A group of Floridians who invested more than $2-million in Prudential-Bache energy-income partnerships are accusing Prudential Securities Inc. of fraud in arbitration complaints filed this week with the Philadelphia Stock Exchange.
Prudential sold more than $1.4-billion of the partnerships during the 1980s in what the complaints call "the biggest retail securities fraud of this century." Prudential calls it simply an investment that didn't work out. The 151 investors filing the complaints include 33 from the Tampa Bay area.
The complaints, filed by Orlando lawyer Robert Dyer, say that Prudential misrepresented the partnerships to clients and its own brokers, projecting yields of 16 percent to 19 percent annually. Sales literature stressed the immediate cash flow and safety of investing in oil and gas reserves.
However, the partnerships' incomes were far too low to support such a high yield and most of the distributions made to investors involved a return of their own money. A deal is pending to sell the partnership units to Parker & Parsley Petroleum. If it is completed, Prudential says that investors who participate will end up losing an average of 20 percent on their investments.
"The real problem here is that you have an investment that didn't perform up to people's expectations and people are looking for someone to lay the blame on," said William Ahearn, a spokesman for Prudential in New York. "The blame shouldn't be laid on us; it should be laid on the oil and gas marketplace."
He says Prudential's partnerships performed no worse than others sold during the same period.
Customers' monthly statements always have reported the value of the partnerships at original cost, a practice that the complaints call a continuing fraud. However, Ahearn said the statements noted that the prices did not reflect current market value. Because partnerships are an illiquid investment, the market value cannot be fairly determined, he said.
In addition to fraud and deceit, the complaints accuse Prudential of racketeering, negligence and breach of contract and fiduciary duty to its clients. They ask for compensatory and punitive damages.
The Philadelphia Stock Exchange is one of many arbitration forums investors may use to bring complaints against brokerage firms.