of an independent distribution consultant (“Independent 
Distribution Consultant”) acceptable to the staff of the Commission.   
 
 a. Respondent shall be responsible for all costs and expenses associated with the 
development and implementation of the Distribution Plan for the distribution of the 
disgorgement ordered in Section IV.B. of this Order.  Such costs and expenses shall include, 
without limitation (i) the compensation of a tax administrator for the preparation of tax returns 
and/or for seeking any IRS rulings; (ii) the payment of taxes; and (iii) the payment of any 
distribution or consulting services as may be reasonably required by the Independent Distribution 
Consultant.  Respondent shall cooperate with the tax administrator to see that all tax payments 
are timely made, and all such tax payments shall be deposited in the Qualified Settlement Fund 
upon notice from the tax administrator concerning the amount and the deadline for payment.  
 
 b. Respondent shall cooperate fully with the Independent Distribution Consultant to 
provide all information requested for its review, including providing access to its files, books, 
records, and personnel.   
 
 c. The Independent Distribution Consultant shall develop a proposed Distribution 
Plan for the distribution of the disgorgement ordered in Section IV.B. of this Order, and any 
interest or earnings thereon, according to a methodology developed in consultation with and 
acceptable to the staff of the Commission.         
 
 d. The Independent Distribution Consultant shall submit to Respondent and the staff 
of the Commission the proposed Distribution Plan no more than 180 days after the entry of this 
Order. 
 
 e. The proposed Distribution Plan developed by the Independent Distribution 
Consultant shall be binding unless, within 210 days after the date of entry of this Order, 
Respondent or the staff of the Commission advises, in writing, the Independent Distribution 
Consultant of any determination or calculation from the Distribution Plan that it considers to be 
inappropriate and states in writing the reasons for considering such determination or calculation 

 
 
inappropriate. 
 
 f. With respect to any calculation with which Respondent or the staff of the    
Commission do not agree, such parties shall attempt in good faith to reach an agreement within 
240 days of the entry of this Order.  In the event that Respondent and the staff of the 
Commission are unable to agree on an alternative determination or calculation, the 
determinations of the Independent Distribution Consultant shall be included in the proposed 
Distribution Plan.     
 
 g. Within 285 days of the date of entry of this Order, the Independent Distribution 
Consultant shall submit the proposed Distribution Plan for the administration and distribution of 
disgorgement funds pursuant to the Commission’s Rules on Fair Fund and Disgorgement Plans, 
17 C.F.R.  § 201.1100, et seq., (Rule 1100 through Rule 1106).  Following a Commission order 
approving a final plan of distribution, as provided in Rule 1104 [17 C.F.R. § 201.1104] of the 
SEC’s Rules on Fair Fund and Disgorgement Plans, the Independent Distribution Consultant 
shall take all necessary and appropriate steps to administer the final plan for distribution of 
disgorgement funds in accordance with the terms of the approved Distribution Plan. 
 
 h.  For the period of the engagement and for a period of two years from completion 
of the engagement, the Independent Distribution Consultant shall not enter into any employment, 
consultant, attorney-client, auditing, or other professional relationship with Respondent, or any 
of its present or former affiliates, directors, officers, employees, or agents acting in their capacity 
as such.  Any firm with which the Independent Distribution Consultant is affiliated in 
performance of his or her duties under this Order, or of which he/she is a member, and any 
person engaged to assist the Independent Distribution Consultant in the performance of his/her 
duties under this Order, shall not, without prior written consent of the staff of the Commission, 
enter into any employment, consultant, attorney-client, auditing or other professional relationship 
with Respondent, or any of Respondent’s present or former affiliates, directors, officers, 
employees, or agents acting in the capacity as such for the period of the engagement and for a 
period of two years after the engagement.  
 
 i. For good cause shown, the staff of the Commission may alter any of the 
procedural deadlines set forth above.   .  
  
 IV. 
 
In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Section 15(b) of the Exchange Act, it is hereby ORDERED 
that:               
 
 A. Respondent is hereby censured. 

 
 
 
 B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of 
$270 million to the Securities and Exchange Commission.  Such payment shall be: (A) made by 
wire transfer, United States postal money order, certified check, bank cashier's check or bank 
money order; (B) made payable to the Securities and Exchange Commission; (C) wired, hand-
delivered, or mailed to the Office of Financial Management, Securities and Exchange 
Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; 
and (D) submitted under cover letter that identifies PSI as a Respondent in these proceedings, the 
file number of these proceedings, a copy of which cover letter, wire transfer instruction, money 
order, or check shall be sent to David P. Bergers, District Administrator, Securities and 
Exchange Commission, Boston District Office, 33 Arch Street, 23rd Floor, Boston, 
Massachusetts 02110.  
 
 C. Respondent shall comply with the undertakings enumerated in Section III., 
paragraph 50 of this Order.   
 
 
By the Commission. 
 
 
 
                                                Nancy            M.            Morris            
                                                Secretary            

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  54371 / August 28, 2006 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-12400 
 
 In the Matter of 
 
 PRUDENTIAL EQUITY GROUP,   
 LLC, formerly known as  
 PRUDENTIAL SECURITIES, INC.,  
 
 Respondent. 
 
 
 
 

 
 ORDER INSTITUTING ADMINISTRATIVE  
 PROCEEDINGS, MAKING FINDINGS, AND 
 IMPOSING REMEDIAL SANCTIONS PURSUANT 
 TO SECTION 15(b) OF THE SECURITIES 
 EXCHANGE ACT OF 1934 
 

 
 I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
the public interest that public administrative proceedings be, and hereby are, instituted pursuant 
to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against Prudential 
Equity Group, LLC, formerly known as Prudential Securities Inc. (“Respondent”). 
 
