Prudential Securities gets probation for fraud

October 28, 1994|By New York Times News Service

NEW YORK -- After more than three years of denying that it broke the law, Prudential Securities admitted yesterday for the first time that the firm committed crimes in its sale of certain limited partnerships in the 1980s and agreed to pay $330 million to resolve criminal charges.

Combined with a $371 million civil settlement reached with federal and state regulators last year, the fines and penalties imposed on Prudential by the government in the scandal now exceed $700 million. That eclipses the penalties for any other Wall Street crime, including the $650 million paid by Drexel Burnham Lambert to settle securities fraud charges.

Under an agreement with federal prosecutors in Manhattan, the money will be added to a restitution fund established in last year's settlement with regulators.

The fund is designed to compensate hundreds of thousands of investors who suffered huge losses in the partnerships after the firm misled them by contending that the investments were safe and conservative when in fact they were very risky.

Yesterday's admission by Prudential that it had committed crimes applied to the Prudential Bache Energy Income partnerships, which were sold to more than 120,000 people.

Prosecutors said they investigated only that group of 35 partnerships, involving $1.4 billion in investments, because the government did not have the resources to investigate all 700 partnerships sold by the firm. Still, investors defrauded in any partnership can receive money provided in yesterday's settlement.

But the investors in the energy income partnerships will see little benefit from yesterday's admission by the firm.

Most of them accepted a $90 million class action settlement earlier this year, when Prudential was denying that it had committed any crimes.

That settlement, which paid investors less than 8 cents on the dollar, precludes investors from making another claim to the restitution fund.

Prudential's admission will now be a critical piece of evidence that could help investors who did not accept that class action settlement receive far more compensation.

Prosecutors filed a criminal complaint yesterday spelling out their case against Prudential, the nation's fourth-largest brokerage firm.

But under the agreement, the government deferred prosecution of the firm for three years.

Prudential, in turn, accepted a form of probation for three years, and agreed to a number of terms that will result in stringent

review by the government of the firm's activities throughout that period.

Among them is a requirement that an ombudsman be selected to supervise the firm.

All Prudential employees aware of any wrongdoing would be able to contact that ombudsman, who would then report findings to the prosecutors.

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