Inquiry transcripts reveal Prudential's improprieties

December 21, 1997|By NEW YORK TIMES NEWS SERVICE

TALLAHASSEE, Fla. -- A lawyer for the Prudential Insurance Co. of America told Florida investigators that the company's top executive approved a $1.46 million payment to a mid-level official who had threatened to go public with details of how insurance agents had long cheated customers nationwide, according to transcripts of sworn statements released late Friday by state officials.

Prudential, the nation's largest insurance company, had fought for months to keep the documents secret, contending that they were protected by attorney-client privilege.

They provide the most detailed picture yet of improper sales practices at the company, which has agreed to pay at least $410 million to policyholders who had been persuaded to use the cash that had built up in old life insurance policies to buy new ones -- a practice known as "churning."

Prudential would not address the specific points raised in the documents, saying through Robert DeFillippo, a spokesman, that the company had turned over a new leaf and that the "problems of the past would not be repeated."

In a sworn interview with Florida investigators, the lawyer, John J. Massaro, quoted a superior at company headquarters in Newark as saying of the potential whistle-blower: "We paid him off; he held us hostage."

Massaro, who later left his job at Prudential's Jacksonville office, said a senior corporate lawyer told him the payment to the would-be whistle-blower had been made "with the approval of Art Ryan."

The reference was to Arthur F. Ryan, the former executive of Chase Manhattan Bank who was named Prudential's chief executive in late 1994 to clean up the insurer's sullied image and improve its financial performance.

The would-be whistle-blower had written a memorandum in 1992 summarizing the company's sales practices as "a growing, unrelenting, persistent problem."

In his statement to the Florida investigators, Massaro said he had repeatedly urged his superiors to turn over the memorandum to a task force of state regulators investigating the company, only to be told it would add nothing to the investigators' knowledge of company practices.

Finally, months after the memorandum's author had retired -- and eight days before the multistate task force published a report on Prudential in summer 1996 -- the company turned over the document.

Its contents did not make it into the report, which was criticized as being too lenient an accounting of Prudential's conduct.

Florida investigators later found that they had received the memorandum, among thousands of other documents, early in 1996.

Massaro's sworn statement was one of several interview transcripts released Friday by lawyers for Florida in which former Prudential employees asserted that reports of misleading sales tactics had circulated among the highest executives of the company for more than a decade.

The disclosures come weeks before Prudential and lawyers who worked out the $410 million settlement with policyholders must defend the deal in a federal appeals court in Philadelphia.

Lawyers for a group of policyholders who want to overturn that settlement said the new materials, which they had been fighting to obtain, would strengthen their case that Prudential was not being adequately punished.

Prudential said it believed its settlement was "fair and equitable" and would not be affected by Florida's disclosures.

Florida was one of several states that continued to pursue investigations of Prudential after the tentative settlement of the private class-action lawsuit.

Pub Date: 12/21/97

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.