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SEC charges Prudential Financial subsidiaries over misleading fund disclosures

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SEC charges Prudential Financial subsidiaries over misleading fund disclosures

The SEC charged two Prudential Financial Inc. subsidiaries with failing to disclose conflicts of interests and making misleading disclosures to the boards for 94 insurance-dedicated mutual funds they advised.

The SEC's order finds that the funds advised by AST Investment Services Inc. and PGIM Investments LLC were reorganized in 2006 so Prudential Financial could receive certain tax benefits. AST and PGIM temporarily recalled securities the funds had out on loan in connection with the reorganization, costing the funds tens of millions of dollars in interest income. The two companies did not inform the funds' board of trustees or the beneficial owners of the funds' shares the interest conflict between Prudential Financial and the funds in relation to the recalls.

The funds' reorganization also caused AST and PGIM less favorable tax treatment in certain foreign jurisdictions. However, Prudential Financial did not reimburse the funds for resulting losses on time in spite of the subsidiaries' guarantee that the parent would do so, according to the SEC's order.

The Prudential Financial subsidiaries self-reported their wrongdoings, cooperated with the investigation and willingly reimbursed the funds more than $155 million, the SEC noted in its order. The commission's order also censured the companies and demanded they disgorge an additional $27.6 million, pay a $5 million civil monetary fee, and cease and desist from more violations. The subsidiaries did not admit or deny the SEC's findings.