Prudential Investors Sue
Orange County retirees Art and Georgia Marsh had no idea a free lunch at Clifton’s Cafeteria in Laguna Hills offered by a Prudential Securities broker would turn out to be quite so costly.
After the lunch meeting, the couple put nearly $100,000 of their savings into now-defunct oil and gas partnerships offered by Prudential Securities.
Art, 69, and Georgia, 67, are just two of an estimated 10,000 to 15,000 Californians, mostly retirees, who invested $1.44 billion in Prudential’s embattled petroleum investments.
The Marshes are parties in a $1.1-billion class-action suit filed in Orange County Superior Court Friday against Arthur Andersen & Co., the nation’s largest accounting firm, in connection with the partnerships. Accounting firm Deloitte and Touche is also named in the suit, but not Prudential Securities.
“I was doing fine until I ran into that fast-talking broker,” said Art Marsh, a former garment worker in downtown Los Angeles, who lives with his diabetic wife in Leisure World. “I told him I was very conservative; I just want something safe. And he said, ‘You can trust me; it’s safe,’ but it wasn’t.”
The Marshes said they hope several lawsuits pending against Prudential and the most recent one against Arthur Andersen will recover some of their money.
“I’m angry I got taken in, but I know I’m not alone, there’s a lot of people just like me,” he said. One of those is Lucille Imada, a 78-year-old former factory worker who invested $95,500 of her retirement savings with Prudential. Imada and her husband Yoshio, 84, recently moved in with their 53-year-old son in Huntington Harbour because of health and financial pressures related to the Prudential debacle.
“I just want my money before I die,” said Imada, who said she never made more than $5.85 an hour working 34 years in a Chicago factory. “I thought Prudential was steady like a rock,” she said.
Her son Randy, a real estate sales agent, is helping his parents attempt to get their money back. He said his parents’ vision of a golden retirement in California is gone forever.
“Prudential defrauded my mother, like many other people,” Randy Imada said. “The question I have to ask is: Why is a company like that still around doing business? Why aren’t they shut down by the Securities and Exchange Commission?”
The lawsuit in Orange County is the latest move in an ongoing battle over Prudential’s Energy Income Funds, a series of oil-and-gas partnerships sold by New York-based Prudential, one of the nation’s premier securities firms.
On Monday, attorneys representing about 1,000 investors asked a federal judge to reject a proposed $120-million settlement between Prudential and its partnership investors. The attorneys want the judge to appoint a special counsel to reopen the case.
U.S. District Judge Marcel Livaudais of New Orleans has scheduled a Jan. 19 fairness hearing on the settlement between the brokerage firm and 137,000 investors who have accused Prudential of fraud and misrepresentation.
The lawyers, who represent individual investors, contend that the settlement negotiated by class-action attorneys will leave only $90 million for investors after attorneys’ fees are paid. They claim investors are entitled to at least $780 million for out-of-pocket losses and 6% interest that would have been earned if the money had been invested elsewhere.
In a separate settlement, Prudential in October agreed to pay $371 million in penalties to settle a lawsuit filed by the Securities and Exchange Commission, though Prudential neither admitted nor denied findings that it defrauded the limited partnership investors.
In a telephone interview Monday, John Murray, head of corporate risk management for Prudential in New York, said though he had not yet seen the lawsuit, it was without merit.
“Based on what we know, it’s old hat. It’s totally without merit,” he said.
When told of Lucille Imada’s situation, Murray said he was not familiar with her case but that the company is looking into several individual cases.
“If we have something where there was an unsuitable situation, we’ll remedy that,” he said.
The suit charges that Andersen, which audited the records of the oil and gas partnerships, allowed Prudential to issue false financial statements and prospectuses, hiding the fact that “profits” investors were receiving were actually their own money being paid back to them.
Jack Ruane, a spokesman for Andersen, said Monday that his firm had not seen the lawsuit and therefore had no comment. A spokesman in Los Angeles for Deloitte & Touche said the firm also could not comment because it had not seen the lawsuit.
Jim Kurtz, executive director of the California Society of Certified Public Accountants, a trade group based in Redwood City, said the lawsuit was part of a disturbing trend.
“I guess what makes this so unnerving is that there seems to be increasingly little or no relations between the amount claimed and the charge against the CPAs,” he said, adding that the accounting firms should not be held accountable for nearly all of the investor losses--financial institutions should shoulder more of the blame.
However, Newport Beach attorney Jeff Dennis Ferentz, co-counsel for the investors who are suing, argues that the accountants had a major role in the partnerships and should be held accountable.
“They might not have fired the gun, but they pressed the lead onto the shell containing the powder,” he said. The accounting firms “put their name on (the investment documents) so everyone would think it had substantial credibility with Prudential and the large accounting firm standing behind it.”
Still, several of the Orange County investors are troubled about the lengthy legal process required to recover their money and many doubt they will ever see their funds again.
“Right now, I guess all my eggs lie in Jeff Ferentz’s basket,” said Michael Falvo, 76, a San Clemente man who invested his whole portfolio in the Prudential partnerships.
“I was fooled. A handshake was always good enough for me. I trusted people and I was fooled,” Falvo said. “At our age, we were looking for stability and safety and instead our broker put us into that.”
Ted Munroe, 70, sold his stake in a small engineering company in Orange and invested $145,000 of the sales proceeds in Prudential’s energy funds in the mid-1980s after being promised yields reaching 15%. He said he is still angry.
“I certainly feel like the investments were misrepresented. I didn’t expect a guaranteed 15%, but I didn’t expect to lose my money,” Munroe said, adding that he still does consulting for the company. “This was money for my retirement and for my children. Certainly it’s made life more difficult.”
Another local investor, Selma Feldman, 64, a widow who lives in Leisure World, put at least $15,000 in the partnership after meeting a broker at Clifton’s Cafeteria. She said the investment was represented to her as the best thing for a widow to have.
“It makes you very nervous to live these past three years with all this going on,” she said. “It’s a traumatic life to live.”