 II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the 
findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
proceedings, Respondent consents to the entry of this Order Instituting Administrative 
Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Section 15(b) of 
the Securities Exchange Act of 1934 (the “Order”), as set forth below. 
  

 
 



 

 2

                                                

III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
 
A. Respondent 
 
 1. Prior to July 1, 2003, Prudential Securities Inc. ("PSI") was an indirect wholly 
owned broker-dealer subsidiary of Prudential Financial, Incorporated ("Prudential Financial").  
Prudential Financial is a publicly-owned holding company, traded on the New York Stock 
Exchange, whose operating subsidiaries provide a wide range of insurance, investment 
management and other financial products and services to retail and institutional customers 
including insurance brokers and investment managers.  On July 1, 2003, PSI transferred the 
assets relating to its U.S. retail securities brokerage operations to a newly formed holding 
company, now named Wachovia Securities Financial Holdings, LLC ("WSFH").  Prudential 
Financial presently owns 38% of WSFH and Wachovia Corporation owns 62% of WSFH.  Since 
July 1, 2003, PSI's former U.S. retail securities brokerage business has operated as part of 
Wachovia Securities, LLC.  Following the asset transfer, PSI converted from a stock corporation 
into a limited liability company and was renamed Prudential Equity Group, LLC ("PEG").  PEG 
is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act 
and is a member of the National Association of Securities Dealers and the New York Stock 
Exchange.  PEG provides equity research, sales and trading to domestic and international 
institutional customers and is a successor entity to PSI.  Prudential Financial continues to own 
100% of the equity interests in PEG. 
 
B. Summary 
 
 2. This matter concerns a fraudulent market timing scheme perpetrated by PSI 
registered representatives (collectively, the “Representatives”) whose business involved market 
timing to defraud at least fifty mutual funds and their long-term shareholders.  Beginning in at 
least September 1999 and continuing through at least June 2003 (the “Relevant Period”), the  
Representatives used deceptive trading practices to conceal their identities, and those of their 
customers, to evade mutual funds’ prospectus limitations on market timing.  These practices 
included the use of multiple broker identifying numbers (known as Financial Advisor, or “FA” 
numbers) and multiple customer accounts; the use of accounts coded as confidential in PSI’s 
systems; and the Representatives’ use of “under the radar” trading to avoid notice by mutual 
funds.  Typically, mutual funds screened for market timing trades only above a designated dollar 
amount.  The practice of “under the radar” trading refers to the Representatives’ splitting of one 
trade into numerous smaller ones to avoid detection by mutual funds.    
 

 
1
  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding 

on any other person or entity in this or any other proceeding.  
 



 

 3

 3. As early as the fourth quarter 1999, several mutual fund companies identified the 
Representatives’ use of deceptive trading practices and notified PSI of the Representatives’ 
conduct.  In May 2002, PSI itself determined that its top-producing registered representative 
used deceptive trading practices to avoid notice by mutual funds.  Throughout the Relevant 
Period, PSI received hundreds of notices from mutual fund companies that identified the 
Representatives’ conduct and asked the firm to take steps to curtail their deceptive market timing 
practices.   
 
 4. Despite PSI’s increasing awareness of the Representatives’ fraudulent market 
timing practices, the firm elected to continue the business of market timing.  Rather than 
discipline or sanction any of the Representatives or even curtail their ability to open additional 
accounts for their market timing customers, PSI failed to prevent their conduct from continuing 
and actually began to track the Representatives’ gross revenues.  In 2001, for example, the 
Representatives generated more than $16 million in gross commission revenues for the firm, 
most of which was in danger of being eliminated had the firm phased out market timing at that 
time.  Similarly, the Representatives generated approximately $23 million in gross commission 
revenues in 2002, and continued to generate comparable revenues throughout the Relevant 
Period.   
 
 5. PSI’s policies and procedures were ineffective in curtailing the Representatives’ 
fraud and were largely not enforced.  Even in situations where PSI purportedly enforced any of 
these policies, PSI senior officers undermined them by granting exceptions for PSI’s largest 
producing registered representatives.  Additionally, PSI repeatedly failed to deprive the 
Representatives of their inappropriate use of hundreds of FA numbers, even though the use of 
multiple FA numbers was the primary means by which the Representatives carried out their 
fraud.  PSI finally issued a market timing policy in January 2003, but the firm did not fully 
enforce procedures in that policy to curtail the Representatives’ scheme.  PSI also failed to make 
and keep required records concerning the Representatives’ trading practices.  As a result of the 
conduct described above, PSI violated the antifraud and books and records provisions of the 
federal securities laws.   
   
C. Background 
 
 6. Market timing includes frequent buying and selling of shares of the same mutual 
fund or buying or selling of mutual fund shares in order to exploit inefficiencies in mutual fund 
pricing.  Though not illegal per se, market timing can harm mutual fund shareholders because it 
can dilute the value of their shares, if the market timer is exploiting pricing inefficiencies, or 
disrupt the management of the mutual fund’s investment portfolio and can cause the targeted 
mutual fund to incur costs borne by other shareholders to accommodate frequent buying and 
selling of shares by the market timer.    
 
