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SEC charges Prudential subsidiaries, they reimbursed over $155 million

Christian Fernsby ▼ | September 17, 2019
The Securities and Exchange Commission charged two subsidiaries of Prudential Financial Inc. with failing to disclose conflicts of interest and making misleading disclosures to the boards for 94 funds they advised.
Prudential Financial
America   AST and PI served as investment advisers to 94 funds
According to the SEC's order, Prudential subsidiaries AST Investment Services Inc. and PGIM Investments LLC (PI) served as investment advisers to 94 insurance-dedicated mutual funds.

Topics: Prudential SEC

The order finds that in 2006, the funds were reorganized so that Prudential could receive certain tax benefits.

Those benefits to Prudential, however, came with negative consequences to the funds.

First, AST and PI cost the funds tens of millions of dollars in interest income when they temporarily recalled securities the funds had out on loan.

AST and PI did not disclose, to the funds' boards of trustees or the beneficial owners of the funds' shares, the conflict of interest between Prudential and the funds in connection with the recalls.

Second, the funds' reorganization subjected them to less favorable tax treatment in certain foreign jurisdictions, but Prudential did not timely reimburse the funds for resulting losses despite AST and PI's assurances it would do so.

The SEC's order acknowledges that AST and PI self-reported the conduct to the SEC after initially failing to disclose it during an examination, cooperated with the staff's investigation, and voluntarily reimbursed the funds over $155 million.

The order also censures AST and PI, and requires them to disgorge an additional $27.6 million, pay a civil monetary penalty of $5 million, and cease and desist from committing any further violations.

AST and PI did not admit or deny the SEC's findings.