COLUMN ONE : Partners in a Troubled Venture : Prudential-Bache sold $1.4 billion in energy funds to thousands of small investors. Records show investors lost hundreds of millions. The firm denies wrongdoing, but faces massive probes.

In January, 1986, Prudential-Bache Securities was launching one of the most aggressive sales campaigns in the history of Wall Street.

Even as world oil prices were collapsing, Pru-Bache was putting heavy pressure on its brokers to sell oil and gas interests to small investors, especially the elderly and retirees.

The firm fired up its salespeople with promises of lavish European vacations, bonuses and commissions far higher than they got for selling municipal bonds or stocks. It assured brokers that the investments had been thoroughly researched both by Pru-Bache and its mighty parent company, Prudential Insurance.

The incentives worked. Armed with sales material painting the Energy Income Funds as the “ideal investment alternative” to government-insured certificates of deposit, Pru-Bache brokers sold thousands of investors on the dubious notion that, for them, the nose dive of oil prices “spelled OPPORTUNITY.”

It didn’t.

For the 137,000 customers who ultimately poured $1.4 billion into the partnerships, the investments instead have spelled hundreds of millions of dollars in losses. And for Prudential--which sold more limited partnership units than anyone on Wall Street in the 1980s--the funds have spelled big problems.

Prudential denies any wrongdoing. But its brokerage (since renamed Prudential Securities) is at the center of the biggest set of investigations into a Wall Street firm since the furors over junk bonds at Drexel Burnham Lambert and Treasury securities at Salomon Bros.

The details of what went wrong are beginning to emerge, in part because of a federal judge’s order releasing thousands of internal documents in one of two massive class-action lawsuits that together seek at least $500 million in damages for investors.

And the pressure on Prudential is building, with the partnerships targeted by the biggest joint investigation ever conducted by state securities regulators, a high priority Securities and Exchange Commission probe and a recently launched federal criminal investigation by the U.S. attorney’s office in Manhattan.

No charges have been filed. But because of the magnitude of the losses in the energy funds and other Prudential partnerships, regulators want Prudential Securities to agree to civil penalties and restitution that would total at least as much as the record $650 million exacted from Drexel in 1988. Prudential in the last few days raised its offer to $200 million. If a settlement is not reached, the brokerage could lose its license to do business in several states.

Meanwhile, Prudential Securities has scrambled this spring to arrange a purchase of the partnership units under terms that would return much of their original investment to Energy Income customers, an estimated 20,000 of them Californians.

Should those investors have known better, even in a decade of financial excess? Prudential contends that the risks were spelled out. Yet, the newly disclosed records show that from the start, warning signs of trouble never were disclosed to Prudential’s customers.

Back in January, 1986, as Pru-Bache brokers launched their sales blitz, Matthew J. Chanin--who directed the parent company’s oil and gas investments--told a Pru-Bache executive that the oil market had become far too risky. As a result, he said, Prudential Insurance was putting its own investments in the Energy Income Funds “on ice.”

Indeed, after reluctantly investing another $23.5 million into the partnerships later that year, Prudential Insurance withdrew completely from its namesake energy investments. The insurer wrote off $10 million in losses, even as small investors continued to be told their stakes were worth what they paid for them.

Prudential, in fact, never took steps to slow or stop its brokerage’s hard sell. Records show that for five years, moreover, it allowed its own insurance agents to sell the partnerships--though most were not licensed to do so.

Why?

The records show that the Energy Income Funds meant big profits for Pru-Bache. Both the brokerage and Prudential Insurance collected steep fees from the program--including 15% right off the top of small investors’ money. And documents show that the insurer’s separate set of investments in the company hired to manage the partnerships put Prudential at risk of losing up to $30 million if sales of the partnerships were halted.

While by no means alone in the limited-partnership business, Pru-Bache was a dominant player. Including not only oil and gas but real estate, aircraft leasing and even Arabian horse breeding--Pru-Bache partnerships took in $6 billion from investors in the ‘80s.

Even Prudential Securities agrees that customers have lost at least $1 billion on those investments. And state regulators say the losses are much greater.

State and federal authorities now are investigating allegations that for almost the entire eight years the Energy Income partnerships were sold, Prudential and Pru-Bache approved a wide variety of improper practices. Scores of interviews and thousands of pages of documents obtained by The Times buttress the allegations.

Among the allegations under investigation: Outright misrepresentations to customers, apparent conflicts of interest and a fee structure that generated big profits for Prudential while all but guaranteeing losses for investors.

Further, Prudential Insurance permitted the use of borrowed funds to inflate early payouts to investors, thus masking the partnerships’ disappointing performance.

Prudential spokesmen contend that the risks were fully disclosed in prospectuses sent to all investors. They blame the poor performance of the partnerships on the collapse of oil prices in 1986--and on their failure to bounce back. Prudential Securities lawyers also dispute that the documents show the firm used anything more than a small amount of borrowed money to augment payouts to investors.

Just what were investors buying, though?

Far from “a piece of the rock,” the Energy Income Funds actually were run by a tiny Louisiana company called Graham Resources. Graham earlier had failed in oil and gas exploration efforts. And it was new to the business of buying and operating big, already-producing oil and gas properties--the job Prudential inexplicably assigned it.

But the Louisiana firm did maintain close relations with Prudential and Pru-Bache executives, staging lavish hunting trips and European and Mexican vacations--including one 10-day trip to London on which a senior Pru-Bache executive ran up a tab of $34,000.

All the perks were charged to the partnerships and ultimately paid by investors.

By the end of the 1980s, the results were clear: Returns to investors from the Energy Income Funds had dwindled--for many investors to almost nothing--from the early double-digit levels. In Phoenix, Rhoda Silverman says that her 83-year-old mother, blind and severely disabled, lost her home after payouts from the partnerships plunged. The bank foreclosed when she no longer could make her mortgage payments.

Silverman said she and her mother, who had no experience with investments, trusted the Prudential broker who put half of her mother’s net worth of $107,000 into limited partnerships, including $25,000 in the Energy Income Funds. Prudential’s motivation, she now says, was simply “hunger for the almighty buck, rather than thinking of the elderly person who put her trust in them.”

Thousands of small investors, in fact, saw what promised to be comfortable retirements fade away. At the beginning of this year, investors had received back only $650 million from the 35 Energy Income partnerships--less than half of the original investment overall.

That was enough to rank the Energy Income Funds second in total projected return of the few similar oil and gas income funds that survived the 1980s, according to an independent analysis. But the same report showed that Energy Income investors could expect, on average, a profit totaling only 40% over the entire 25-year projected life of the partnerships--far less than the double-digit returns they had been told to expect every year in the first decade.

Even some Pru-Bache brokers say they were victimized by repeated assurances that the firm had thoroughly researched the investments. Many brokers bought partnership units for themselves and family members.

“We were sold a bill of goods,” said Victoria Goodwin, a former Los Angeles-based Pru-Bache broker. “We were told this is the absolute perfect investment for retirement plans.”

Until February, the firm seemed on the verge of settling the civil lawsuits over the Energy Income Funds quietly and cheaply, as it had for other failed limited partnership programs. Prudential Securities offered investors less than $30 million in cash--or less than three cents on the dollar--for their losses, plus highly speculative stock in a company yet to be formed.

But U.S. District Judge Marcel Livaudais Jr. of New Orleans derailed the settlement.

Facing a trial and enormous potential liability, Prudential began searching for ways to boost the payback to Energy Income Funds investors. A pending offer from a Texas firm that thinks it can profitably operate the oil holdings would give them another $491 million, reducing their out-of-pocket losses to about $300 million. (On Monday, some doubt was cast on the offer from Parker and Parsley Petroleum when investors failed to tender enough units to complete the deal. The firm said it expects to extend the deadline.)

Counting income that customers were told to expect and the interest it would have earned, however, the investors still will be out about $750 million, their lawyers say.

All involved deny any wrongdoing.

“If anything took place that was not within the limits of the law,” says Joe Vecchione, chief spokesman for Prudential Insurance, “it was not condoned by the company and it was not the policy of the company.”

Focus on Exploration

At the heart of the story are two men: James J. Darr, who was in charge of Prudential Bache’s vast limited partnership program, and John J. Graham, son of a well-known New Orleans oil executive, who with his father founded the company that became Graham Resources.

Based in modest offices on the unfashionable outskirts of New Orleans, Graham Resources until the early 1980s had focused--without success--on exploration. It struck some oil and gas, but so little that a 1985 Graham filing with the SEC said the drilling produced only losses for investors.

“They had as bad a record in the exploration business as there was in the industry,” contends F. Paul Grattarola, a former Graham Resources executive.

