Updated from 11:08 a.m. EDT
Up to 12 brokers and supervisors at
have been fired or forced to resign following an internal probe into mutual fund trading abuses, sources said Tuesday.
Prudential's parent firm, Wachovia Securities, a division of
, launched the investigation amid intense scrutiny by state and federal regulators who have recently started to crack down on improper mutual fund trading. The brokers and managers who were ousted worked mainly in the firm's Boston and Long Island offices.
The Massachusetts Securities Division, the
Securities and Exchange Commission
, and the
National Association of Securities Dealers
are looking into allegations of wrongdoing at Prudential, and New York Attorney General Eliot Spitzer is investigating whether the firm engaged in market timing, an arbitrage strategy that allows traders to take advantage of the time differences between the closing of the U.S. markets and foreign exchanges.
While the fast, in-and-out trading that market timers engage in is legal, most mutual funds try to discourage it because it can dilute the value of a fund by causing unnecessary trading costs.
One of the brokers asked to resign Monday night was Martin J. Druffner, one of the firm's best performers, news reports said. Druffner generated more than $1.7 million in commissions for Prudential in 2001.
According to the
, the brokers' attorney, Michael Collora said: "While they believe they adhered to company policies at all times, they have accepted this decision and have left the company." Wachovia Securities spokesman Tony Mattera declined to comment.
Prudential had no formal policy on market timing until January, and the
cited sources who claimed the practice was "routine and wide in scope" over the past few years. Other Wall Street brokers had prohibited market timing for at least a year by the start of 2003, the
This summer Wachovia purchased a majority interest in Prudential Securities from Prudential Financial.