August 6, 2008
Prudential Financial Settles Financial Reporting Charges
On August 6, 2008, the SEC and Prudential Financial, Inc., a leading provider of financial services, settled charges that Prudential violated the financial reporting, books-and-records, and internal control provisions of the Securities Exchange Act of 1934. The SEC alleged that from December 1997 through December 2002, Prudential's former property and casualty subsidiaries known as the Prupac companies ("Prupac"), entered into a series of so-called finite reinsurance contracts with General Reinsurance Corporation ("Gen Re") that had no economic substance and no purpose other than to build up and then draw down on an off-balance sheet asset, or "bank," that Gen Re held for Prupac. According to the complaint, the contracts were shams, written to look as though they met the requirements to qualify for reinsurance accounting, while in fact, they were subject to an oral side agreement that effectively eliminated any risk to either party and made such accounting improper. Prupac built up the bank in 1997, 1998 and 1999 and then, in 2000, 2001 and 2002, drew down on the bank and improperly recorded the repayments as income. In 2001, Prudential became a public company and the inaccurate financial statements became a part of its annual, quarterly and current filings thereafter.
The complaint alleges that the improper accounting practices within Prudential's Property and Casualty Insurance division resulted in an overstatement of Prudential's consolidated pre-tax income for 2000, 2001 and 2002 by $57 million or 9%, $75 million or 25%, and by $38 million or 146%, respectively. Without admitting or denying the Commission's allegations, Prudential has agreed to settle the charges by consenting to a permanent injunction.
TrackBack URL for this entry:
Listed below are links to weblogs that reference Prudential Financial Settles Financial Reporting Charges: