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SEC Acts to Curb Lawyer Fees in Prudential Case : Lawsuits: The agency urges a judge to give investors' attorneys less than the $26 million they requested.

March 07, 1994|SCOT J. PALTROW | TIMES STAFF WRITER

NEW YORK — In a highly unusual move, the Securities and Exchange Commission has urged a federal judge to give investors' lawyers much less than the $26 million in legal fees that they have requested in a class-action lawsuit involving oil and gas partnerships of Prudential Securities.

The request came in a letter last month as the SEC has begun to focus on the handling of securities class-action lawsuits, in which investors often get little but their lawyers frequently receive millions of dollars in fees.

SEC General Counsel Simon M. Lorne, who sent the letter to U.S. District Judge Marcel Livaudais Jr. in New Orleans, said that as far as he knows the SEC has never before urged a judge in a private lawsuit to curtail legal fees.

The case involves Prudential's Energy Income Funds, into which about 130,000 small investors put $1.44 billion in the late 1980s. The great majority suffered heavy losses. In January, the judge approved a settlement that will pay about $90 million to the investors, or about 29 cents on the dollar for their out-of-pocket losses.

Lorne's letter was dated Feb. 24 but a copy wasn't released until late last week. It was at least the second recommendation by a regulator that the judge closely scrutinize the fee request. California Corporation Commissioner Gary S. Mendoza made a similar request to the judge earlier in February.

The class-action lawyers early last year had recommended that the judge approve a settlement that would have paid only $37 million in cash to investors, or less than seven cents on the dollar.

After state regulators and other investors' lawyers objected, however, the judge derailed that settlement. The new settlement is much more favorable to investors.

But Lorne argued that a group of class-action lawyers, led by Edward A. Grossmann of New York, had played only a minimal role in bringing about the higher settlement, and should receive no more than the maximum of $21 million in fees they would have gotten under the lower settlement offer they had urged the judge to accept.

"Support for that inadequate proposal would seem more properly to lead to a reduction, rather than an increase, in fee awards," Lorne said in the letter.

Grossmann couldn't be reached for comment. Lawrence Sucharow, another lawyer seeking part of the fees, said he didn't believe that the SEC had legal standing in the case to object.

"I believe the fees were earned here," he said.

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