Most of the estimated 2,600 Utah investors who lost money in limited partnerships sold by Prudential Securities Inc. during the 1980s will be eligible to apply for refunds under a court-approved plan announced Thursday by the Utah Department of Commerce.
The department says Utahns who lost a total of $18 million in one or more of 700 limited partnerships (LPs) - mostly failed oil/gas and real estate development deals - will get their share of a $300 million national claims fund created by Prudential, which was alleged to have made "substantial misrepresentations" to investors when it sold the LPs from 1980 to 1990.In addition, the state will receive $500,000 as its share of a $26 million fine levied against Prudential.
"Our goal throughout this process has been to maximize recovery for investors (and) we think we've achieved a settlement here that does exactly that," said Constance White, executive director of the Utah Department of Commerce.
The department participated with the federal Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD) and other state regulators in what were termed "unprecedented global negotiations" to reach a settlement.
Under the agreement, the SEC will receive a $10 million penalty payment from Prudential and the NASD $5 million.
Nationwide, it is estimated that more than 300,000 victims lost more than $300 million by investing in the Prudential LPs.
"I would hope this puts it behind us. We want to move on," said C. Elwynn Olsen, vice president and manager of the Salt Lake office of Prudential Securities, which is headquartered in the One Utah Center building downtown.
"The firm today is much different than it was three or four years ago," said Olsen, who joined Prudential in 1989, after the period during which the LPs were sold.
Asked if the investments could be characterized as symbolic of the "go-go, greed is good" investment environment of the '80s, Olsen replied, "I'm not at liberty to say anything about that. It was handled at the corporate level."
He said the local Prudential office currently has 27 brokers and a staff of 41.
White said the penalty applied to Prudential in the case is the highest the Securities Division has ever invoked.
"This settlement makes clear our intention to protect the interests of Utah investors and, hopefully, will discourage . . . fraud in the investment markets," she said.
A toll-free hotline - 1-800-220-9125 - was established Thursday by the North American Securities Administrators (NAASA) which Utahns may call for written information about the settlement and how to make a claim on the fund. The 800 number will operate for one month.
White stressed that the settlement deals only with Prudential as a firm and doesn't rule out the possibility of additional actions against individual brokers and managers who were "involved in the misconduct."
However, she commended the firm for "acknowledging wrongdoing, taking its penalty and moving forward."
She had no argument with Olsen's comment that Prudential is "not the same firm" today.
"That is what appears to be happening," she said. "They have changed some procedures and replaced some people. It's clear from their settling and being as cooperative as they were that they want to continue doing business."
But she noted Prudential's fine could have been considerably greater. "The law allows a penalty up to $10,000 per violation, and with 2,600 investors in Utah, you can see the potential liability."
White said the loss suffered by Utahns varied.
"Some lost most, some lost everything and some recouped part of their loss in tax benefits if nothing else. But if I had to hazard a guess, I'd say the majority lost all or most of their money."
White said Prudential sold the limited partnerships without telling investors how risky they were.
"They were pushing these on people who may not have understood what they were getting into and for whom (limited partnerships) would not have been suitable investments."
Under the agreement, Prudential has waived its statute of limitations defense, meaning investors will be able to submit a claim even if the time limit for a lawsuit or arbitration has expired.