Prudential to challenge CFTC on charges of inadequate supervision
May. 21, 1997
WASHINGTON (AP) _ Prudential Securities Inc. plans to challenge federal regulators who accuse the brokerage of failing to properly supervise an employee who allegedly defrauded customers trading orange juice futures contracts.
As a result of a complaint filed by the Commodity Futures Trading Commission on Tuesday against Prudential and three former account executives, the company could face up to $500,000 in civil penalties and even the loss of its right to trade commodity futures.
The agency said it will hold a public hearing to determine whether the accusations are true. A date has not been set, but Prudential and the former employees _ who also deny the allegations _ have 20 days to respond to the charges.
``We believe that the oversight (by Prudential) was and is appropriate,'' said Charles Perkins, a spokesman for the company at its New York headquarters.
Perkins said it was Prudential's own internal review of the account executive's activities in its Orlando, Fla., office that prompted the CFTC investigation. He said the company intends to formally dispute the regulators' allegation.
The CFTC's action comes two months after it accused Merrill Lynch & Co. of failing to adequately investigate a financial consultant who allegedly defrauded $8 million from investors. Merrill Lynch denied the charge.
In June 1995, Prudential agreed to pay $725,000 to settle CFTC charges that it failed to properly supervise a commodities broker accused of fraud. Prudential neither admitted nor denied wrongdoing.
In the complaint filed Tuesday, the CFTC alleged Prudential failed to properly supervise account executive Kevin Marshburn and provide required records.
Marshburn, who lives in Orlando, and two other former account executives _ Kathleen Chiappone of Winter Park, Fla., and Kathryn Sarabasa of Winter Springs, Fla. _ also face possible civil penalties of hundreds of thousands of dollars and bans on future trading.
The CFTC charged that Marshburn cheated and deceived customers between May 1993 and March 1994 by fraudulently dividing trades of frozen orange juice futures between his personal account and those of customers.
Marshburn, it alleged, ``gave himself profitable ... trades or better prices on specific trades, while giving customers losing trades or worse prices on specific trades.''
Marshburn, Ms. Chiappone and Ms. Sarabasa were charged with aiding and abetting alleged recordkeeping violations by Prudential, while Ms. Chiappone and Ms. Sarabasa also were accused of recordkeeping violations themselves.
Richard Nathan, an attorney for the three, said they intend to ``answer the complaint and deny the allegations.''
``It's fair to say that the charges against them are not based on fact,'' Nathan said by telephone from New York. He declined further comment.
In a statement, Prudential said it took ``appropriate steps in investigating and then disclosing concerns about trading conducted by a former broker. We spotted a possible issue with his trading, launched an investigation and then reported the investigation when the broker left the firm.''
The company said it never received any complaints from customers about the matter.