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Prudential broker spared long sentence in trading fraud
By Beth Healy
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(September 24, 2009 - Thursday) - Justin F. Ficken was in his 20s when he started working with brokers in Prudential’s Boston office in 2001 to market time mutual funds, or rapidly trade to take advantage of small differences in prices of the underlying holdings. Over nearly three years, the brokers used fake identities and account names to place more than $1 billion worth of trades for five hedge funds, according to the government’s case. The hedge funds pocketed the profits from the trades, while the brokers reaped more than $6 million in commissions.
Market timing mutual funds is not illegal, though many fund companies frown on or ban the practice. But for the brokers, lying about their identities was illegal. Ficken, now 34, pleaded guilty last year to one count of conspiracy, three counts of wire fraud, and two counts of securities fraud. He had previously faced civil fraud charges brought by the Securities and Exchange Commission, which ordered him to pay $589,854.
US District Judge Patti B. Saris in Boston chose a dramatically lesser punishment for Ficken because he had pleaded guilty and had taken responsibility for the fraudulent activity. She called the ordeal “a sad tale’’ that should not have been allowed by Fick en’s supervisors. But she still sentenced him to serve two months in a community facility, she said, because he should have known the fraud was wrong, and to deter such crimes by others. He also must pay a $6,000 fine.
Ficken, standing in a dark suit, with his mother, twin brother, and other family members in the seats behind him, said he was sorry for falling into what he called the culture of the Prudential office. “I realize now that what I was involved in was wrong,’’ he said. The Winchester native is living on Cape Cod and working in the wine business.
Market timing was a major scandal earlier this decade, when it came to light that some brokers were willfully breaking mutual fund rules with their abusive trading - and that some of the fund companies were allowing large clients to do so, without telling other customers.
Market timing costs average investors money because heavy trading raises a fund’s expenses; it also can cause cash-flow and performance problems for fund managers.
The Globe first reported the rampant market timing in Prudential’s Boston office in 2003.
The firm, which later became part of Wachovia Securities, paid $600 million in 2006 to settle market-timing charges with federal and state securities regulators.
In all, the SEC reached more than $3 billion of market-timing settlements with companies and individuals in the investment industry, much of that from mutual fund giants such as Putnam Investments in Boston.
Ficken’s lawyers urged the judge to consider the relatively light sentences his former Prudential colleagues and boss had received: six months in a halfway house and three years’ probation for the senior broker in the ring, Martin Druffner, and two years’ probation for fellow broker Skifter Ajro.
The Prudential branch manager in Boston, Robert Shannon, was sentenced to two months in home confinement and three years of probation.
Gary Pelletier, a lawyer for Ficken, called his client “very remorseful,’’ and in asking the judge for lenience, said, “I don’t think anyone would argue that Justin Ficken is Bernie Madoff.’’
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