On December 26, 2012, the Financial Industry Regulatory Authority (“FINRA”) announced that it ordered Pruco Securities, LLC (“Pruco Securities”), a New Jersey based registered broker-dealer, to pay nearly $11 million in restitution and $550,000 in fines for failing (i) to timely process written mutual fund orders received by mail or fax, (ii) to have in place an adequate supervisory system designed to detect and prevent the mispricing of paper mutual fund orders and (iii) to have written procedures for handling paper mutual fund orders.
According to the Letter of Acceptance, Waiver and Consent (the “AWC”), dated December 21, 2012, from late 2003 to June 2011, COMMAND, one of Pruco Securities’ retail brokerage business units, processed and priced complete paper mutual fund orders received prior to 4:00 p.m. on the day of receipt, on average, within one or two business days, rather than processing and pricing such orders prior to 4:00 p.m. on the date of receipt, as required by Rule 22c-1 of the Investment Company Act. According to the AWC, this practice resulted in thousands of Pruco Securities’ customers receiving inferior prices for paper mutual fund orders.
Based on such conduct, FINRA charged Pruco Securities with violating Rule 22c-1 of the Investment Company Act, National Association of Securities Dealers (“NASD”) Rules 3010(a) and 2110 and FINRA Rule 2010 (for its failure to maintain an adequate system to ensure compliance with Rule 22c-1 of the Investment Company Act) and NASD Rules 3010(b) and 2110 and FINRA Rule 2010 (for its failure to establish, maintain and enforce written procedures for pricing paper mutual fund orders).
According to the AWC, in sanctioning Pruco Securities, FINRA took into consideration that Pruco Securities self-reported the pricing issues, undertook an internal review, implemented changes to its policies and procedures and commenced the payment of restitution to the affected customers. According to FINRA’s press release, Pruco Securities accepted and consented to the entry of FINRA’s findings, without admitting or denying the charges.