SEC Division of Corporation Finance no-action letter: Prudential Securities Incorporated

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
July 10,2003
Harry J. Weiss, Esq.
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, DC 20037- 1420
Re: Prudential Securities Incorporated -Waiver Request under Regulation A and Rule 505 of Regulation D Dear Mr. Weiss:
This responds to your letter dated July 10,2003, written on behalf of Prudential Securities Incorporated ("PSI"), and constituting an application for relief under Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D under the Securities Act of
1933. You requested relief from disqualifications from exemptions available under
Regulation A and Rule 505 of Regulation D that arise by virtue of the entry today of a Commission order under Section 15(b) of the Securities Exchange Act of 1934 (the "Order"). For purposes of this letter, we have assumed as facts the representations set forth in your letter. We also have assumed that PSI will comply with the Order. On the basis of your letter, the Commission, pursuant to delegated authority, has determined that you have made a showing of good cause under Rule 262 and Rule 505@)(2)(iii)(C) that it is not necessary under the circumstances to deny the exemptions available under Regulation A and Rule 505 of Regulation D by reason of entry of the Order. Accordingly, the relief described above from the disqualifying provisions of Regulation A and Rule 505 of Regulation D is hereby granted. Sincerely, c4 dief, G ald office J. Laporte of Small Business Policy g.$4

WILMER, CUTLER & PICKERING
2445 M STREET. N.W.
WASHINGTON. DC 20037-1420
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July 10,2003
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BY MESSENGER
Gerald J. Laporte, Esq.
Chief, Office of Small Business Policy
Division of Corporation Finance
U.S. Securities and Exchange Commission r q",sd I ,- I 4 ., 'I( 450 Fifth Street, N.W., Room 3501 Washington, D.C. 20549-03 10 Re: In the Matter of Prudential Securities Incorporated, File No. P-918 Dear Mr. Laporte: - - We submit this letter on behalf of our client, Prudential Stmrities Incorporated ("PSI"), in connection with a settlement agreement (the "Settlement") arising out of an investigation by the Philadelphia District Office of the Securities and Exchange Commission (the "Commission"). PSI below requests, pursuant to Rule 262 of Regulation A and Rule 505@)(2)(iii)(C) of Regulation D of the Commission promulgated under the Securities Act of 1933 (the "Securities Act"), a waiver of any disqualification from exemptions under Regulation A and Rule 505 of Regulation D that may be applicable to PSI and any of its as a result of the entry of the Commission order described below. PSI also requests that these waivers be granted effective upon the entry of the Commission order. It is our understanding that the Division of Enforcement does not object to the grant of the requested waivers by the Division of Corporation Finance. BACKGROUND The staff of the Philadelphia District Office engaged in settlement discussions with PSI in connection with the contemplated administrative proceeding arising out of the above-capioned investigation, which will be brought pursuant to Section 15@) of the Securities Exch~. %e Act of 1934 ("Exchange Act7'). As a result of these discussions, PSI has submitted an offer of settlement. In the offer of settlement, solely for the purpose of proceedings brought by or on behalf of the Commission or in which the Commission is a party, PSI consents to the entry of an

Gerald J. Laporte, Esq.
Chief, Office of Small Business Policy
July 10, 2003
Order of the Commission (the "Order") without admitting or denying the matters set forth therein (other than those relating to the jurisdiction of the Commission). The Order states that PSI, a registered broker-dealer, failed to reasonably supervise one of its former registered representatives with a view to preventing his violations of the federal securities laws. According to the Order, from 1998 through 2000, the representative sold Class B shares in certain PSI proprietary mutual funds to his customers, without disclosing the existence of sales charge discounts for large purchases ("breakpoints") that would have made purchases of the funds' Class A shares lower cost investments for most of his customers. In doing so, the representative increased his own compensation, generating excess commissions as a result of his improper Class B share sales practices. The Order also states that, during the former representative's fraudulent conduct, PSI had policies and procedures in effect concerning sales of mutual fund shares. However, PSI failed to adopt a sufficient system to determine whether the exist@g policies and procedures were followed above the branch office manager's level. According to the Order, as a result, when the representative's branch officer manager and direct supervisor failed to ~QUQWapd,eqfoY"c;@'.s , policies and procedures related to the sale of mutual fund shares, PSI had inadequate means to detect that branch office manager's failure. Under the terms of the Order, the Commission will make findings, without admission or denial by PSI, that PSI failed reasonably to supervise the former representative, within the meaning of Section 15@)(4)(E) of the Exchange Act, with a view to preventing the representative's violations of Section 17(a) of the Securities Act, Section lo@) of the Exchange Act, and Rule lob-5 thereunder. Based on thtse finding$, the Order will censum PSI,require PSI to pay disgorgement and prejudgment interest thereon in the amount of $82,000, require PSI to pay a civil penalty in the amount of $300,000, and require it to comply with its undertakings. DISCUSSION PSI understands that the entry of the Order could disqualify it and its entities from participating in certain offerings otherwise exempt under Regulation A and Rule 505 of Regulation D promulgated under the Securities Act, insofar as the Order will cause PSI to be subject to an order of the Commission entered pursuant to Section 15(b) of the Exchange Act. The Commission has the authority to waive the Regulation A and Rule 505 of Regulation D exemption disqualifications upon a showing of good cause that such disqualifications are not necessary under the circumstances. See 17 C.F.R. 9s 230.262 and 230.505@)(2)(iii)(C). PSI requests that the Commission waive any disqualifying effects that the Order may have under Regulation A and Rule 505 of Regulation D with respect to PSI or its affiliates on the following grounds:
I. PSI'S conduct addressed in the Order does not relate to offerings under Regulation
A or D.