There was no way to judge if the firm had the financial savvy to buy and profitably operate already-producing properties. It had bought a few for big institutional investors willing to take risks, but too recently for any clear-cut results.

As the 1980s dawned, then, John Graham was getting nowhere on his dream of transforming little Graham Resources into a big player in the oil patch. With about 100 employees and a net worth of no more than $15 million, the company needed a new line of business and new funds.

In 1982, urgent feelers to Wall Street paid off with a remarkable proposition from Prudential:

Pru-Bache would use its vast army of brokers to sell oil and gas limited partnerships to ordinary small investors, strongly recommending them to retirees and others looking for security and a high return.

And Graham would be in charge of investing the millions that poured in.

Darr had come to Pru-Bache in 1979, helping found its highly profitable Direct Investment Group, the umbrella for the firm’s limited partnership programs. In 1982, an oil and gas program seemed a perfect new product for Darr’s unit--a seemingly safe way for ordinary Americans to invest directly in U.S. energy production.

Chanin and Darr said there is no mystery in why they entrusted Graham with the task. Both said they were impressed with Graham’s management.

But Chanin confirmed that Prudential had spurned dozens of similar proposals, explaining that his choice of Graham was influenced by the strong backing of Darr’s group at Pru-Bache. Former Graham and Pru-Bache employees contend, meanwhile, that Darr’s enthusiasm seemed influenced by a blossoming friendship with a key Graham executive.

Graham’s chief financial officer, Anton H. Rice III, met Darr when they briefly worked together at Merrill Lynch in the mid-1970s. In the early 1980s, both lived in posh Greenwich, Conn.

Former Graham associates said Rice initially regarded Darr as beneath his own social rank. But when it became clear that Darr held the keys to Graham’s future, Rice spared little to cultivate him. He provided Darr with coveted entry into Greenwich high society, sponsoring him for membership in the exclusive Greenwich Country Club and a prestigious Manhattan shooting club.

Paul Grand, a lawyer for Darr, said the Pru-Bache executive was accepted into the clubs in 1985 and 1986, well after the Energy Income Funds were up and running. Rice’s gestures of friendship, he added, “had absolutely no influence” on Darr’s business decisions.

In any event, it did not take long for the Energy Income Funds to become Pru-Bache’s largest limited partnership program, leaving tiny Graham Resources beneath a gusher of money. In 1986 alone--the year oil prices crashed--investors poured $371 million into the funds.

John Graham’s sudden ascendance caused jaws to drop in the close-knit New Orleans oil community. By the late 1980s, Graham Resources emerged as “probably the top buyer of properties” in the United States, according to Jack C. Stevenson, editor of the Houston-based Oil and Gas Interest Newsletter.

Selling the Funds

A 1985 comic book--a motivational brochure for Pru-Bache brokers--helps explain why by the mid-’80s, Graham found himself awash in money to invest.

“The Adventures of $uper Broker” opens with “mild mannered broker” Clark Barr patiently advising the grandmotherly Mrs. Grimsley to put her $5,000 into safe municipal bonds.

But in the next panel, Barr learns that brokers can win an expense-paid trip to Oktoberfest in Munich, Germany, by selling at least $250,000 of Energy Income Funds partnership units.

The prize galvanizes him. In seconds, conservative, risk-averse Barr becomes the caped $uper Broker. With “a sales pitch more powerful than a locomotive,” he sells for 24 hours straight, persuading Mrs. Grimsley and everyone else in sight to put their money into the Energy Income Funds.

Although tiny print on the last page said the booklet was meant to be “tongue-in-cheek,” at least one Prudential employee took it seriously enough to complain. Financial planner Barbara Guthery of Paramus, N.J., attached a curt note to the brochure and sent it to George Ball, then PruBache’s chairman and chief executive.

“Mr. Ball,” she wrote, “if we wish to lose our image as a ‘schlock house,’ we should quit acting like one.”

$uper Broker was grounded. But cancellation of the comic strip by no means halted the aggressive sales campaign.

A 1987 brochure labeled “for broker use only” offered sample sales pitches: “I think the easiest way to describe the Energy Fund is to look at it as a long-term CD.”

A script provided for Pru-Bache personnel to use at public “investment seminars” advised them to write “SAFETY--IN B-I-G LETTERS” on a flip chart. Far from telling brokers to diversify customer accounts, the material urged them to get current Energy Income investors to pour in still more of their savings.

