Now Maybe a Little Jail Time : Settlement in huge investment fraud case does not go far enough

Considering the enormous sums lost, the thousands of victims involved and its admitted wrongdoing, Prudential Securities got too good a deal when the U.S. attorney’s office in Manhattan agreed to allow the brokerage to settle criminal charges related to its $8-billion limited partnership investment program.

Prudential admitted last week, after three years of denials, that it had committed what is believed to be the largest fraud ever by a single brokerage against small investors.

Prudential admitted it knowingly made “false and misleading” statements to investors about the safety of the investments and agreed to three years of probation and to pay an additional $330 million into an existing restitution fund for investors. In exchange, federal prosecutors agreed not to press charges if the company strictly lives up to the settlement agreement.

In total, Prudential will pay a record $700 million in government fines and penalties. Until last week’s settlement, Prudential had fiercely denied in civil lawsuits and arbitration cases that it had broken the law.

The unusual “deferred prosecution” agreement was based on the fear that an indictment could put the firm’s 18,000 employees out of work and further harm investors. Prudential had said privately that an indictment probably would put it out of business.

Criminal investigations are continuing against some former executives, and charges could eventually be filed.

Over more than a decade, in excess of 600,000 investors nationwide put money into Prudential’s approximately 700 limited partnerships. Their losses are believed to have totaled over $2 billion. The criminal charges focused on the Energy Income Funds, which were the subject of a 1993 investigation series in The Times.

The brokerage, although it fessed up, did so only late in the game. The white-collar crimes committed against its small investors are unconscionable. Federal prosecutors should seek stronger punishment, such as jail time, for any individuals found guilty in this massive fraud.