Ex-Prudential Broker Pleads in Market-Timing Case

Martin Druffner was charged with securities fraud for executing abusive hedge fund trades.
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Martin Druffner, a former

Prudential

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broker charged with leading a group of market-timing brokers in Boston, pled guilty Monday in federal court to securities fraud charges.

Druffner's is the second guilty plea secured by federal prosecutors in Massachusetts the past several months. In August, Skifter Ajro, a member of Druffner's brokerage team, pleaded guilty to similar charges.

U.S. Attorney Michael Sullivan contends that Druffner and Ajro were part of a team that allegedly used fraud and deception to place $1.3 billion in market-timing trades for their hedge fund clients. Authorities charge that Druffner generated more than $1 million in commissions from making such trades on behalf of several hedge fund customers.

To date, state and federal prosecutors have collected more than $3 billion in fines and restitution related to the mutual fund scandal, which broke in late 2003. The industry was rocked by allegations that some savvy traders used abusive arbitrage strategies like market-timing, which involves rapid-fire trading of funds and their component securities in different markets, to exploit pricing anomalies and lock in easy profits.

Michael Collora, the attorney for Druffner, say prosecutors have agreed to recommend a lighter sentence for his client if he cooperates with their continuing investigation. He indicated his client is likely to cooperate.

Under the federal sentencing guidelines, Druffner could be sentenced to up to five years in prison. Sentencing is scheduled for December.

Prosecutors are believed to be interested in pursuing criminal charges against several of Druffner's former supervisors and some of his hedge fund customers. A spokeswoman for Sullivan could not be reached for comment.

The criminal charges in the investigation come at a time when Prudential is nearing its own settlement with regulators and prosecutors in the mutual fund scandal. In 2003, Prudential sold a majority stake in its brokerage business to

Wachovia

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. What used to be called Prudential Securities is now known as Wachovia Securities and is operated as a joint venture between the bank and the insurer.