 7. Beginning in the late 1990s, many mutual funds determined that market timing 
harmed their long-term shareholders.  As a result, they began to monitor market timing in their 
funds’ shares and imposed restrictions on excessive trading.  Such restrictions limited the 



 

 4

                                                

number of trades that an account holder could place in a fund’s shares and often were set forth in 
the funds’ prospectuses.  Many funds monitored trading activity to detect any violations of these 
prospectus limitations.   
 
 8. Most mutual funds received trade instructions from PSI through the National 
Securities Clearing Corporation (“NSCC”).  NSCC is a centralized trade clearance and 
settlement system that linked the Representatives, PSI, and virtually all mutual fund companies.  
To place trades that were transmitted through NSCC, the Representatives were required to 
identify their FA number and a customer account to mutual funds on trade tickets.  PSI appended 
additional information to the Representatives’ orders and transmitted the transactions through 
NSCC to the mutual fund companies.   
 
 9. Some mutual funds screened for excessive short-term trading by reviewing FA 
and customer account numbers that the Representatives transmitted to them via NSCC.  Some 
also monitored for excessive short-term trading by trade size and principal amount and by the 
branch code attached to a trade.2  Typically, if a fund concluded that a shareholder had violated 
its exchange limitations, the fund would attempt to prevent, or “block” additional trades in a fund 
or fund family by that shareholder.  If a fund determined that a particular PSI registered 
representative or shareholder had violated its exchange limitations, the fund would send a “block 
letter” to PSI.  Block letters varied but generally notified PSI of the mutual fund’s intention to 
block the registered representative’s or customer’s transaction and often asked PSI to take steps 
to preclude a particular registered representative or customer account from engaging in 
additional trades in a particular fund or fund family.   
 
 10. Because these mutual funds monitored for excessive trading by FA number and/or 
customer account number, the Representatives altered their use of these numbers to defraud these 
funds and the funds’ long-term shareholders.  By altering their use of these numbers, the 
Representatives tricked mutual fund companies into accepting trades that the funds otherwise 
would have rejected.   
 
D. The Representatives’ Deceptive Conduct 
 
 11. During the Relevant Period, the Representatives engaged in a fraudulent scheme 
to circumvent blocks imposed by mutual funds on their trading privileges.  The Representatives’ 
scheme worked as follows.  The Representatives’ customers, typically hedge funds, asked the 
Representatives to purchase and sell mutual funds on a short-term basis on their behalf.  The 
Representatives, however, knew that mutual funds tracked their trades by FA number and 
customer account number, and they knew that if they placed short-term mutual fund trades for 
their customers using a single FA or account number, the mutual funds would likely determine 

 
2  PSI assigned branch codes to each of its retail branch offices.  Branch codes identified to 
mutual funds the PSI branch office from which a particular market timing trade originated.   
 



 

 5

the number of trades was excessive and would block any further trades by them. 
 
 12. The Representatives, therefore, devised a scheme to conduct their customers’ 
trading using dozens of customer accounts, often established under fictitious names, and multiple 
FA numbers to make it difficult for mutual funds to identify their customers’ market timing.  
When the mutual funds succeeded in blocking certain FA numbers or customer accounts from 
further trading, the Representatives then used other FA numbers and customer accounts that had 
not yet been blocked to evade the funds’ restrictions and continue to trade. 
 
 a. The Boston Registered Representatives 
 
 13. For example, one group of PSI registered representatives based in its Boston, 
Massachusetts branch office (the “Boston Representatives”) repeatedly used these deceptive 
practices to defraud mutual funds throughout the Relevant Period.  The Boston Representatives 
consisted of a group of three PSI registered representatives and several assistants.  The group had 
five customers for whom it placed market timing trades, each of whom acted on behalf of one or 
more hedge funds.  During the Relevant Period, PSI received approximately $8 million from the 
Boston Representatives’ market timing activities, of which group members received 
approximately $4.6 million.  As a result of this business, the head of the group quickly rose to 
become one of PSI’s top producers. 
 
 14. Many of the mutual funds in which the Boston Representatives traded screened 
for market timing trades by FA and customer account numbers.  Many fund companies sent 
notices to PSI that complained that the group’s trades had violated prospectus limitations.  Some 
mutual funds announced steps they had taken to preclude the Boston Representatives from 
further trading while others asked that PSI take steps to block further trades by the group in the 
fund. 
 
 15. During the Relevant Period, the Boston Representatives used at least thirteen FA 
numbers and hundreds of customer accounts (for what were, in reality, only five customers) to 
circumvent these blocks and preclude new blocks.  The Boston Representatives’ use of these 
devices in connection with market timing allowed group members to continue to place trades in 
funds that had taken steps to preclude them from further trading.  Their scheme created the 
impression that transactions originated from many registered representatives and represented 
many different customers.  In fact, what appeared to the mutual funds to be thousands of separate 
transactions submitted by many registered representatives for many unrelated customers was 
actually a systematic pattern of market timing by group members on behalf of their five hedge 
fund customers. 
 
 b. The Garden City Representative 
 
 16. Another PSI registered representative based in its Liberty Plaza and Garden City, 
New York branch offices  (the “Garden City Representative”) used these same deceptive 
practices to defraud mutual funds throughout the Relevant Period.  The Garden City 



 

 6

Representative headed a team of registered representatives and assistants, although he very rarely 
reported to work at any PSI location.  He had five customers for whom he placed market timing 
trades, each of whom acted on behalf of one or more hedge funds.  During the Relevant Period, 
PSI received approximately $9.8 million from the Garden City Representative’s market timing 
activities (of which the Garden City Representative received approximately $4.7 million).  The 
Garden City Representative was the top producing registered representative at PSI throughout 
the Relevant Period.   
 
