As many as 60,000 people may miss out on millions of dollars in settlement payments from Prudential Securities Inc., merely because they didn't ask for the money.
They are among the thousands of investors, including almost 6,000 in Maryland, who sank more than $8 billion into risky limited partnerships that Prudential, the nation's fourth-largest brokerage firm, fraudulently sold to investors in the 1980s.
Those investments have resulted in the largest securities fraud settlement in history, surpassing the $650 million that junk bond seller Drexel Burnham Lambert Inc. paid to settle charges of securities and mail fraud.
Last year, Prudential, a unit of Prudential Insurance Co. of America, set up a $330 million fund to settle charges that its brokers overstated the potential gains and downplayed the risks of the partnerships. But the fund was doubled last week when the company settled criminal charges with the federal prosecutor in New York, agreeing to a three-year probation.
"The partnerships were, at times, sold to unsuitable investors," Prudential Securities said in a statement last week. "In addition, the risks of the investments, at times, were misstated."
So far, of the 200,000 investors eligible to seek compensation, only two-thirds have returned their 10-page claim forms: 55,581 of them have received $313 million in settlement payments, and another 25,000 claims worth $65.5 million are being processed.
Another $490 million has been paid in previous litigation, and many more investors will receive settlements in a $90 million class action suit in New Orleans.
But with a Jan. 10 deadline approaching, securities regulators are concerned that as many as 60,000 investors may miss the chance to be repaid, at least in part, for the losses they suffered.
At news conferences in Washington and around the country yesterday, state regulators put out a call to those investors.
"Our message today is a simple one: if you are one of the investors who was affected by the misconduct of Prudential who has not yet participated in the settlement process, your time to do so is running out," said Wayne Klein, Idaho Securities Bureau Chief and chairman of the task force that originally investigated Prudential.
"The money is out there, and you should take advantage of this opportunity," Mr. Klein said.
In Maryland, the Attorney General's Office estimates that requests have yet to be filed by about 3,750 claimants out of 5,887 forms sent to Marylanders. The remaining 2,140 investors have received $4.2 million in settlements, the state said. In addition, Maryland was paid a $500,000 penalty by Prudential.
"The good news is that so many investors have recovered their money," said Attorney General J. Joseph Curran Jr. "The bad news is that over half the people who possibly qualify for settlement money have not yet stepped forward to file claims."
Jean Jackson, a retired state worker who lives in Towson, has filed her claim. But she still fears she will lose most of the $10,000 she invested in Prudential's Polaris Aircraft Income Fund No. 4, in 1987. "It was supposed to be a safe, conservative investment," she said.
The broker touted a 12 percent annual rate of return. But Mrs. Jackson, now 67, said that after a few years the payments began dropping. This year she received a 5 percent return on her money, and she's been told the partnership has lost much of its value, and there are practically no buyers for her shares.
"I feel cheated," Mrs. Jackson said. "I have lost confidence in my broker. . . . It's like another Old Court situation."
Mrs. Jackson filed her claim with Prudential and received an offer of $825. She doesn't know how much of her original $10,000 investment she will recoup when the fund is liquidated and has decided to pursue the streamlined arbitration process Prudential has set up for those who reject their settlement offers.
Others are free to pursue recourse outside the settlement process, such as through standard arbitration or through the courts. But state regulators warned yesterday that hiring a lawyer has not proved more successful than using the claims system.
"Although some investors may have a legitimate need for an attorney, many investors have been sucked into using legal help that they can really do without," said Indiana Securities Commissioner Stephan Hodge. "According to the available data so far, using a lawyer hasn't helped people get more money."
As Maryland Securities Commissioner Robert McDonald said, "You can choose to participate in the settlement or not, but make sure you do it with your eyes open."
WHERE TO CALL
Investors who believe they are entitled to settlement payments can obtain claims forms by calling the Prudential settlement hot line at (800) 774-0700.