Prudential Unit Unable to Shed Cloud of Scandal : Securities: U.S. attorney’s office is apparently building cases against the brokerage, its parent and individuals.

Prudential Securities Inc.’s hopes for putting its limited partnership scandal rapidly behind it have faded amid a mushrooming federal criminal investigation.

Lawyers involved in the case said it appears the U.S. attorney’s office in Manhattan is targeting both Prudential, the nation’s fourth-largest brokerage, as well as its giant parent, Prudential Insurance Co. of America, for eventual criminal charges.

Prosecutors are also building individual cases against current and former executives, and the investigation this week prompted the firm to remove its general counsel.

Prudential Securities has long contended that the wrongdoing associated with its $8-billion limited partnership business ended with the 1980s and that all the senior executives involved had left.

When the firm agreed to a mammoth settlement of at least $371 million with the Securities and Exchange Commission in October, there was a wave of relief at the brokerage’s Wall Street headquarters, as well as the expectation that the scandal would soon fade from public memory.

In an interview at the time, Hardwick Simmons, chief executive of Prudential Securities, said optimistically, “The feeling of most of the organization would be one that says we think the beginning of the end is in sight for us.”

But those hopes seemed dashed this week as word came that federal prosecutors were expected to issue subpoenas shortly and had recommended that individual executives get their own lawyers.

Among them was Loren Schechter, Prudential’s general counsel since 1982, who also was on the brokerage’s board and was a member of its senior management committee.

On Thursday, Simmons disclosed in a memo to the firm’s staff that Schechter was stepping down from those positions.

Simmons said he had decided to grant Schechter’s request to be relieved “as a result of the unfortunate and unfair publicity and innuendo in the recent press.” He said the attorney continues to be an executive vice president of Prudential Securities.

The firm’s problems center on limited partnerships sold heavily to small investors in the 1980s. The SEC has said Prudential used fraudulent sales techniques and gave customers false account statements that failed to reflect big losses. Prudential settled without admitting or denying the charges.

Alan M. Cohen, Schechter’s lawyer, strongly denied that Schechter had condoned any wrongdoing. “Loren Schechter intends to cooperate fully with the SEC and U.S. attorney’s office in every way possible,” Cohen said.

Legal sources also confirmed Friday that numerous current and former Prudential executives, including Schechter, had been invited to meetings at the U.S. attorney’s office. At such sessions, potential witnesses or targets are asked to share what they know with prosecutors on the promise that anything they say will not be used against them.

Among those invited in were James Darr, former head of Prudential’s limited partnership program. But Darr declined the invitation, sources said. Darr’s lawyers have said they have received no indication that Darr himself is a target of any investigation.

Kenneth Vianale, the assistant U.S. attorney in charge of the case, has declined to comment.

Schechter was the lead negotiator for the firm in the SEC settlement talks. But he also had responsibility in the ‘80s for reviewing sales material that later was alleged to be false.

In addition, he was responsible for enforcing an earlier SEC settlement, reached in 1986, that required the firm to step up its internal monitoring. In October, the SEC said Prudential had never lived up to that agreement.

Besides Schechter, federal prosecutors have recommended that several other current Prudential executives get their own lawyers, including Frank Giordano, a former limited partnership executive who is now chief counsel for Prudential’s mutual fund management, and James M. Kelso, current head of the firm’s limited partnership division.

Sources have said that the SEC is also continuing to investigate current and former executives and may bring civil charges against them.