Prudential Securities and Graham spokesmen say all sales material was approved in advance by the firms’ lawyers. They contend, too, that all the risks were fully disclosed to investors. Scott Muller, an attorney for Prudential Securities, notes that all investors were sent prospectuses--documents averaging more than 200 pages--explicitly warning that fluctuating oil prices created significant risk and that “no assurance can be given that partnership payout will be achieved.” Muller denies that the promotional material was at odds with the prospectuses.

However, investors’ lawyers, such as Stuart C. Goldberg of Austin, Tex., say most investors were persuaded to buy before they received prospectuses--and did not cancel their investments afterward, because they trusted their brokers.

Moreover, when the densely worded prospectuses arrived in the mail, they were enclosed in glossy brochures--known as “wrappers”--which seemed to contradict the warnings inside.

In one, “An Important Message from Prudential-Bache” stated: “Your purchase of Partnership units means you could be receiving a comparatively safe, predictable and steady source of income from the production and sale of oil and gas for many years to come.”

Sale of the partnership units to small investors was not limited to Pru-Bache. Hoping for synergy with its subsidiary, parent Prudential encouraged its insurance agents to sell them too, even though most were not licensed to do so.

An internal Pru-Bache document obtained by The Times instructed brokers how to falsify commission records so they could illegally share commissions with Prudential Insurance agents. Other records show that the practice was halted in 1991, only after the Oregon Department of Insurance and Finance launched an investigation and told Pru-Bache it could face prosecution for using unlicensed sales people to sell its products.

Prudential says any violations were against firm policy. The insurer and its brokerage unit blame each other for what happened; spokesmen gave conflicting accounts of which firm was responsible for overseeing partnership sales by insurance agents.

Still, lawyers representing Energy Income investors contend that the most misleading sales tool of all was the double-digit rates of return initially paid by the partnerships. Sales material distributed to customers and brokers repeatedly hammered home the theme that earlier partnerships were paying an annual return of 13% to 16%.

Newly released documents show that the high rates were often a sham.

Cash flow from the partnerships was much less than Graham Resources had projected. Fearing that the poor performance could hurt ongoing sales, Graham--with Prudential’s approval--used millions of dollars of borrowed money to inflate cash payouts to investors in 1985.

Brokers and customers were not told of the loans, however--and in fact were told just the opposite. A 1984 Energy Income Funds prospectus and “fact sheets” given to brokers plainly stated that no borrowings would be used to make quarterly distributions to investors.

Documents show that partnership officials took pains to see that customers did not find out about the borrowing. In a January, 1985, internal memo, Graham executive Mark W. Files noted that while the firm itself had advanced some money to the partnerships to keep distributions around 15%, John Graham wanted future partnership borrowings to come from banks. Files wrote that Graham “asked that we arrange for bank lines of credit to those partnerships, and camouflage, to the extent we can, the purpose of the use of proceeds.”

The secret scheme soon had the official approval of Prudential Insurance itself. In a July 2, 1985, letter, Graham executive Alfred B. Dempsey asked Prudential’s Chanin to approve a plan to use borrowed money to keep distributions artificially high.

The stated purpose: Sustaining the payouts until more investors had poured their money in.

“In an effort to allow us the 45-60 days necessary to ‘condition’ the marketplace for a decline in distributions with the least possible impact on our current marketing effort, we suggest maintaining the 15% distribution level we have established,” Dempsey wrote.

Chanin approved the proposal on July 16. In a letter, he agreed to let Graham Resources arrange $5.7 million in bank loans and to let Graham itself advance $500,000 to the partnerships, in part to help pay distributions.

Who would repay the loans?

The partnerships themselves--including interest that would cut down even further on any actual profits. Documents show that at least $18 million in borrowed money was used to inflate payouts from various Energy Income partnerships through 1990. Millions of dollars more in performance shortfalls were masked by an accounting trick that let Graham return some of the investors’ own initial capital to them as partnership profits.

In interviews with The Times, Chanin and Prudential Securities lawyer Muller insist that money was borrowed only to cover legitimate capital expenditures, including big, unforeseen costs in operating newly acquired properties. (Muller acknowledged that a small amount of borrowed funds was used toward payouts on two 1989 partnerships, however.)

John Graham, too, said the money was borrowed for legitimate reasons. But he confirmed that the high early payouts to investors could not have been made without the loans: “If we had not borrowed the money for working capital purposes, we would not have been able to make the distributions.”

