NEW YORK, April 17 A unit of Prudential Financial Inc (PRU.N) has agreed to pay $68 million to settle two regulatory probes into improper market-timing involving variable annuities, but the insurer said it is entitled to be reimbursed for the costs.
AST Investment Services Inc, which Prudential said it acquired from Skandia Insurance Co in May 2003, will pay a $34 million civil fine and disgorge an additional $34 million in settling with the U.S. Securities and Exchange Commission and the New York Attorney General's office, Prudential said.
According to a settlement order filed with the SEC, from at least January 2000 to around September 2003, an AST predecessor "accommodated widespread market timing" in American Skandia Trust portfolios that served as funding vehicles for variable annuities issued by American Skandia Life Assurance Corp.
The order said this activity "diluted certain sub-accounts by at least $34 million" and earned the AST predecessor extra fees.
Market timing involves the rapid trading of securities, usually at the expense of ordinary investors. It is widely considered improper, though not necessarily illegal.
People often buy annuities from insurance companies for retirement, with taxes deferred until withdrawal. Variable annuities pay amounts that vary with accounts' values.
Prudential said that when Skandia sold the AST predecessor, it agreed to indemnify Prudential for settlement costs. The Newark, New Jersey-based insurer also said it does not need to boost reserves to account for the settlement.
Skandia Insurance Co did not immediately return a request for comment. It is a unit of Old Mutual Plc (OML.L).
The case is In re American Skandia Investment Services Inc., U.S. Securities and Exchange Commission, No. 3-13446. (Reporting by Jonathan Stempel; Editing by Tim Dobbyn)