The civil complaint against brokers Martin Druffner, Justin Ficken, Skifter Ajro, Marc Bilotti and John Peffer, and their manager Robert Shannon alleges they defrauded dozens of mutual funds by misrepresenting the identities of their customers to engage in thousands of short-term trades over more than two years.

``The defendants were able to circumvent restrictions intended to protect mutual fund shareholders against excessive market timing,'' SEC Enforcement Director Stephen Cutler said in a statement. ``That's fraud, plain and simple.''

The widening investigation of the $7.1 trillion mutual fund industry already has led to the firing or suspension of more than 30 officials at money management firms, banks and securities firms. Putnam Investments yesterday ousted Chief Executive Officer Lawrence Lasser because of the trading probe. New York State Attorney General Eliot Spitzer, who initiated the inquiry, has said there will be charges against at least 10 more firms.

Since September, state and federal regulators have discovered that companies allowed executives and preferred customers, mainly hedge funds, to make mutual fund trades that may have led to about $5 billion of losses for long-term individual investors.

The brokerage group led by Druffner, 34, received almost $5 million in gross commissions during 2002, mainly from the improper short-term trading, the complaint said. The group's clients included six hedge funds, the largest of which had more than $200 million with Prudential.

Market Timing

The customers typically called Druffner's group at about 3:30 p.m. New York time to ``activate'' certain orders based on how the financial markets performed, the complaint said. The SEC said the trading started in 2001 at the latest and continued until September when the brokers left Prudential.

The SEC said it's seeking a civil penalties against each of the brokers, plus it wants the defendants to give up ``all ill- gotten gains.''

Market timing involves making short-term trades, or buying a fund's shares and then quickly selling them. This can raise a fund's transaction costs and dilute the gains of long-term holders. Many funds say in their prospectuses that they limit or discourage the practice to protect investors.

The SEC has said about half of the 88 companies it contacted have indicated they might have some form of market-timing arrangement with one or more customers.

Prudential started taking steps to try to limit market timing in 1999. The SEC complaint said at least 68 fund companies sent letters to Prudential to voice their concern about short-term trading by brokers in Boston.

Putnam Charges

The former Prudential brokers ``truly believe that at all times they acted appropriately and that everything they did was known to their employers' upper management,'' said Daniel Rabinovitz, a lawyer at Dwyer & Collara in Boston, who represents the five brokers, in an interview yesterday. The allegations will be contested, he said.

Steven Fuller, a lawyer for former Prudential branch manager Shannon, didn't return phone calls seeking comment. In an interview on Saturday, Fuller said he expected Shannon to be charged with failing to supervise the brokers' activity. Fuller said he would defend the charges. Shannon followed Prudential procedures, Fuller said.

The SEC last week filed securities fraud charges related to short-term fund trading against Putnam, the fifth-biggest U.S. mutual fund company. Boston-based Putnam, a unit of Marsh & McLennan Cos., was the first fund company to be charged in the investigations.

Unlike Putnam, Prudential wasn't charged with any wrongdoing by the SEC. Prudential became part of Wachovia Securities on July 1, when life insurer Prudential Financial Inc. sold it to Wachovia Corp. in a cashless transaction. Prudential Financial kept a 38 percent stake in the combined brokerage.

The National Association of Securities Dealers and Spitzer also have requested information on mutual fund trading from Prudential Financial, the company said in a regulatory filing in September. Prudential Financial has said it is cooperating with all inquiries.

Prudential Financial Inc. spokesman Bob DeFillippo declined to comment on the charges yesterday. The company is cooperating with all inquiries, he said. Wachovia Securities spokesman Tony Mattera declined to comment.