NEW YORK — Prudential Securities learned in 1988 that the executive supervising its $6-billion limited partnership program had extensive personal financial dealings with the heads of a firm he was supposed to be supervising, according to a long-secret internal report disclosed Wednesday.
The report draws no conclusions about whether the transactions were illegal, and Prudential took no steps to discipline the executive, James J. Darr. Nor did Prudential alert securities regulators or Prudential's clients to the dealings, according to interviews with lawyers and current and former Prudential executives.
Prudential fought a series of fierce legal battles to keep the report confidential. But the Wall Street firm, which denies any wrongdoing in connection with its limited partnership programs, complied with a court order last week to turn the report over to lawyers for investors participating in one of several class-action lawsuits pending against the brokerage.
In a written statement Wednesday, Darr said the report gives "no credible evidence to support allegations of wrongdoing."
Beyond the lawsuits, Prudential is the subject of massive federal and state investigations into alleged fraud involving the limited partnerships. Few produced money for investors; overall, they are estimated to have resulted in losses of $1 billion to $3 billion. Prudential, formerly Prudential-Bache Securities, has firmly denied any wrongdoing.
The report and interviews indicate that the dealings by Darr--former president of Pru-Bache's specialty finance group--included a $1.8-million loan from FirstSouth Savings in Pine Bluff, Ark. The loan enabled him to buy a home in exclusive Greenwich, Conn.
George Watson and A. Starke Taylor III--Dallas real estate investors who managed a series of Pru-Bache limited partnerships--were major shareholders in the savings and loan, which failed in 1986. Darr received the loan even though he did not have a buyer for his existing home.
Darr confirmed Wednesday that he had received the loan and that Watson had steered him to FirstSouth. But Darr said he was not given any unusual treatment by the thrift. Later, he bought stock in FirstSouth with money the S&L advanced to him; he said that investment was a total loss.
Pru-Bache in 1988 hired the Dallas law firm of Locke Purnell Rain Harrell to investigate allegations of financial conflicts of interest involving Darr.
Besides the loan, Locke Purnell found that Darr in the mid-1980s obtained a personal stake in seven real estate and investment joint ventures set up by Watson and Taylor. Taylor is the son of A. Starke Taylor Jr., who at the time was mayor of Dallas.
Among the ventures was one in which Watson and Taylor gave Darr a stake even though he put up no money. In another, the Texans put up money on Darr's behalf in addition to a sum Darr had invested.
In all, Darr invested more than $300,000 in the joint ventures. He said Wednesday that he did not make a significant profit from the investments. The report, which covers a period up to the end of 1987, does not make clear whether he made or lost money. But a table in the report lists profits totaling more than $100,000 on the transactions.
Darr resigned voluntarily from Pru-Bache late in 1988, more than eight months after the firm received the Locke Purnell report. Both he and Prudential Securities say his departure had nothing to do with the report. Rather, Darr testified in a deposition this week that he left because he was passed over for a promotion.
National Assn. of Securities Dealers rules require that a firm disclose whether a departing employee was under investigation. Loren Schechter, Prudential's general counsel, declined to comment Wednesday on the report, but said "disclosure was neither required nor appropriate."
The Times reported last month that Darr received travel and other perks from another of Prudential's limited partnership programs, the Energy Income Funds, including a $34,000 trip to England for himself and his family in 1988. The oil and gas funds are a focus of the federal and state investigations.
George Ball, Pru-Bache's chairman and chief executive in the 1980s, at first denied in an interview Wednesday that he knew anything about the report or had ever heard of it.
But Ball later confirmed that he had ordered the inquiry because of "rumors circulating in the firm that Jim Darr was getting favors from various of the" limited partnerships sponsors. Ball said he took no further action after Schechter told him that the Locke Purnell report showed no improprieties. Ball said he never asked to see the report.