 17. Like the Boston Representatives, the Garden City Representative traded in mutual 
funds that screened for market timing by FA and customer account numbers.  During the 
Relevant Period, approximately fifty mutual funds complained to PSI about the Garden City 
Representative’s trading activity.  Many mutual funds specifically identified to PSI his use of 
deceptive trading strategies to evade blocks the fund companies had imposed. 
 
 18. To evade these blocks, the Garden City Representative maintained 49 different 
FA numbers and hundreds of customer account numbers (for what were, in reality, only five 
customers).  His use of these devices to market time created the impression that the trades 
originated from many registered representatives and many customers.  By shifting trades from 
one FA number to another, or from one customer account to another, the Garden City 
Representative concealed his identity and was able to place trades in mutual funds where PSI 
previously had blocked his trading under his other FA numbers and accounts.   
 
 c. The Special Accounts Representatives 
 
 19. Another group of PSI registered representatives based in a New York office 
known within the firm as “Special Accounts” (the “Special Accounts Representatives”) also used 
deceptive practices to defraud mutual funds throughout the Relevant Period.  The Special 
Accounts Representatives consisted of a group of two PSI registered representatives and several 
assistants.  The group had three customers for which it placed market timing trades.  During the 
Relevant Period, PSI received gross revenue of approximately $6.5 million from the Special 
Accounts Representatives’ market timing activities, of which group members received 
approximately $2.5 million. As a result of this business, the heads of the group quickly achieved 
membership in PSI’s Chairman’s Club, a select group consisting of the largest producing 
registered representative within the firm. 
 
 20. Like the Boston Representatives and the Garden City Representative, the Special 
Accounts Representatives knew that most mutual funds identified excessive trading by FA and 
customer account numbers.  They also understood that mutual funds screened for market timing 
by reviewing only those trades at or exceeding certain dollar amounts.  The Special Accounts 
Representatives used at least 20 FA numbers and hundreds of customer accounts (for what were, 
in reality, only three customers) to avoid detection by mutual funds.  The Special Accounts 
Representatives also used “under the radar” trading to disguise their customers’ trading in funds 
that previously had taken steps to stop them.  The Special Accounts Representatives use of these 
devices in connection with market timing deceived mutual funds into accepting trades they 



 

 7

otherwise would have rejected.  Like the Boston Representatives and the Garden City 
Representative, their scheme perpetuated the impression that transactions originated from many 
registered representatives and represented many different customers.   
 
E. PSI Failed to Prevent the Representatives From Obtaining Multiple Broker 

Identifying and Customer Account Numbers 
 
 21. PSI failed to prevent the Representatives from obtaining several different forms of 
broker identifying numbers.  Consequently, the Representatives used these numbers to perpetrate 
their scheme to defraud.  When registered representatives began their employment with PSI, PSI 
assigned them an FA number.  Registered representatives used FA numbers to open customer 
accounts, execute trades, and track their commissions.  When registered representatives worked 
as a team to service common customers, PSI provided “Joint” numbers.  Joint numbers 
ostensibly represented a commission split between two or more registered representatives.  Here, 
the Representatives acquired and used Joint numbers for improper purposes.  The numbers were 
not used to split commissions, but rather to facilitate the Representatives’ ability to trade after 
their other broker identifying numbers had been blocked from trading.  PSI also provided the 
Representatives with “Also” numbers.  The purported purpose of “Also” numbers was to allow 
the Representatives’ customers to access only those portions of a given registered 
representative’s portfolio that belonged to that customer or to provide certain customers with 
commission discounts.  The Representatives, however, used Also numbers improperly in the 
same manner as they used FA and Joint numbers – to circumvent blocks that had been imposed 
on their other FA numbers.  Indeed, at least one mutual fund became so frustrated by its inability 
to identify the Representatives that it threatened to curtail the trading privileges of all registered 
representatives within a PSI branch to remedy the conduct.       
    
 22. Each of the Representatives maintained numerous FA, Joint, and Also numbers, 
and used these numbers interchangeably to execute trades for their customers.  For example, the 
Boston Representatives used 13 broker identifying numbers to place market timing trades and 
the Garden City Representative used 49 broker identifying numbers.  When one of the 
Representatives’ FA, Joint, or Also numbers was blocked from trading by a particular mutual 
fund, he used another number assigned to him to place the trade in that fund.  Although each 
Joint number ostensibly represented a unique commission split, in fact each team of 
Representatives split commissions from mutual fund purchases according to a single ratio, 
irrespective of which broker identifying number was used to enter the trade. 
 
 23. PSI failed to prevent the Representatives from opening hundreds of customer 
account numbers.  The Representatives’ customers maintained multiple accounts with PSI, many 
of which bore fictitious names that had no relation to the actual customer’s name.  The 
Representatives used these customer accounts interchangeably to execute trades.  When one 
customer account was blocked from trading by a particular mutual fund, the Representatives 
substituted another account for that same customer to place the trade for that customer, thereby 
creating the appearance that the trade originated from another customer.   
 



 

 8

 24. PSI failed to prevent the Representatives from obtaining accounts for their 
customers that were coded as “Confidential.”  Confidential accounts did not identify the 
beneficial owner of the account on the transaction data provided to the mutual funds.  Although 
such a designation could have a legitimate purpose, here the Representatives used confidential 
accounts improperly to impede the mutual funds’ ability to identify which PSI registered 
representative or customer was market timing their funds.   
 
