Prudential Remains Target of Myriad Lawsuits : Securities: Many investors’ attorneys take a dim view of settlement. But some see powerful evidence in the fine print.
Prudential Securities’ $371-million-plus settlement with federal and state regulators may do little to end the Wall Street firm’s legal problems with its former customers.
A dozen lawyers who represent large numbers of Prudential customers say they will advise most of them to continue pursuing their claims independently. The attorneys called the settlement inadequate. They noted that Prudential and the SEC have not spelled out many details of how payments to customers will be calculated and expressed doubt that Prudential would offer full compensation to many investors.
“We’re not going to take any pending cases off track,” Boyd Page, an Atlanta lawyer who represents about 300 Prudential investors, said Tuesday.
Thousands of arbitration cases are pending against the firm, although the exact number has not been made public. Counting the potential punitive damage awards, Prudential’s legal exposure could run to billions of dollars.
In addition, a Houston law firm representing about 8,000 Prudential customers is continuing a separate lawsuit in Texas state court, seeking triple damages.
Most of the lawyers said they were advising clients to go ahead with the initial, non-binding stage of the SEC’s settlement procedure, by filing claims with Prudential to see how much the firm offers.
Investors continued to show strong interest in the settlement. Operators of a toll-free telephone line set up to answer their questions had received about 15,000 calls as of late Tuesday.
All the lawyers interviewed said they had strong doubts about the offers their clients would receive. And they said the only clients they were advising to commit themselves to the SEC arrangement were those who invested with Prudential six years ago or longer, whose claims might otherwise be blocked by statutes of limitation.
On Thursday, the SEC and state securities regulators announced that Prudential, the nation’s fourth largest brokerage, had agreed to settle charges that it defrauded hundreds of thousands of investors during the 1980s, mostly through the sale of $8 billion in limited partnership interests. Prudential agreed to pay $41 million in penalties and make an initial payment of $330 million to a restitution fund for clients.
Regulators say the settlement represents a great deal for investors. So does Prudential, which neither admitted nor denied the SEC charges, as is standard procedure in settlements with the agency.
“We’ve set up a system that is user friendly for investors and speedy, if they want to take advantage of it,” said Prudential spokesman William J. Ahearn. “If they do choose that avenue, it’s terrific. If not, that’s fine.”
The lawyers, to be sure, have strong reasons for denigrating the settlement. It provides for no payment by Prudential of attorneys’ fees, and customers do not have to hire a lawyer to participate in the arrangement.
Regardless, the lawyers said that for many customers, there are valid reasons to keep pursuing independent claims.
Accepting the settlement, they say, will prevent many customers from collecting punitive damages.
Large damage awards have been awarded in some arbitrations.
Also, many will not collect interest--or even all their out-of-pocket losses. The settlement allows Prudential to deduct what it considers the remaining value of the partnerships--figures that are in sharp dispute--and to take into account the investors’ level of sophistication and whether they can prove that they were misled.
Texas lawyer Stuart C. Goldberg, who says he represents hundreds of Prudential customers, called the SEC settlement “one of the biggest sellouts in history.”
He added: “The SEC has already found fraud. Investors are entitled to get back all of their out-of-pocket losses, plus statutory interest.”
Several attorneys said the settlement will make it easier for customers to win lawsuits or arbitration cases against Prudential, because lawyers will be able to use as evidence the SEC’s detailed accusations against Prudential.
“The findings put it all together for us in a nice little package,” said Philip M. Aidikoff, a Beverly Hills lawyer who represents about 100 Prudential customers.
Over 100,000 investors in Prudential’s Energy Income Funds oil and gas partnerships will have an additional choice to make: whether to participate in a separate class-action settlement in which Prudential is now offering to pay $120 million. Counting earlier distributions and the sale of the partnerships’ remaining assets, investors would get back about 85% of their original outlays under the separate settlement.
