NEW YORK — Lawyers for a group of Indiana investors, apparently trying to pressure Prudential Securities into more rapid settlement negotiations, have asked a court in that state to appoint a receiver for the troubled Wall Street brokerage.
The lawyers--who include Mark E. Maddox, former Indiana securities commissioner--made the request in a class-action lawsuit filed Wednesday in Superior Court in Indianapolis.
Accusing the lawyers of using a tactic that had little chance of success, Prudential and its parent firm, Prudential Insurance, said the request was meant to create a false impression that the firm is in severe financial difficulty.
"In our opinion this Indiana suit is absolutely ridiculous," said Joseph A. Vecchione, Prudential Insurance's chief spokesman.
The suit alleges that Prudential Securities has insufficient capital on hand to meet all of the potential claims from its limited partnership debacle. "Prudential Securities is avoiding insolvency only as a result of increased cash infusions from its parent," the suit asserts.
Prudential Insurance so far has invested $1.4 billion in the brokerage, including $305 million it injected in July to help meet investors' claims.
Maddox and Richard N. Bell, another lawyer who joined in filing the suit, said there is no guarantee that Prudential Insurance will be willing to pour in more money if the need arises. They said a receiver should be appointed who would have authority over the brokerage firm's day-to-day operations to make sure as much money as possible is available to pay valid claims.
Judge Kenneth H. Johnson scheduled a hearing on the request for Dec. 1. In the meantime, he ordered the two sides to choose a mediator and attempt to settle the suit.
Charles Perkins, a spokesman for Prudential Securities, said the brokerage currently has net capital of $635 million, well above the minimum $72 million required by federal regulators. For the first eight months of this year, the firm had a net loss of $180 million, including the impact of paying partnership customers' claims.
Prudential so far has paid out more than $1.1 billion to settle lawsuits and arbitration claims resulting from its sale of $8 billion in limited partnership units to retirees and other small investors during the 1980s.
Vecchione declined to say whether Prudential Insurance would be willing to invest still more capital in the brokerage. But, he said, "The Prudential strongly supports the firm and its commitment to provide excellent customer service and to achieve strong financial results."
The lawyers who filed the suit represent investors who so far have chosen to pursue independent claims rather than seek compensation from a huge settlement pool set up last year after Prudential Securities settled civil fraud charges filed by the Securities and Exchange Commission.
Prudential paid in $330 million, and injected another $330 million last week after it agreed to settle criminal charges filed by federal prosecutors in New York. Under that accord, Prudential Securities will not be prosecuted if it does not violate federal laws during the next three years.