Federal prosecutors on Thursday charged Prudential Securities with securities fraud, accusing the brokerage firm of misleading investors about risky limited partnerships it sold them in the 1980s.
But the brokerage managed to avert a criminal indictment. In return for Prudential's continued cooperation, the government said it would not prosecute Prudential for at least three years, which amounts to a sort of voluntary probation for the nation's fifth-largest brokerage.
Still, Prudential admitted criminal wrongdoing in its pact with federal prosecutors and agreed to deposit an additional $330-million into a special fund created to reimburse investors. Prudential said it had deposited the money Thursday, which matches an amount paid last year by the firm.
The deal caps a long-running federal investigation that shook up Prudential's management, spurred huge losses and sent tremors through an already scandal-ridden securities industry.
U.S. Attorney Mary Jo White said the concessions agreed to by Prudential Securities should be a wake-up call to the brokerage industry.
"Not only management but brokers should understand their product and take extreme scrutinizing care to expose accurately and fully the risk," White said.
Prudential said it has spent about $1-billion in its attempt to clean up the mess, including administrative costs and money that hasn't yet been distributed to investors seeking restitution. So far, about $275-million of restitution money set aside by Prudential has been distributed, settling 38 percent of investor claims against the firm.
The agreement with prosecutors, which was expected, centered on Prudential's sale of $1.4-billion in oil and gas limited partnerships to more than 120,000 investors from 1983 to 1990. The Prudential-Bache Energy Income partnerships were intended to buy oil and gas properties and give out profits from energy production.
But the criminal complaint filed by prosecutors charges Prudential misled investors into thinking the safety of the limited partnerships would be comparable to bank certificates of deposit and other fixed-income instruments. Many of the investors lost a substantial portion of their investment and have filed civil suits against Prudential.
Prudential has fired many of the executives who ran the firm and its partnership division in the 1980s. Late last year, Prudential's top lawyer, Loren Schechter, resigned because of the scandal.
Without admitting or denying wrongdoing, Prudential last year settled civil fraud charges brought by the Securities and Exchange Commission and state securities regulators. It agreed to pay $41-million in fines and put at least $330-million in a fund to reimburse investors.
Most investors have not yet tapped the settlement fund. State securities regulators have scheduled a news conference Tuesday to express concern that many investors are in jeopardy of missing a Jan. 10 deadline for using the fund.