 25. PSI also failed to prevent the Representatives from obtaining customer account 
numbers with multiple branch identifiers.  Typically, registered representatives located in one 
PSI branch office had customer accounts that had a prefix used to identify the branch location.  
Here, the Representatives established accounts for their hedge fund customers using multiple 
branch codes, which effectively impeded the mutual funds’ ability to identify the particular PSI 
office location, as well as registered representative, that was market timing their funds.  The 
Representatives used branch identifiers improperly as another mechanism to conceal their 
identities and the identities of their customers to mutual funds.       
         
F. PSI Received Notifications of the Representatives’ Deceptions 
 
 26. During the Relevant Period, mutual fund companies sent more than a thousand 
letters and e-mails to PSI concerning market timing by the Representatives.  Many of these 
communications asked PSI to take steps to stop further trading by a particular customer account 
or FA number.  Others expressly notified PSI that the Representatives used deceptive trading 
practices to continue placing market timing trades.  
 
 27. High level officers of PSI were aware during the Relevant Period that mutual 
funds were accusing the Representatives of using deceptive practices to evade the mutual funds’ 
attempts to block the Representatives’ market timing trades.  For example, an individual who 
joined PSI in 1997 and rose to become the chief administrator of PSI’s Private Client Group 
(“PCG”) in January 1999, then to executive director of PCG in November 2000, and finally to 
president of PCG in December 2002 (the “Senior Officer”), received repeated notices of 
wrongdoing by the Representatives throughout the Relevant Period, but did not take adequate 
steps to stop the Representatives’ fraud.  Among other things, the Senior Officer received the 
following indications that the Representatives were committing fraud.  In some cases, certain 
other senior managers or high level officers of PSI also received notices that the Representatives 
were committing fraud. 
 
 28. On November 21, 1999, a senior executive in the PSI Mutual Fund Operations 
Division forwarded to the Senior Officer a string of e-mails concerning a complaint from a 
mutual fund complex that the Garden City Representative had evaded a block on two of his 
accounts by simply opening new accounts.  Among other things, the e-mail stated: 
 

It appears that [the Garden City Representative] circumvented this 
restriction by requesting new BIN [account] #s and fund accounts 
be established, funded by transferring shares into these new 



 

 9

accounts on 11/8/99.   Subsequently on 11/10/99, an exchange out 
of the money fund into our stock funds was processed, beginning 
market timing again. 

 
The cover e-mail commented, “[T]his seems to be a serious matter that will only get worse.” 
 
 29. On January 19, 2000, the manager of PSI’s Mutual Fund Operations Division 
forwarded to the Senior Officer an e-mail from another mutual fund complex complaining that a 
member of the Boston Representatives had evaded a trading restriction by opening a new 
account, stating: 
 

It appears that [the member] set up another account in December 
for the same client we restricted on 11/22. 

 
 30. On March 30, 2001, the head of PCG risk management sent the Senior Officer an 
e-mail that attached a letter from another mutual fund complex complaining that “excessive 
trading activity” by PSI registered representatives in its mutual funds “has become detrimental to 
both the funds and shareholders of the funds involved.”  The letter described the tactics used by 
PSI registered representatives to avoid having their trades canceled as follows: 
 

Since trade cancellation began on February 26th, 2001, we have 
noticed several types of reactions by Prudential Financial Advisors 
in order to circumvent our attempts to terminate excessive trading.  
Originally, your Financial Advisors established new identification 
numbers so that they would not be recognized as a repeat offender.  
Secondly, Financial Advisors would transfer a fund(s) position 
from account to account, in order to disguise their identity.  Lastly, 
your Financial Advisors have attempted to reduce the dollar 
amount of the exchange orders while simultaneously increasing the 
number of exchanges (in the same fund and account) in the hopes 
of not being identified. 

 
 31. On June 28, 2001, the Senior Officer received an e-mail from the manager of the 
Special Accounts branch warning him that the Special Accounts Representatives were obtaining 
multiple FA numbers in order to conduct their market timing, stating that: 

We will have an issue soon with joint FA numbers:  in order to get 
around the MF [mutual fund] timing issue they are starting to 
request 99/01 split numbers with their junior partners to help them 
get around being shut down by some MF companies on timing. 

 
 32. On April 4, 2002, the manager of PSI’s Mutual Funds Operations division sent an 
e-mail to other senior managers forwarding an e-mail from another mutual fund complex 
complaining that certain PSI registered representatives were using multiple accounts and FA 
numbers to evade restrictions on their market timing.  The e-mail stated: 



 

 10

 
What we have seen scares us.  It appears certain representatives are 
changing account registrations, tax id numbers, and branch and rep 
numbers in an effort to time the [mutual fund complex’s] funds.  
All of these accounts have been stopped, but each day “new” ones 
pop up. 

  
When the PSI chief compliance officer saw the above e-mail, he showed it to the Senior Officer. 
The head of PCG risk management also discussed the e-mail with the Senior Officer. 
 
 33. On April 29, 2002, the Senior Officer met with an internal PSI working group that 
had been analyzing market timing issues.  The group described for the Senior Officer the mutual 
fund companies’ restrictions on excessive trading, the fund companies’ block letters to PSI, and 
the deceptive trading strategies used by certain PSI registered representatives, including multiple 
accounts and FA numbers. 
 
