Federal regulators are seeking at least $350 million in fines and penalties from Prudential Securities to settle charges of securities law violations stemming from the company's sales of limited partnerships in the 1980s, people with knowledge of the talks said.
Negotiations over the settlement have been hectic but fluid, and the final cost of fines and penalties could rise to as much as $400 million before an agreement in principle is reached, these people said.
Even the $350 million figure would be the most ever paid by an investment firm to settle charges of fraud in the retail brokerage business. Only the $650 million paid by Drexel Burnham Lambert would exceed the Prudential penalty. But that case involved impropriety in trading and underwriting securities, not in selling them to individual investors.
Because the Prudential actions being investigated involved improprieties in the retail business, they were more broadly felt than those of Drexel or Salomon Bros., which paid $290 million last year to settle charges of fraud in government securities auctions. Tens of thousands of individual investors lost hundreds of millions of dollars or more in Prudential's partnerships in oil, gas and real estate, with some investors saying they lost their life's savings.
The penalties now under discussion far exceed what Prudential hoped to pay to settle the case.