Prudential Deal Not as Close as Assured by CEO : Securities: Negotiators say suggestions of an early settlement of the state and SEC fraud investigations was overstated.
Prudential Securities may not be quite as close to settling massive state and federal investigations as its chief executive implied to employees Friday.
In a talk to the entire staff via a companywide squawk box, Chief Executive Hardwick Simmons said Prudential Securities is “extraordinarily close to a global settlement” of fraud investigations by the Securities and Exchange Commission and state regulators. The investigations are looking into evidence of widespread wrongdoing in the firm’s failed $6-billion limited partnership program of the 1980s.
On Monday, individuals directly involved in all sides of the negotiations said that in his haste to soothe employees frazzled by months of bad publicity and a recent wave of new disclosures, Simmons may have overstated how close to an agreement Prudential really is.
Even the firm’s chief spokesman, William J. Ahearn, pulled back Monday from Simmons’ assurance that a deal is all but clinched. “I don’t think Wick (Simmons) made the comment that something is imminent,” Ahearn said. The spokesman said the firm “remains committed to reaching a settlement as soon as possible,” but he said a settlement is “more than just days away” and that the areas of disagreement involve more than “just last-minute touches.”
State securities regulators and the SEC have been investigating whether Prudential executives and brokers committed fraud in selling the partnerships to hundreds of thousands of individual investors in the 1980s. The investigation encompasses dozens of partnership programs, including Prudential’s biggest, the Energy Income Funds, which took in $1.45 billion from 137,000 investors. Few of the partnerships earned any money for investors, and overall the program is believed to have resulted in between $1 billion and $3 billion in losses.
Prudential, formerly known as Prudential-Bache, contends that any wrongdoing was committed by brokers and executives who long ago left the firm. The firm has been hoping to reach a single “global” settlement that would simultaneously satisfy both the states’ and SEC’s claims.
But one lawyer involved in the negotiations said the SEC has not even reached an agreement in principle with Prudential and that it remains unclear if an agreement will be reached.
And Wayne Klein, the Idaho securities regulator leading a six-state task force that is spearheading the states’ investigation of Prudential, said his task force has not yet begun negotiating with Prudential and will not do so until after the SEC and the firm reach a tentative agreement on the issues between them. He said the SEC and states have been cooperating only to the extent of sharing information “so that Prudential can’t play us off against each other.”
The negotiations also do not address a federal criminal investigation that was launched recently by the U.S. attorney’s office in Manhattan.
Prudential, the Wall Street subsidiary of the Prudential Insurance Co., has brought in big legal guns to represent it in negotiations with the SEC. One of its main negotiators is Gary Lynch, with the East Coast law firm Davis, Polk & Wardwell. Lynch is the highly respected former SEC enforcement chief, who oversaw the agency’s investigations of Dennis Levine, Ivan Boesky and Drexel Burnham Lambert.
But the states are playing an unusually prominent role in the investigation of Prudential, and they carry a big stick: the threat of revoking Prudential’s license to do business in individual states.
