SEC Orders Former Pru Broker to Cough Up $763K

O’Meally, a former registered representative of broker/dealer Prudential Securities, is the sole remaining defendant in a fraud action the SEC brought in August 2006, which alleged that he used deceptive practices to evade blocks by mutual fund companies on his market-timing trading. He was ordered to pay over $763,000 in disgorgement, prejudgment interest and a civil penalty by the U.S. District Court Judge for the Southern District of New York.

Market timing is an attempt to predict the direction of the market, using a combination of factors, such as recent price and volume data, or economic data, to make investments. In a New York Times story in November 2006, O’Meally described his own strategy as containing a mix of options, derivatives, currencies and American depository receipts, that allowed him to make “a few hundred trades in a few minutes.” At the time of the article, O’Meally said he had stopped using mutual funds in market timing.

At Prudential Securities, market timing was widely and openly used, and O’Meally had already been named by the SEC, along with three other former brokers of the company, in a civil action. Prudential Securities, in a separate SEC action concerning market-timing practices, agreed to a $600 million settlement. In 2007, the SEC fined a former Prudential Securities executive for failing to put a halt to market-timing practices. (See “SEC Announces Distribution of Prudential Market-Timing Settlement.”)

(Cont’d…)

In December 2011, a federal jury returned a verdict in the SEC’s favor on securities fraud charges against O’Meally, a resident of Bay Shore, New York. The jury found O’Meally liable for violations of Sections 17(a)(2) and/or (3) of the Securities Act of 1933. The verdict against O’Meally followed a month-long trial in Manhattan before the Honorable Judge Swain.

The Commission filed its complaint on August 28, 2006 against four registered representatives formerly employed by Prudential. The complaint alleged that, between 2001 and 2003, certain mutual fund companies detected market-timing activity by the defendants and attempted to block the defendants and their hedge fund customers from further trading in their funds.

The complaint also alleged that the defendants used fraudulent and deceptive trading practices to conceal their and their customers’ identities to evade these blocks. Cases against the three other defendants had been resolved previously by settlement. In its final judgment, the court ordered O’Meally to pay $444,836 in disgorgement of his profits from illegal market-timing transactions plus $258,401.55 in prejudgment interest and a civil penalty of $60,000, for a total of $763,237.55.

The SEC also brought related enforcement actions against several other parties associated with Prudential Securities concerning deceptive market-timing activities, as well as a settled enforcement action against Prudential Securities itself on August 28, 2006, in which Prudential agreed to pay $270 million that was later distributed to harmed investors. 

The SEC release with information about SEC v. O’Meally et al. is here.