Ex-Prudential Broker Pushes To Kill SEC Suit
By Richard Vanderford
Law360, New York (January 23, 2012, 7:14 PM ET) — Frederick O’Meally, a former Prudential Securities Inc. broker who beat U.S. Securities and Exchange Commission fraud allegations connected to market timing, asked a federal judge Monday to toss a jury’s related finding of negligence.
The jury, which threw out almost the entire SEC case in December, had no evidence from which it could find even negligence, O’Meally’s lawyers said in a written brief.
A former senior vice president at Prudential who was among its top 10 brokers, O’Meally was accused of market timing on behalf of his hedge fund clients even though mutual funds he traded in demanded he stop. Market timing is a trading strategy in which investors — often hedge funds — quickly buy and sell mutual funds shares to take advantage of perceived inefficiencies in their pricing.
A jury rejected the SEC’s fraud claims but did find O’Meally liable for negligence with respect to six of the 60 mutual funds he traded in.
“Negligence is a distinct cause of action with elements that are very different from the elements needed to establish fraud,” O’Meally’s lawyers wrote in a brief. “The SEC made a strategic decision not to put on a negligence case and failed to present evidence necessary for the negligence claim.”
The lawyers asked U.S. District Judge Laura Taylor Swain, who presided over the case, to throw out the negligence finding and enter a judgment as a matter of law.
O’Meally was accused along with several of his colleagues for securities fraud in connection with his market timing. He was the only one to go to trial. Three of O’Meally’s colleagues settled similar suits against them over the alleged wrongdoing, which the SEC said took place from 2001 to 2003.
SEC lawyers noted that O’Meally was not on trial for market timing, but said that as head of a Prudential specialized market timing group, O’Meally tried to dodge mutual funds’ efforts to stop him.
When mutual funds suspended certain trading in the accounts he managed, he would open new accounts, for example. He also allegedly traded using more than one broker identification number, in order to get around restrictions that mutual funds had imposed.
O’Meally’s lawyer, though, told the jury the broker was a mid-level employee whose market timing was directed by clients and overseen by Prudential’s compliance staff and bosses.
As the top broker in his lower Manhattan office, O’Meally was also audited by the National Association of Securities Dealers, a FINRA predecessor, which approved his investment strategies, Harris said at opening arguments.
Prudential even spent $100,000 to develop a computer system that would facilitate O’Meally’s trades, he said.
Prudential Securities, which had several thousand employees at its peak, was sold in 2003 to Wachovia, which Wells Fargo & Co. later purchased.
O’Meally is represented by Jonathan Andrew Harris of Harris Cutler & Houghteling LLP and David Deitch of Ifrah Law.
The case is Securities and Exchange Commission v. O’Meally et al., case number 1:06-cv-06483, in the U.S. District Court for the Southern District of New York.
–Editing by Kat Laskowski.
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