7 charged in improper trading

Advertiser News Services

BOSTON — The growing mutual fund scandal hit Prudential Securities Inc. yesterday as five former brokers and two former Boston branch managers were accused by regulators of improper trading, some of it allegedly hidden behind dummy names and numbers.

The regulators painted a disturbing portrait of an operation where brokers dodged rules barring market-timing by concealing their identities with intentionally misspelled names and false identification numbers — then racked up millions of dollars in commissions and profits for hedge fund clients.

The charges came as a top enforcement official said the government is conducting a broad sweep of the mutual fund industry and more charges are likely in the growing scandal in the $7 trillion business.

Stephen Cutler, head of the Securities and Exchange Commission's enforcement division, told Congress yesterday that the SEC plans to send notifications to some firms this week that investigators intend to file civil charges.

The five Prudential employees were named in the civil securities fraud charges by Massachusetts regulators and the SEC. From 1998 until they resigned in September, the brokers used at least 62 financial adviser numbers to conceal their identities, the Massachusetts complaint alleges. With help from mutual fund employees, they evaded rules against rapid trading, called market timing, and enriched themselves and offshore hedge fund clients, the document claims.

Three brokers made nearly $5 million in commissions in 2002 alone, according to the SEC.