Prudential subsidiary Pruco Securities settles SEC case for $18.3 million on allegations of breach of fiduciary duty on mutual fund selections

Prudential subsidiary Pruco Securities will pay approx$18.3 million to settle an SEC investigation concerning alleged breaches of its fiduciary duty related to the firm’s mutual fund share class selection and wrap fee programs. The SEC says that Pruco, a registered investment adviser and broker-dealer, recommended clients buy and hold mutual fund share classes paying 12b-1 fees to the firm without disclosing conflicts of interest arising from the practice, the SEC says. The company allegedly earned around $7.2 million in 12b-1 fees from January 2014 through March 2016, the regulator says. Additionally, the SEC asserts, Pruco didn’t disclose receiving revenue sharing payments on client investments from its clearing firm through an agreement that also allowed Pruco to avoid certain transaction fees for its client’s purchases of mutual funds. It also says Pruco received around $4.4 million in such revenue sharing payments during the period in question.

Moreover, the SEC accuses Pruco of violating its duty by selecting or recommending mutual fund share classes when lower-priced alternatives were available to its clients.

The SEC also claims Pruco failed to monitor whether its wrap fee programs remained suitable for its clients and charged certain fees to some clients contrary to its disclosures. Furthermore, Pruco allegedly recommended bank sweep vehicles for which it received revenue sharing payments from its clearing firm without disclosing the payments, the SEC says. Pruco agreed to pay around $15.8 million in disgorgement and prejudgment interest and a civil penalty of $2.5 million without admitting or denying the findings, the regulator says.