Prudential Investment Businesses Failed to Disclose Conflicts, SEC Says

The agency ordered AST Investment Services and PGIM Investments to pay disgorgement and a civil monetary penalty.

Victor J. Blue/Bloomberg

Victor J. Blue/Bloomberg

The Securities and Exchange Commission has charged two companies owned by Prudential Financial with failing to disclose conflicts of interest at funds they advised, ordering them to pay penalties on top of voluntary reimbursements of $155 million.

AST Investment Services and PGIM Investments were advisors to 94 insurance-dedicated mutual funds that in 2006 were reorganized to provide tax benefits to Prudential, according to an SEC statement Monday. “Those benefits to Prudential, however, came with negative consequences to the funds,” the regulator said.

The SEC ordered AST and PI to pay $27.6 million of disgorgement plus a $5 million monetary penalty. The regulator said the Prudential subsidiaries, which made misleading disclosures to the funds’ boards, self-reported their conduct after failing to disclose it during an examination.

“Investment advisers must be vigilant in monitoring for conflicts related to actions taken by affiliates, and must act consistently with their representations to their clients,” said Dabney O’Riordan, co-chief of the SEC enforcement division’s asset Management unit, in the statement. “AST and PI acted to benefit their parent company despite the costs those acts imposed on their clients.”

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The SEC alleged that the Prudential subsidiaries cost the funds “tens of millions of dollars in interest income” by temporarily recalling securities they had on loan. They did not disclose the conflict of interest between Prudential and the funds with respect to the recalls, reorganizations subjecting them to “less favorable tax treatment in certain foreign jurisdictions,” the SEC said.

Prudential did not reimburse the funds in a timely manner, despite assurance from AST and PI that the parent would do so, according to the regulator’s allegations. AST and PI neither admitted nor denied the charges, the SEC said.

“Prudential has a long track record of being transparent and maintaining constructive relationships with regulators,” the firm said in an emailed statement. “Consistent with this approach, we proactively self-reported this matter and worked with the SEC to bring it to a resolution. We are pleased to have this matter resolved.”