Prudential Class-Action Offer Stands, For Now
Prudential Securities’ legal strategy in a lawsuit filed against it on behalf of 120,000 small investors appears to be in disarray.
The firm decided on Thursday to withdraw a proposed settlement of the class-action lawsuit involving more than 120,000 investors who lost money in a Prudential limited partnership. But then the company reversed itself, at least temporarily, just before documents were to be filed with the court, lawyers involved in the case said.
The settlement, which would pay the investors only a few cents on the dollar for more than $1 billion in losses, has been widely criticized as inadequate. The federal judge overseeing the case said in February that he had “serious reservations” about its fairness.
The reversal was so abrupt that it caught Prudential Securities’ chief spokesman unaware. The spokesman, William J. Ahearn, said Friday that Prudential had withdrawn the settlement offer. A few hours later, however, he said that he had been in error, and that “nothing got filed. We didn’t back out of the settlement.”
He declined to explain the original decision or the reversal.
The case involves a series of limited partnership interests heavily marketed to retirees and other small investors from 1983-1990. The oil and gas limited partnerships were known as the Prudential Energy Income Funds. They were the biggest of a series of Prudential limited partnerships into which investors poured $6 billion in the 1980s, suffering overall losses of at least half that amount.
Investors have accused Prudential and Graham Resources, the firm that managed the Energy Income partnerships, with fraud in marketing and managing the partnerships. The firms strongly deny any wrongdoing.
Prudential several months ago reached a tentative settlement with class-action lawyers, under which investors would receive $30 million in cash for losses estimated at over $1 billion. They also were to receive shares in a new company that was to be formed from a reorganization of the partnerships. The new company was to be run by Graham.
Although Prudential last fall appeared on the verge of clinching the settlement, the prospect began to unravel after widespread publicity that the settlement heavily favored Prudential. In a surprise ruling, U.S. District Judge Marcel Livaudais Jr. in February indefinitely held up approval of the settlement. He cited concerns about fairness and pending state investigations of Prudential.
Withdrawal of the settlement would mean that the case would proceed to trial, or that an entirely new settlement, presumably offering more to investors, would be negotiated.
