Prudential Faces More Accusations : Wall Street: Customers’ lawyers say the brokerage is stonewalling. The firm seems to be softening its stance.

Formal accusations are mounting that Prudential Securities has used unfair and even fraudulent tactics in legal disputes pending with customers.

Prudential denies any improprieties. But stung by an outcry by customers’ lawyers and a spate of recent press accounts, there were signs over the weekend that Wall Street’s fourth largest brokerage firm is about to soften at least slightly what has been widely perceived as a game of hardball in more than 1,000 pending customer arbitration cases and lawsuits.

Even though Prudential last month settled with the Securities and Exchange Commission and agreed to pay at least $371 million in restitution and fines, the brokerage is still vigorously defending itself in individual customer arbitration cases and lawsuits. The cases stem from losses that hundreds of thousands of customers suffered after they bought some $8 billion in limited partnership interests.

In the SEC settlement, Prudential agreed not to contest a list of findings of a systemic pattern of wrongdoing at the firm, including lying about risks, abusing clients’ trust, failing to disclose customers’ losses, and not supervising brokers. Prudential has also said it is eager to make amends for past wrongs.

But, in the vast majority of pending arbitration cases and lawsuits, Prudential has continued to aggressively deny any wrongdoing involving the individual customers. Customers’ lawyers, such as Rosemary J. Shockman and John N. McKeegan in Arizona and Stuart C. Goldberg in Texas, have accused Prudential of making false statements to arbitrators, refusing to produce documents and postponing or drawing out hearings to increase the legal expenses for customers.

“Prudential has adopted a scorched-earth defense policy in all of the cases we’ve been involved in,” McKeegan contended.

These lawyers also assert that the incidents show the flaws inherent in any customer arbitration case involving a brokerage firm. Deborah Masucci, the head of the National Assn. of Securities Dealers, confirmed that there is no NASD rule that prohibits firms from making false statements in arbitration cases. She said that although such conduct could be considered a violation of the NASD’s general ban on unfair conduct, she said she believes no such case has ever been brought.

The latest outcry involving Prudential was prompted as the firm’s lawyers began efforts in numerous arbitration cases to block the admission as evidence of the SEC’s list of charges against the firm. Lawyers such as Goldberg said that admission of the charges as evidence could be pivotal in the cases and could save customers’ lawyers from having to prove repeatedly there was systemic wrongdoing at the firm.

A Prudential executive who spoke on the condition that he not be identified said Friday the firm has decided to drop all objections to admitting the SEC findings as evidence. The executive said, however, that the firm will still be free to argue that the wrongdoing the SEC found wasn’t a substantial factor in individual cases.

In addition, in a Nov. 4 memo to all of the firms’ in-house and outside lawyers, in response to criticism in the news media, Prudential General Counsel Loren Schechter stated: “We expect the firm’s legal representatives to defend our interests vigorously. However, we must all be sensitive to cases where clients have legitimate claims. . . . It is incumbent upon us in dealing with claims against the firm . . . to follow the spirit as well as the letter of our (SEC) settlement agreement.”

Prudential spokesman William J. Ahearn denies that the firm has used unfair tactics or tried to run up customers’ legal costs. He said the firm is eager to get its legal problems behind it.

“Any indication that we’re trying to slow this down or play hardball doesn’t make any sense,” he said.

Among the incidents that have prompted complaints:

* In Phoenix, Shockman and McKeegan have filed two lawsuits against Prudential, asserting that clients lost arbitration claims because Prudential lied about a crucial consultant’s report that was damaging to Prudential’s defense. The arbitration cases involved losses stemming from Prudential’s Polaris Aircraft Income Funds, partnerships that leased commercial aircraft to airlines. The consultant’s report, never disclosed to investors, stated that the partnerships were taking severe financial risks by extending credit to airlines with poor credit ratings, and that many of the planes owned by the partnerships were nearing the end of their useful lives.

Transcripts of testimony in the arbitration hearings show that Prudential’s lawyers denied that Prudential had commissioned the report; indeed, they denied that Prudential had ever even seen it. As a result, the arbitrators refused to let Shockman and McKeegan use the report to cross-examine witnesses.

In fact, the two lawyers charge in the suits, Prudential not only had long had the report in its files, but a senior Prudential executive had commissioned it. They attached evidence that Prudential had even turned over the report and admitted commissioning it in earlier arbitration cases in Florida.

Prudential spokesman William J. Ahearn called the matter an error and blamed the firm’s local counsel.

“Our local counsel never saw it before,” he said. “Should they have known about it? Yeah, they should have. But they didn’t.” He contended that the mistake had no effect on the outcome of the case. Prudential’s local lawyers, from the firm of Lewis & Roca, declined to comment and referred all questions to Prudential.

* In California, in 41 arbitration cases pending against Prudential before the Pacific Stock Exchange, Prudential’s lawyers filed answers to complaints that attorney Goldberg contends were deliberately false. The claims all involve Prudential’s oil and gas partnerships known as the Energy Income Funds. A central claim in the cases is that Prudential gave its own brokers sales material that made false statements about the safety and profitability of the investments.

In Prudential’s defense, lawyers from the Long Beach firm Keesal, Young & Logan contended that there couldn’t be anything wrong with the promotional literature because it had all been approved in advance by the NASD. But in response to a subpoena from Goldberg, the NASD denied that it had ever seen, much less approved, any of the material. Despite Goldberg’s written complaints, Keesal, Young lawyers waited more than two weeks to notify arbitrators that they had made a mistake, until a day after a Times reporter called to ask about the matter. Peter Boutin, a lawyer with the Keesal firm, said: “We simply made a mistake. It was made in good faith.”

Prudential spokesman Ahearn said, “It was an innocent mistake made by outside counsel on one bunch of documents.” He and Boutin declined to comment when asked if the documents containing the mistake had been reviewed in advance by Prudential’s in-house lawyers.

* A group of investors in Prudential’s Pru-Tech partnerships, which invested in research and development projects, has filed a class action lawsuit against the firm. The partnership agreements explicitly state that partners have the right to review all of the partnerships’ books and records. But David Van Hoomissen of Escondido, head of the group, says Prudential for months refused to make the records available, then made some documents available under tightly controlled conditions and didn’t produce the key documents the group had requested. Prudential strongly denies that it withheld any documents.