Customers throughout the country flooded Prudential Securities and state regulators with anxious telephone calls yesterday as they tried to understand the settlement of sweeping fraud charges by a firm that had aggressively sought to win their trust and their business.
A number of Prudential brokers expressed dismay and some surprise over the depth of the public reaction, as they spent hours trying to explain to clients what the settlement means and how it works.
So it went on Prudential's first day in the lonely club of investment houses hit with government charges of significant wrongdoing.
That group includes one firm that survived the onslaught, Salomon Brothers Inc., which suffered through the 1991 Treasury markets scandal. And it includes two firms that didn't -- Drexel Burham Lambert Inc. and E. F. Hutton & Co., both of which admitted to widespread violations in the 1980s.
Now Prudential is lifting a page from the crisis-management book of many of those firms. Its efforts consist of full-page newspaper advertisements, public reassurances on news broadcasts and hand-holding by brokers. They seek to assure customers that the bad days that led to the fraud charges are behind and that the firm is moving into a new era.
But beyond Prudential, widespread ripple effects from the agreement have been felt among thousands of customers, as well as by securities lawyers and brokers, and executives at competing firms.
The charges Prudential settled Thursday describe widespread fraud over more than a decade, causing huge losses for hundreds of thousands of investors.
The fraud involved providing misleading information to customers about the safety of about $8 billion worth of risky limited partnerships, as well as abuse of customer accounts at nine branch offices.
Prudential agreed to pay a minimum of $371 million in restitution and fines. About 5,300 Marylanders paid about $36 million into the partnerships.
But under the terms of the agreement, it will continue to repay all customer losses caused by fraud, regardless of the final cost.
That total could grow significantly, because Prudential agreed to waive the statute of limitations on all claims. That restriction would have prevented many customers from recovering on their losses.
The sudden promise of restitution helped to fuel the explosion of phone calls not only at Prudential, but also at a national hot line established by state securities regulators to help explain the settlement to investors. That phone number is (800) 220-9125.
"We are bursting at the seams with the traffic," said Larry Werner, president of Enterprise Answering Service, which is running the hot line for the regulators. "We have thousands of people calling from all across the country, with many of them elderly."
By yesterday afternoon, the hot line had received more than 3,800 calls, most of them in just a few hours. That exceeds the number of investors who called a similar hot line established by regulators after the 1987 stock market crash, said Scott Stapf, a spokesman for the North American Securities Administrators Association.
Brokers said that the calls coming to Prudential from customers mostly involved what the settlement meant to the firm and to their investments.
But they said they also received a number of telephone calls -- and walk-in visits -- from former customers who thought they had been defrauded and who wanted to know how to seek compensation.
"People are all the way from absolutely thrilled that they are able to recover part of their investment, to absolutely outraged that it happened at all, to everything in between," Mr. Werner said.
Investors learned of the settlement not only from news reports, but also from full-page newspaper advertisements taken out by Prudential. The advertisements, presented in the form of an open letter from Harwick Simmons, the firm's president and chief executive, admitted that the firm had done wrong.
"You have my personal commitment that we at Prudential Securities will do everything we can to make sure this doesn't happen again," Mr. Simmons wrote.
For some former customers, the settlement and the assurances from the firm -- once known as Prudential-Bache -- were not enough.
"I do think that Prudential-Bache is still getting off easy," said Jan Sitko, 49, a resident of North Miami Beach, Fla., who invested more than $400,000 with his wife in Prudential limited partnerships.
Under the settlement, investors will be able to apply to the fund for compensation of losses.
But Mr. Sitko and thousands of other investors were promised at the time of their investment that they would receive certain returns. Many of them say they think Prudential should compensate them not only for their principal, but also for the promised returns, or at least for the money they could have made through alternate, safe investments.