California Seeks Delay in Prudential Case : Securities: Official tells federal judge that aggrieved investors are being pushed to accept class-action settlement.

Contending that investors are hopelessly confused about their options, Gary S. Mendoza, California corporations commissioner, has asked a federal judge to delay a $120-million class-action settlement involving Prudential Securities’ largest limited partnership program.

Other states are expected to join in the request to put off settling the litigation over Prudential’s Energy Income Funds, a series of oil and gas limited partnerships in which 137,000 customers invested $1.44 billion between 1984 and 1990.

Nearly all the investors suffered heavy losses.

Mendoza sent a letter Monday to U.S. District Judge Marcel Livaudais Jr. in New Orleans, asking for a 90-day postponement of a Jan. 15 deadline by which investors must decide whether to participate in the settlement. State securities regulators in Missouri, Indiana and a few other states said they will probably join in California’s request.

Private lawyers--including John L. Grayson of Houston, whose firm represents more than 8,000 Energy Income investors--contend that the early deadline will have the effect of stampeding investors into the settlement. Resolving customer disputes through that mechanism, the lawyers argue, is likely to be the least costly avenue for Prudential, while ensuring legal fees of up to $36 million for a small group of class-action lawyers.

Under the current arrangement, Mendoza said in his letter, investors “have to review a set of settlement documents which are nearly incomprehensible to the average investor.”

There is no way for investors to calculate how much they would receive, he said. And they cannot compare the settlement to the sum they would get under an alternative procedure established under a separate agreement between Prudential and the Securities and Exchange Commission.

Mendoza said a 90-day delay would give investors an opportunity to see the size of payments being awarded in the SEC settlement.

The settlements followed allegations of massive fraud by Prudential in its sale of about $8 billion in limited partnerships. In October, Prudential agreed to the filing of SEC findings alleging that it misled small investors and for years failed to disclose massive losses.

Besides the two settlement mechanisms, Energy Income investors can chose to pursue individual arbitration or private lawsuits. Recently, a number of investors who filed for arbitration got all of their money back plus interest and, in a few cases, punitive damages as well.

But unless investors by the end of next week send in a form opting out of the class-action settlement, they will automatically lose their rights to choose the other options.

As of Dec. 30, only 5,753 investors had sent in the forms to opt out of the settlement, although many more are expected by Jan. 15, according to Edward A. Grossman, the lead class-action lawyer.

The settlement is greatly improved from one that was on the table at the beginning of 1993.

That deal--which would have provided no more than $37 million in cash--would have given investors only about 7 seven cents on the dollar for their losses. But Livaudais derailed it in February.

Parker & Parsley Petroleum subsequently bought the limited partnerships for $491 million. The proceeds from the sale, combined with about $650 million in distributions paid over the years by the partnerships, leave investors with only about $300 million in out-of-pocket losses. For most investors, the latest settlement would make good less than 30% of that remaining loss.

In an interview, Grossman called the settlement a good deal for most investors and said it should go forward.

“I think our money will get paid to class members faster than going any other approach,” he said.

Grossman also said he doubts that any Energy Income investors would be awarded interest on their losses under the SEC settlement procedure.

But Irving Pollack, the lawyer hired to administer the SEC settlement, strongly disagreed. “If a person has a clear claim, he would get interest on his out-of-pocket losses,” Pollack said.