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
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)