Prudential Investment Management Consents to FINRA Censure

FINRA says a lapse in sufficient supervision led to retirement plan clients being supplied with inaccurate investment expense ratio and performance information.

The Financial Industry Regulatory Authority (FINRA) has published a letter of acceptance, waiver and consent entered into by member firm Prudential Investment Management Services (PIMS).

Underlying the letter, in which Prudential accepts FINRA’s settlement terms but neither affirms nor denies any specific allegations, is a challenge by FINRA suggesting that Prudential provided retirement plan clients with inaccurate expense ratio information and historical performance information.

“During at least the period January 2010 to June 2017, PIMS provided employer sponsors and employee participants, in retirement plans administered and/or maintained by the Prudential Retirement business unit, with inaccurate expense ratio information and historical performance information for numerous investment options in defined contribution plans offered through a group variable annuity,” the letter states.

In addition, FINRA says, from at least October 2003 to December 2018, PIMS provided inaccurate third-party ratings for investment options in retirement plan group variable annuities.

“PIMS made these misstatements in nine different types of communications, including customer statements and quarterly fact sheets,” FINRA says.

Additionally, according to FINRA, from at least January 2004 to September 2019, in multiple client-facing publications, PIMS provided performance data for money market funds available as investment options in retirement plans, but failed to provide “seven-day yield” information as required by Rule 482(e) under the Securities Act of 1933.

“Throughout the period of these violations, PIMS did not have supervisory systems or written supervisory procedures reasonably designed to achieve compliance with the content standards of FINRA’s advertising rule by ensuring that its communications to customers about retirement plan investments and related investment options were accurate,” the letter states. “By virtue of the foregoing, PIMS violated NASD Rules 2210(d)(1)(A) & (B), 3010(a) & (b), and 2110, and FINRA Rules 2210(d)(1)(A) & (B), 3110(a) & (b), and 2010.”

As part of this matter, PIMS has consented to a censure and a fine in the amount of $1 million. There are also non-monetary elements agreed to. For example, the firm has agreed to retain at its own expense one or more qualified independent consultants “not unacceptable to FINRA” to conduct a comprehensive review of the adequacy of the firm’s compliance with FINRA Rules 2210(d)(1)(A) & (B) and 3110(a) & (b), in connection with the violations described.

The letter further states that, once retained, PIMS “shall not terminate the relationship with the independent consultant without FINRA’s written approval; respondent shall not be in and shall not have an attorney-client relationship with the independent consultant and shall not seek to invoke the attorney-client privilege or other doctrine or privilege to prevent the independent consultant from transmitting any information, reports or documents to FINRA.

PIMS provided the following statement: “Transparency, doing the right thing, and maintaining constructive relationships with regulators are foundational to how Prudential conducts business. Upon discovery of the issues following a FINRA inquiry, Prudential conducted a thorough review, reported its findings, and fully cooperated with FINRA. We have taken action to address the issues and are pleased to have this matter resolved.”