The Associated Press

BOSTON - The growing mutual fund scandal hit Prudential Securities Inc. on Tuesday as five former brokers and two former Boston branch managers were accused by regulators of improper trading.

The regulators painted a disturbing portrait of an operation where brokers dodged rules barring market-timing by concealing their identities with intentionally misspelled names and dummy identification numbers - then racked up millions of dollars in commissions and profits for hedge fund clients.

Market timing trades - short-term, in-and-out buying and selling - are not illegal, but the civil complaints by the Securities and Exchange Commission and Massachusetts Securities Division allege that the techniques used to evade mutual fund companies trying to shut down the brokers amounted to civil fraud.

The complaints also suggested that some unidentified mutual fund company employees might have undermined their own firms' prohibitions on market timing by tipping off the brokers on how to avoid detection by the fund companies.

Prudential, now part of Charlotte, N.C.-based Wachovia Corp., was not named in the complaints, although it is expected to be added as a defendant later, and was deeply implicated in the allegations outlined Tuesday.

Authorities claimed Prudential received as many as 30,000 warning letters from at least 68 mutual fund companies trying to halt such trading in their funds but did not take appropriate action.

The complaints said senior Prudential management essentially approved of the market timing practices as a business venture, though Prudential later prohibited market timing in its own family of mutual funds and, in January, advised its brokers to abide by the market timing policies of mutual funds in which it invested.

The SEC complaint names former brokers Martin J. Druffner, Justin F. Ficken, Skifter Ajro, John S. Peffer and Marc J. Bilotti and former branch manager Robert Shannon. The Massachusetts complaint names Druffner, Ficken, Ajro, Shannon and Michael Vanin, also a former branch manager.

"It strikes me as a pretty heavy-handed attempt by the regulators to hold employees accountable for a strategy that was approved by the highest levels of the company," Gary Crossen, an attorney for Vanin, said.

"If they want to make a rule making market timing illegal, they should implement such a rule for the future and stop trying to hold people responsible for activity that was not illegal in the past."

Prudential spokesman Jim Gordon said: "Our only comment is we have been and continue to cooperate fully with regulators."