 34. On at least two occasions in May 2002, an employee of PSI’s risk management 
division detailed for the Senior Officer several deceptive practices used by the Garden City 
Representative.  The employee’s analysis noted that in one 37-day period, the Garden City 
Representative had 19 different mutual fund companies request that accounts under the 
representative’s control, or the representative as an FA, be blocked from their funds.  The 
analysis concluded that the Garden City Representative had circumvented these requests by 
changing his FA number to an Also or Joint Number to avoid detection by the fund, or by 
changing customer account numbers and moving the assets from the blocked account to a newly 
established account. 
 
 35. On February 5, 2003, the director of strategic planning at PCG sent the Senior 
Officer (then the President and most senior officer of PCG) a string of e-mails from another 
mutual fund complex complaining that certain PSI registered representatives were using multiple 
customer accounts and FA numbers for market timing.  One of the e-mails stated: 
 

I have spoken to these reps a few times over the past several 
months about stopping their timing activity to no avail.  Over the 
past several months, we have placed stops on 325 of their accounts 
as of 11/30/02 and continue to add accounts daily.  We see new 
accounts/rep id combinations being opened and have determined 
that we are not able to continue chasing them within our funds.  
We feel our only course of action to protect our fund shareholders 
is to prohibit the attached list of reps from doing business with [our 
funds]. 

 
Another e-mail in the string stated: 
 

These reps have multiple rep ids and have continued to add new 



 

 11

ones as we block the ids within the NSCC trading system for our 
fund complex ...  These reps created close to $3 billion in 
exchanges last year with $75 million of assets during a time in 
which we placed stops on 350 of their accounts. 

 
The director of strategic planning added his own warning to the Senior Officer: 
  

I just wanted to give you a heads up on an issue that is sure to 
reach your desk in the next day or two.  As you can see from the 
attached string of notes, the senior leadership team at [a mutual 
fund complex] are completely frustrated with some of the 
tactics/strategies of FA’s [the Garden City Representative and the 
Boston Representatives].  Previous attempts to curtail timing 
activity in the [mutual fund complex’s] funds by blocking account 
activity have been thwarted by the establishment of additional FA 
numbers.  It appears that [the mutual fund complex] is now making 
overtures that continued activity of this nature will threaten the 
relationship between Prudential and the fund company. 

 
 36. On February 11, 2003, a PCG risk officer sent an e-mail to the Senior Officer 
(then the President and most senior officer of PCG) that forwarded an e-mail from the Garden 
City branch manager about the Garden City Representative’s market timing business.  The 
branch manager questioned the effectiveness of the Mutual Fund Operations Division’s internal 
blocking system and raised several other concerns about the Garden City Representative’s 
activities: 
 

Blocking of individual accounts by fund companies is extremely 
short-sighted in consideration of the fact that each “entity” 
maintains multiple accounts with our Firm. 

 
There have been repeat offenses, at least in spirit . . .  

 
Fund companies have been misled as to the identity of the FA’s of 
record...  Recently, [a mutual fund company] was provided with 
information which was at best misleading to effect the removal [of] 
a block. 

 
[T]here is frequent journaling of funds between accounts. 

 
At the present time, [the Garden City Representative and an 
assistant] either have or have had a total of 48 FA #s including 
single, joint and also numbers. 

 
 



 

 12

G. PSI’s Procedures to Limit Market Timing Were Ineffective 
 
 37. Although PSI senior officers issued policies and procedures ostensibly designed 
to proscribe the Representatives’ conduct, these policies and procedures were ineffective in 
scope and were never fully enforced.  Moreover, even in situations where these policies and 
procedures purportedly were enforced, PSI senior officers undermined them by granting 
exceptions for its largest producing registered representatives.  As a result, the Representatives’ 
deceptions continued even after these policies and procedures were promulgated. 
 
 a. PSI’s June 2002 Procedure Concerning Issuance of FA Numbers 
 
 38. In June 2002, PSI instituted a procedure concerning the issuance of FA numbers, 
in a purported effort to hinder the Representatives’ ability to obtain “Joint” numbers and “Also” 
numbers to evade limitations on market timing (the “June 2002 Procedure”).  The June 2002 
Procedure provided, simply, that requests for “Joint” and “Also” numbers would require a 
documented business request and a PSI Regional Business Manager’s approval.  The June 2002 
Procedure failed to preclude the Representatives from misusing previously issued Joint and Also 
numbers to evade blocks imposed by mutual fund companies nor did it preclude them from 
obtaining new FA numbers to facilitate their fraud.  Indeed, the Garden City Representative 
obtained 12 new Joint and Also numbers just days before the procedure took effect, purportedly 
to assist him in transferring customer accounts from one PSI branch office to another.  The June 
2002 Procedure also did not subject the Representatives to any form of discipline or sanction if 
they continued to use Joint and Also numbers to evade blocks in violation of its terms. 
 
 b. PSI’s January 2003 Market Timing Policy 
 
 39. After protracted discussion involving PSI senior officers during the Fall of 2002, 
PSI issued a market timing policy on January 8, 2003 (the “Market Timing Policy”).  PSI 
considered, and rejected, defining market timing in the Market Timing Policy as a certain 
number of trades because of concerns that doing so would have too great an impact on the 
Representatives’ revenues.  PSI also rejected an absolute prohibition on the business of market 
timing.  Instead, the Market Timing Policy provided that “inappropriate timing activities [would] 
continue to be monitored” by mutual fund companies and not by PSI itself.     
 
 40. Unlike other PSI policies concerning market timing, the Market Timing Policy 
expressly provided for the imposition of sanctions, including termination of employment, for the 
Representatives’ use of “manipulative techniques” to evade mutual fund trading restrictions.  
Any imposition of sanctions was to be decided by a committee consisting of members of PSI’s 
Legal, Compliance, and Risk Management divisions.  Despite notifications of continuing 
deceptive practices received by PSI after it issued the Market Timing Policy, PSI did not form 
this committee and failed to take action against any of the Representatives to stop their use of 
“manipulative techniques” to market time.  
 
 41. The Market Timing Policy also provided that, in the event a mutual fund company 



 

 13

asked PSI to block any one of a registered representative’s FA numbers, all numbers belonging 
to the registered representative similarly would be blocked from trading.  However, PSI senior 
officers determined not to implement this critical aspect of the Market Timing Policy.  In fact, 
despite the policy’s clear language, PSI interpreted mutual fund block requests after it issued the 
Market Timing Policy in the same manner as it had previously – as narrowly as possible, 
blocking only the specific FA number or customer account number identified by mutual fund 
block requests.  Thus, even after issuance of the Market Timing Policy, the Representatives were 
able to continue their fraudulent scheme of switching to unblocked FA numbers or customer 
accounts to evade blocks imposed by mutual fund companies.   
 
H. PSI Profited From the Representatives’ Deceptive Acts 
 
 42. PSI identified the Representatives as early as 2000 and monitored their revenues 
and ranks within the firm throughout the Relevant Period.  The firm’s Mutual Fund Operations 
Division, which processed the Representatives’ trades in mutual funds, monitored the 
Representatives’ activity because their rapid trading required the dedication of additional staff 
within the department to process the trades and strained the firm’s trade processing and 
settlement systems.  
 
 43. In 2000, PSI began to track each quarter the gross commission revenues generated 
by the Representatives.  PSI prepared these reports to determine the amount of income that 
would possibly be reduced if the firm determined to eliminate market timing as a business.  In 
2001, for example, the Representatives generated more than $16 million in gross commission 
revenues for the firm, most of which would have been eliminated had the firm phased out market 
timing at that time.  Similarly, the Representatives generated approximately $23 million in gross 
commission revenues for 2002, and received another $10 million in gross commission revenues 
during the first half of 2003. 
 
 44. As PSI senior officers became increasingly aware of the Representatives’ use of 
deceptions, the firm elected to continue the business of market timing.  Indeed, some of the 
firm’s senior officers were aware that the June 2002 Procedure concerning the issuance of 
multiple FA numbers and the January 2003 Market Timing Policy were wholly ineffective at 
eradicating the Representatives’ deceptions and the Representatives and their hedge fund 
customers continued this activity.  During the Relevant Period, the Representatives generated 
approximately $50 million in gross revenues as a result of this conduct.  
 
I. PSI Failed to Make and Keep Required Books and Records 
 
 45. PSI was required to make and keep current trade orders and trade tickets 
concerning the Representatives’ mutual fund trading.  PSI also was required to make and keep 
current a trade blotter that reflected the Representatives’ mutual fund trading.  During the 
relevant period, PSI failed to maintain these required books and records, and, in instances where 
PSI did maintain these items, they did not give the actual time at which the orders were received 
or the time of entry.   



 

 14

 
J. Violations of the Antifraud and Books and Records Provisions of the Federal 
 Securities Laws  
 
 46. As a result of the conduct described above, PSI willfully violated Section 17(a) of 
the Securities Act of 1933, which prohibits fraudulent conduct in the offer or sale of securities.   
 
 47. As a result of the conduct described above, PSI also willfully violated Section 
10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in 
connection with the purchase or sale of securities.   
 
 48. PSI also willfully violated Section 17(a) of the Exchange Act and Rules 17a-3 and 
17a-4 thereunder.  Section 17(a) of the Exchange Act and Rules 17a-3 and 17a-4 thereunder 
required PSI to make and keep certain books and records relating to its business, including trade 
blotters and trade tickets related to mutual fund trading.  Implicit in the Commission’s 
recordkeeping rules is a requirement that information contained in a required book or record be 
accurate.  PSI failed to maintain complete and current copies of trade blotters concerning mutual 
fund trading and trade tickets related to mutual fund trading in a readily accessible place.  In 
instances where PSI did maintain trade tickets, information included on them did not represent 
the actual time at which the orders were placed.  
 
K. Undertakings  
 
 In determining whether to accept the Offer, the Commission has considered these 
undertakings: 
 
 49. Cooperation.  Respondent shall cooperate fully with the staff of the Commission 
in any litigation, ongoing investigation, or other proceedings relating to or arising from the 
matters described in the This Order.  In connection with such cooperation, Respondent has 
undertaken: 
 
 a. to produce promptly, without service of a notice or subpoena, any and all 

documents and other information requested by the Commission’s staff in 
Respondent’s possession and control; 

 
 b. to use its best efforts to cause its employees to be interviewed by the 

Commission’s staff at such times as the Commission may reasonably request; and 
      
 c. to use its best efforts to cause its employees to appear and testify truthfully and 

completely without service of a notice or subpoena in such investigations, 
depositions, hearing or trials as the Commission’s staff reasonably may request; 
and that in connection with any testimony of Respondent to be conducted at 
deposition, hearing, or trial pursuant to a notice or subpoena, Respondent 

 



 

 15

i. agrees that any such notice or subpoena for Respondent’s 
appearance and testimony may be served by regular mail on its 
attorney:  

 
    Bingham McCutchen LLP 
    Attn: Neal E. Sullivan, Esq. 
    2020 K Street, N.W. 
    Washington, DC 20006; and 
 
   ii. Agrees that any such notice or subpoena for Respondent’s     
    territorial limits imposed by the Federal Rules of Civil Procedure. 
 
