Prudential Charged With Fraud

Massachusetts charged Prudential Securities on Thursday with violating state laws by engaging in widespread late trading of mutual funds for its hedge fund customers.

Secretary of the Commonwealth William F. Galvin said the company violated both state and federal laws and hurt smaller investors in the funds.

Galvin said brokers in Prudential’s Boston office allowed more than 1,100 late trading transactions in the last 2 1/2 years with a total value of more than $162 million. The administrative complaint seeks restitution and an unspecified fine.

He said late orders were executed even though it was a violation of company policy.

“This scheme was clearly a violation of Prudential’s internal controls,” he said. “Many people knew this was going on and no one stopped it.”

A spokesman for Prudential could not be reached for comment.

In July, Prudential Financial Inc. merged the unit with Wachovia Corp.’s Wachovia Securities, based in Richmond, Va.

Late trading allows a favored investor to take advantage of any events after the market closes that are not reflected in the fund’s closing price.

The charges against Prudential were the latest in a widening scandal that hit the mutual fund industry this fall, raising questions about whether smaller investors are being cheated as they put their money into what traditionally has been considered a safe investment.

Last month Galvin charged five former Prudential brokers with fraud in a related mutual fund market-timing scheme.