George M. Fleming, whose Houston law firm represents more than 5,000 Energy Income investors, says the borrowing made it clear by 1985 that the program was failing. Continued claims of a positive track record, he contends, were “false, misleading and deceptive.”

High-Risk Strategy

Jim Darr’s brainstorm for the Energy Income Funds centered on transforming historically risky oil and gas investments into a package that could be sold to ordinary Americans as a prudent buy. Rather than engage in the risky business of exploring for oil, they would buy already-producing fields with proven reserves, then profit from selling the oil and gas.

In fact, oil executives say the strategy, far from being a sure-fire way of making money, was as risky as riding a bicycle across a high-wire. And records show that Graham Resources kept tumbling off.

The trick was to bid high enough to win--but low enough to ensure a profit from the sale of the properties’ oil and gas. It hinged on astute assessment of a property’s true reserves and operating costs and realistic assumptions about future oil and gas prices.

Yet Graham was under almost constant pressure from Pru-Bache to quickly put to work the hundreds of millions of dollars that were pouring in.

Gilbert G. Jurenka, a former Graham executive in charge of the firm’s oil and gas operations, said the pell-mell haste had dire results. Jurenka said he became so concerned that the firm was just throwing money into oil and gas fields that he quit in 1989, after what he described as three years of conflict with John Graham.

“It was a situation where you had more money than opportunities,” Jurenka said. Pru-Bache “raised so much money we either had to spend it or give it back,” he explained. “And that would have put us dead in the water.”

In a written response to questions, Graham’s lawyers denied that the firm was reckless in buying properties, adding that all would have been well if oil prices had bounced back. They state that Graham bid on only a small percentage of properties it reviewed, and on the ones it sought often was outbid by others.

Documents, depositions and interviews, however, show repeated mistakes when Graham bought properties. Consistently, the firm and its consultants overestimated reserves of oil and gas--and underestimated operating and development costs.

For example, a huge $223-million acquisition from Petro-Lewis Corp. in 1984 ended up performing “well below” the 15% rate of return that Graham had projected, according to deposition testimony by Charles A. Lipari, Graham’s senior vice president in charge of acquisitions.

And an internal Graham report offered a laundry list of missteps in connection with $140 million in 1989 acquisitions near Sonora, Tex. Among them: Overestimation of the largest field’s reserves by 10%, the discovery that earlier tests of gas production rates had been exaggerated and heavy development costs Graham had not foreseen.

Graham Resources did not do any better in building the economic assumptions on which its business was based.

In 1984, for example, its profit projections for the second series of Energy Income partnerships assumed an 8% yearly rise in oil prices--a figure anything but conservative at a time when prices had been trending downward.

Indeed, Pru-Bache was warned that the assumption stretched the limit of credulity. In an independent report the brokerage commissioned on Graham in 1984, petroleum consultant Raymond F. Kravis said: “It is our opinion that the above pricing parameters are on the aggressive side of being realistic. We have not seen many companies using an 8% escalation.”

Soon after, in late 1985 and early 1986, the oil market collapsed. Fed up with competition from oil-rich countries that refused to limit their production, the Organization of Petroleum Exporting Countries deliberately pulled the rug out from under oil prices. Saudi Arabia, in particular, flooded world oil markets, forcing down the price of oil by nearly a third--from $29 to $20 a barrel--in just three months.

Many big oil companies stopped buying after the market crash. But to John Graham, it looked like a golden opportunity. Prices for oil and gas properties fell drastically too, providing buyers with a chance, he figured, to make big profits when oil prices rebounded.

Even today, Graham insists that all the funds’ promises to investors would have come true if--as most in the oil industry expected--prices had revived. Recently, gas prices have shot up, but oil has never recovered. Although there was an upward blip during the Gulf War, prices today hover near $20 a barrel, the same as in 1986.

“I’ve spent 30 years building an impeccable reputation, and it has been dreadfully sullied,” Graham complained in an interview. Referring to the pending lawsuits and the deep pockets of Prudential Insurance, he added: “I think I’ve been victimized by trial lawyers who are trying to get a piece of the Rock.”

Next: Why no one tried to halt the program.

