Former Brokers Face Charges in Us

US officials yesterday charged five former brokers and two branch managers at Prudential Securities with fraud in the escalating crisis facing America's mutual fund industry.

The charges come a day after the securities and exchange commission, the US financial watchdog, told Congress that it had uncovered widespread abuses in the $7 trillion (£4 trillion) mutual funds business. During the same hearing, New York state attorney general Eliot Spitzer, who sparked the current investigations, described the industry as a "cesspool".

The scandal, which first emerged in September, has continued to deepen and led to a growing number of resignations and sackings. On Monday, the head of Putnam Investments, Lawrence Lasser, resigned under pressure. Putnam is one of the largest mutual fund managers in the US with $272bn in assets.

A dozen Prudential staff resigned last month, while Bank of America, Smith Barney and Merrill Lynch have fired brokers over the scandal.

The SEC and the Massachusetts regulators alleged that the seven Prudential employees in question defrauded several mutual funds and made millions of dollars in improper rapid trades - so called market timing.

"This complaint shows in vivid detail how a group of brokers with the active connivance of managers and a see-no-evil attitude by the company, were able to manipulate the mutual fund trading system for the benefit of certain select clients to the detriment of shareholders," said the Massachusetts regulator William Galvin.

The complaint said that Pru dential ignored 25,000 to 30,000 letters sent in the past year by other mutual fund companies warning the firm of market timing in its Boston office. Market timing is where investors take advantage of time differences and price movements in international markets to make a profit on mutual funds, which are priced just once a day after Wall Street closes. Although not illegal it is frowned upon.

The abuses uncovered in the industry affect millions of Americans who invest in mutual funds as a safe bet for retirement or savings plans.