The US Financial Industry Regulatory Authority (FINRA) has ordered New Jersey-based Pruco Securities Newark, to pay over $10.7m in restitution, plus interest, to customers who placed mutual fund orders during late 2003 to June 2011 and received an inferior price for their shares.
Additionally, the US securities watchdog has slapped a fine of $550,000 on the firm for its pricing errors and for failing to have an adequate supervisory system and written procedures in this area.
FINRA executive vice president and chief of enforcement Brad Bennett said, "Pruco’s inadequate supervision and pricing system resulted in thousands of customers receiving inferior prices for more than seven years.
"Broker-dealers must ensure that their systems provide customers with accurate pricing for all products that the firms offer," Bennett added.
According to FINRA complaint, one of Pruco’s retail brokerage business units, Command, started a practice for handling mutual fund paper orders, which was against of Investment Company Act of 1940.
Under this regulation, it is essential that mutual fund orders are priced on the day the order is received prior to 4 pm; instead from late 2003 to June 2011, the accused priced more than 850,000 paper orders on average one or two days after it received complete orders prior to 4 pm.
Following the discovery of this malpractice, nearly 37,000 accounts of 34,000 customers will receive over $10.7m in restitution, and interest.
The market regulator claimed that Pruco failed to place an adequate supervisory system to detect and prevent the mispricing of paper mutual fund orders and to ensure that customers who submitted paper mutual fund orders received the correct price.
Pruco, neither admitted nor denied the charges, but agreed to the entry of FINRA’s findings.