 50. Independent Distribution Consultant.  Respondent shall retain, within 60 days of 
the entry of this Order, the services of an independent distribution consultant (“Independent 
Distribution Consultant”) acceptable to the staff of the Commission.   
 
 a. Respondent shall be responsible for all costs and expenses associated with the 
development and implementation of the Distribution Plan for the distribution of the 
disgorgement ordered in Section IV.B. of this Order.  Such costs and expenses shall include, 
without limitation (i) the compensation of a tax administrator for the preparation of tax returns 
and/or for seeking any IRS rulings; (ii) the payment of taxes; and (iii) the payment of any 
distribution or consulting services as may be reasonably required by the Independent Distribution 
Consultant.  Respondent shall cooperate with the tax administrator to see that all tax payments 
are timely made, and all such tax payments shall be deposited in the Qualified Settlement Fund 
upon notice from the tax administrator concerning the amount and the deadline for payment.  
 
 b. Respondent shall cooperate fully with the Independent Distribution Consultant to 
provide all information requested for its review, including providing access to its files, books, 
records, and personnel.   
 
 c. The Independent Distribution Consultant shall develop a proposed Distribution 
Plan for the distribution of the disgorgement ordered in Section IV.B. of this Order, and any 
interest or earnings thereon, according to a methodology developed in consultation with and 
acceptable to the staff of the Commission.       
 
 d. The Independent Distribution Consultant shall submit to Respondent and the staff 
of the Commission the proposed Distribution Plan no more than 180 days after the entry of this 
Order. 
 
 e. The proposed Distribution Plan developed by the Independent Distribution 
Consultant shall be binding unless, within 210 days after the date of entry of this Order, 
Respondent or the staff of the Commission advises, in writing, the Independent Distribution 
Consultant of any determination or calculation from the Distribution Plan that it considers to be 
inappropriate and states in writing the reasons for considering such determination or calculation 



 

 

inappropriate. 
 
 f. With respect to any calculation with which Respondent or the staff of the  
Commission do not agree, such parties shall attempt in good faith to reach an agreement within 
240 days of the entry of this Order.  In the event that Respondent and the staff of the 
Commission are unable to agree on an alternative determination or calculation, the 
determinations of the Independent Distribution Consultant shall be included in the proposed 
Distribution Plan.     
 
 g. Within 285 days of the date of entry of this Order, the Independent Distribution 
Consultant shall submit the proposed Distribution Plan for the administration and distribution of 
disgorgement funds pursuant to the Commission’s Rules on Fair Fund and Disgorgement Plans, 
17 C.F.R.  § 201.1100, et seq., (Rule 1100 through Rule 1106).  Following a Commission order 
approving a final plan of distribution, as provided in Rule 1104 [17 C.F.R. § 201.1104] of the 
SEC’s Rules on Fair Fund and Disgorgement Plans, the Independent Distribution Consultant 
shall take all necessary and appropriate steps to administer the final plan for distribution of 
disgorgement funds in accordance with the terms of the approved Distribution Plan. 
 
 h.  For the period of the engagement and for a period of two years from completion 
of the engagement, the Independent Distribution Consultant shall not enter into any employment, 
consultant, attorney-client, auditing, or other professional relationship with Respondent, or any 
of its present or former affiliates, directors, officers, employees, or agents acting in their capacity 
as such.  Any firm with which the Independent Distribution Consultant is affiliated in 
performance of his or her duties under this Order, or of which he/she is a member, and any 
person engaged to assist the Independent Distribution Consultant in the performance of his/her 
duties under this Order, shall not, without prior written consent of the staff of the Commission, 
enter into any employment, consultant, attorney-client, auditing or other professional relationship 
with Respondent, or any of Respondent’s present or former affiliates, directors, officers, 
employees, or agents acting in the capacity as such for the period of the engagement and for a 
period of two years after the engagement.  
 
 i. For good cause shown, the staff of the Commission may alter any of the 
procedural deadlines set forth above.   .  
  
 IV. 
 

In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Section 15(b) of the Exchange Act, it is hereby ORDERED 
that:   
 
 A. Respondent is hereby censured. 



 

 

 
 B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of 
$270 million to the Securities and Exchange Commission.  Such payment shall be: (A) made by 
wire transfer, United States postal money order, certified check, bank cashier's check or bank 
money order; (B) made payable to the Securities and Exchange Commission; (C) wired, hand-
delivered, or mailed to the Office of Financial Management, Securities and Exchange 
Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; 
and (D) submitted under cover letter that identifies PSI as a Respondent in these proceedings, the 
file number of these proceedings, a copy of which cover letter, wire transfer instruction, money 
order, or check shall be sent to David P. Bergers, District Administrator, Securities and 
Exchange Commission, Boston District Office, 33 Arch Street, 23rd Floor, Boston, 
Massachusetts 02110.  
 
 C. Respondent shall comply with the undertakings enumerated in Section III., 
paragraph 50 of this Order.   

 
 
By the Commission. 
 
 
 
    Nancy M. Morris 
    Secretary