, in another indication that the big insurer is close to closing the book on its involvement with the mutual fund trading scandal, has set aside a $136 million legal reserve.
The Newark, N.J.-based insurer disclosed the legal reserve in its second-quarter earnings announcement Wednesday afternoon. Up until this point, Prudential had not commented on whether it had set aside any money for a potential settlement.
News of the reserve came just a day after federal prosecutors in Massachusetts filed criminal charges against Skifter Ajro, a former Prudential broker in Boston, over his role in the trading scandal. Prosecutors charged Ajro was part of a team of brokers in the Boston office that allegedly used fraud and deception to place $1.3 billion in market-timing trades for their hedge fund customers.
Ajro is the first of what could end up being several former Prudential brokers to be charged by Massachusetts prosecutors, sources say. The probe has been ongoing for more than a year.
Earlier this summer,
reported that Prudential was close to reaching a settlement with securities regulators and federal prosecutors over the role the firm's brokerage division allegedly played in submitting abusive mutual fund trades for nearly a dozen hedge funds. People familiar with the investigation say a settlement with the firm likely will not be announced until after prosecutors complete their investigation.
The potential settlement could involve a significant fine levied against Prudential and the filing of a so-called deferred prosecution agreement by federal prosecutors in Massachusetts, sources say.
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 would have little practical effect, since the insurer sold a majority stake in its brokerage business to
in 2003. 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.
Prudential has agreed to indemnify Wachovia against any fines or lawsuits arising from the past conduct of its brokers.