The Characters

Key players in the Energy Income Funds sage:

FROM PRUDENTIAL George L. Ball: Chairman and chief executive of Prudential-Bache Securities, 1982-1991, while firm sold $6 billion in limited partnership interests that produced over $3 billion in customer losses. Says he knew little about the partnership program. Now a senior executive at Smith Barney. Matthew L. Chanin: Prudential Insurance managing director in charge of oil and gas investments, including in the Energy Income Funds. Ended Prudential’s own investment in the partnerships, but didn’t move to stop sales to small investors. James J. Darr: Until late 1988, head of Prudential-Bache’s limited partnership business. Became close friend of Graham’s Anton H. Rice III. Resigned voluntarily in 1988 after questions were raised about personal business links between Darr and several partnership programs, but denies wrongdoing and says he resigned for other reasons. *

FROM GRAHAM RESOURCES John J. Graham: Chief executive of the small Covington, La., firm picked by Prudential in 1983 to run the Energy Income Funds. Invested up to $400 million a year of investors’ money in oil and gas properties. Anton H. Rice III: Second-in-command; helped bring Graham and Prudential together, Sponsored Pru-Bache’s James Darr for membership in exclusive golf and shooting clubs. Gilbert G. Jurenka: Former executive vice president and chief operating officer in charge of oil and gas operations. Says he resigned in 1989 because Graham continued to buy properties that Jurenka believed stood little chance of producing a profit for investors. *

OTHERS U.S. District Judge Marcel Livaudais Jr.: New Orleans judge presiding over federal class action lawsuit against Prudential and Graham. Derailed a settlement that would have paid investors a few cents on the dollar for their losses. Ordered release of thousands of internal documents. Stuart C. Goldberg: Austin, Tex., lawyer representing many Energy Income Fund investors. Prudential is trying to block his attempt to bring arbitration cases on behalf of investors who lost relatively small sums.

Who Ran the Funds

The Energy Income Funds operated through an intricate network of ties among three firms:

PRUDENTIAL INSURANCE

* Bought 10% stake in Energy Income partnerships through 1986.

* Made direct investments with or in Graham Resources, totaling more than $100 million, creating what critics charge was a conflict of interest.

* Two executives served on board of Energy Income Funds until 1987.

* Directly received from Graham a portion of fees charged to Energy Income small investors.

* Its own insurance agents sold partnership units to customers, allegedly in violation of securities laws.

PRUDENTIAL-BACHE (Now called PRUDENTIAL SECURITIES)

* The Wall Street brokerage subsidiary of Prudential Insurance.

* Its brokers sold 35 separate Energy Income partnerships to 137,000 investors from 1983-1990.

* Received high sales commissions and fees from partnerships.

* Executives sat on Energy Income board.

GRAHAM RESOURCES

* Independent Louisiana firm selected by Prudential in 1983 to operate Energy Income partnerships.

* Responsible for investing more than $1 billion raised by Pru-Bache in oil and gas properties.

* Will soon be acquired by Prudential Securities.

* Executives sat on Energy Income board.

Living on Borrowed Cash

Even before oil prices collapsed in 1986, Prudential’s first four Energy Income Funds partnerships were performing well below expectations. The brokerage had led investors to expect high rates of return. But to meet those targets in the third quarter of 1985, Prudential and Graham Resources--the small Louisiana firm that operated the investment program--borrowed almost $4 million. Investors never were told of the borrowings, and Prudential marketed later partnerships aggressively, pointing to the early units’ strong returns.

Dollars in thousands

Partnership Cash Payout to Investors (Annual (Actual percentage) Dollars) 1 13.5 $1,185 2 13.5 $1,350 3 12.5 $1,340 4 13.0 $1,185 Totals $5,060

Partnership Partnership Funds Borrowed for Cash Payout Income Available for (% of Total Cash Payment (Dollars) Payout) 1 $205 $980 82.7 2 $215 $1,135 84.1 3 $170 $1,170 87.3 4 $575 $610 51.5 Totals $1,165 $3,895 77.0

In Their Own Words

A cache of internal Prudential, Pru-Bache and Graham Resources documents made public by a New Orleans federal judge and other documents obtained by the Times offer details about the firms’ sales practices, secret borrowings and private dealings.

A 1987 Graham marketing circular advised Pru-Bache brokers to tell customers that the limited partnerships were the equivalent of bank certificates of deposit.

An internal Graham memo from 1985 discussed obtaining loans to inflate payouts to Energy Income Fund investors. “John” is John Graham, the New Orleans oilman who headed Graham Resources.

A January, 1986, memo from Pru-Bache executive James C. Sweeney noted that Prudential Insurance had concluded that the oil and gas market was too risky at the time. Investors weren’t told that Prudential had temporarily halted its own investments.