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Prudential Legal Charge Swells

Fourth-quarter earnings were cut by $267 million.

Insurance titan

Prudential Financial

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keeps upping the tab for settling an investigation into the firm's role in the mutual fund trading scandal.

The Newark, N.J.-based insurer said late Wednesday that its fourth-quarter earnings were reduced by a decision to set aside $267 million to cover the cost of a long-anticipated settlement with securities regulators and federal prosecutors. The $267 million is in addition to the $136 million Prudential set aside last summer for settlement purposes.

The latest legal charge reduced net earnings at Prudential by 40 cents a share in the quarter and caused the insurer to fall short of Wall Street expectations.

Including the charge, Prudential earned $377 million, or 78 cents a share, in the quarter, compared with a profit of $317 million and 64 cents a share in the year-ago period. On an operating basis, which excluded the legal charge and other expenses, Prudential earned $1.06 a share, up from 96 cents share.

Analysts, as surveyed by Thomson Financial, were looking for earnings of $1.22 a share. It does not appear analysts were anticipating such a large settlement reserve in the quarter.

Revenues at Prudential totaled $5.82 billion, up 12% from a year ago. Revenues came in a bit shy of the consensus forecast of $5.86 billion.

The company's decision to up its reserve comes as legal sources say Massachusetts U.S. Attorney Michael Sullivan recently impaneled a grand jury to consider bringing additional criminal charges in the investigation.

To date, two former brokers have pleaded guilty in federal court in Boston to charges they engaged in deceptive marketing timing, or frequent trading, on behalf of a group of hedge fund customers. People familiar with the investigation say the grand jury is reviewing evidence about the former brokers' supervisors. The grand jury also is looking at the activities at a group of former Prudential brokers in New York who also allegedly engaged in abusive mutual fund trading.

The improper trading occurred at Prudential Securities, the insurer's former brokerage division that is now part of a joint venture with


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. Under the deal in which Wachovia acquired a majority interest in Prudential's former brokerage arm, the insurer agreed to indemnify the Charlotte, N.C., bank for any legal liability arising out of the mutual fund trading scandal.

Prudential is one the last big Wall Street firms still trying to hammer out a settlement with investigators.

previously has reported that federal prosecutors are considering filing a so-called deferred prosecution agreement against Prudential.

In a deferred prosecution, authorities agree to not file any charges in a matter as long as a defendant abides by the terms of a negotiated agreement. Deferred prosecutions are becoming an increasingly popular method for federal prosecutors to mete out punishments in corporate crime investigations.

In Prudential's case, a deferred prosecution agreement largely would be a symbolic measure, in of the sale of its brokerage business to Wachovia in 2003.

Prudential's shares closed Thursday at $75.64.