/"I
! '1 Gerald J. Laporte, Esq.

• Chief, Office of Small Business Policy I,
  July 10,2003 ,!
  \

2. PSI will undertake or has undertaken to maintain the revised policies, procedures I
   and systems that it implemented to enhance supervision of Class B share sales, and to review its procedures and systems regarding the sale of Class B shares for compliance with the federal I,: ' securities laws and regulations, and the rules of the NASD and the New York Stock Exchange, $I; and, if necessary, to establish additional systems or procedures reasonably designed to achieve , / I ,I
3. The disq&lification of PSI from the exemptions available under Regulation A
   and Rule 505 of Regulation D would be unduly and disproportionately severe, given that: (i) the ' , Order relates to activity which has already been addressed pursuant to the undertakings set forth in the offer of settlement; and (ii) the Commission staff has negotiated a settlement with PSI and reached a satisfactory conclusion to this matter that will require PSI to make payments aggregating $382,000 in settlement of ,the rpatters addressed ip tbq Order ydc@$wqJyl \yri@.fs$, &, , ,,: ,, , undertakings set forth in the offer of settlement and listed in the Order. .Inlight of the foregoing, we believe that disqualification is not necessary, in the public interest or for the protection of investors, and that PSI has shown good cause that relief should be granted. Accordingly, we respectfully request the Commission, pursuant to Rule 262 of . , , , , ,, .I,sRegulation A and Rule 505(b)(2)(iii)(c), ofi Replation D, to waive, effectiye uppn entry of the , , I , './I. , , , , , , , .,0rdei,the disqu+ificatiqn pr?visiqnk,* ~~~l?fi?n A and ~ulb'505 of ~e~la&$,~,to )!. I,,~,,,, the 1 ,8,i,,,,, !h,.;>j,pJ:, ,,.,, ,,,,,.!& ' !~$/&&9(~y,,be , ,,':(' ,, !,y,,,c',)' ,',,:,:c'!, ap&c$& t&~#$'$~il&$~fl.a&i@p~$$@t at& e$b)l:$: .theo*?;, ,#:1 !,;/,, ,/ !;; :I,!,,~:&'!; ,>'~,;~l';,~/~,,~~{(,~:,~~i~{$!~>,~', :!,'t,lkI', 'c';,;,,!:i,!, ), ,,,, > , , , ;,,,, ,, !, ",, , .,, , ! 1 < ,'.' .]):)/,!!,. ":>;>j{<),,',. ':! 8 , ;,;i,,;,,r,:', ,, ?j';,'l'!;;:':,, , , . ,,' I > .!,, : , ;;,,,, , !,'+ .,,;?;I.: ,j, !)'!.' i', , , ; ., :d;(;,;);<:;:/):',1!~3,, ~,,,!,:,,/;':,:~l',:~,,~' ; 1' ' ';I,:!;!':. ,:. , , ,, ,'I i,,'!, ,. , , , , 1 , , , . ,.>'/, ,I: 8 1, ' ' ' , ' ., ,. >,,,,;:;,;:,;,,!{{,;!, 8 ,',P i .,'$',, , ) ;.,;; bf this ', ,,,,,.,l),~(!;:,:i,:!,l :,,: , , , , . , !!; / :>; : ,:I have any q&icins regmiilig'&id tqubt, ple& edntact ~kvin P.~i~ner~ : . , 1 , ,,': ' j bffice at 202/663-6596 or the undersigned at 20~63-6993. '.I, ,.#, ,' $,'-., ;, ,1. .!,I , , i. , ,, ., ? 1 , . ' , v, ,I,, , 1 ,.,, Sincerely, Harry J. ~eiss I We note in support of this request that the Commission has in other instances granted relief under Rule 262 of Regulation A and Rule 505(b)(2)(iii)(C) of Regulation D for similar reasons. See, e.g., Credit Suisse First Boston I Corporation, S.E.C. No-Action Letter (pub. avail. Jan. 29,2002); Dain Rauscher, Incorporat~&, S.E.C. No-Action Letter (pub. avail. Sept 27,2001); Legg Mason Wood Walker, Incorporated, S.E.C. No-Action Letter (pub. avail. June 11,2001); Prudential Securities Inc., S.E.C. No-Action Letter (pub. avail. Jan 29,2001). I