NEWARK, N.J. — When New Jersey insurance regulators announced the fruits of a multi-state investigation of giant Prudential Insurance Co. last July, they presented it as a consumer victory.
Prudential would pay a record $35-million fine, they said, as well as restitution to thousands of customers who might have been cheated by misbehaving sales agents--a bill that could add up to $1 billion or more.
The New Jersey-based insurer seemed chastened. Its own executives groused privately that the investigative report had cast their company in an unfair light.
But now, nearly five months later, the New Jersey-led task force and its settlement are coming under increasing criticism from other sources. Regulators from several other states as well as lawyers for aggrieved customers are finding that the New Jersey investigators left gaping holes in their probe.
In many ways, critics say, the outcome was far more favorable to Prudential than the company deserved. It was "a whitewash," said J. Bruce Miller, a Kentucky lawyer who represents Prudential customers and former agents suing the company.
New Jersey insurance officials strongly defended their actions, contending that their investigation was fair and thorough.
However, a two-month investigation by The Times has found that the New Jersey probe ignored major areas of alleged wrongdoing by Prudential and failed to follow up on significant evidence pointing at culpability by senior executives.
The highly touted settlement, many consumer advocates say, actually makes it difficult or impossible for many aggrieved customers to get their money back. The deal's terms, said the Massachusetts attorney general's office, are even less generous than what Prudential had already offered individual customers on its own.
In interviews, New Jersey insurance regulators confirmed that the multi-state investigation:
* Exonerated the company's current and former senior executives of any direct involvement in wrongdoing--without ever interviewing any of them.
* Made no attempt to question a prominent whistle-blower or a company lawyer who had unearthed evidence of wrongdoing years ago.
* Took no action against Prudential for its repeated refusal to turn over crucial internal documents and never followed up on evidence that the company had destroyed other key documents.
* Never pursued several broad areas of alleged wrongdoing, including claims that sales agents tricked consumers into buying life insurance policies by falsely indicating that they were selling investments or retirement plans.
New Jersey allowed Prudential to get away "without rendering all the facts" about the scope and severity of the wrongdoing, said Bill Nelson, Florida's treasurer and insurance commissioner, whose state is continuing an independent civil investigation of Prudential under its racketeering law.
Those circumstances may have allowed Prudential and its senior managers to avert harsher corporate and personal penalties. Among other things, the proposed settlement may cap Prudential's payout to customers at about $1 billion, well short of the $2 billion to $3 billion a more liberal settlement might have cost.
The reason is that the settlement terms, largely based on proposals by Prudential, place a heavy burden of proof on customers, especially older ones. That is "about as bad [for them] as having to go to court," Nelson said.
Paul DeAngelo, director of enforcement and consumer protection for the New Jersey department that ran the investigation, rejects that criticism. "I think the elderly are quite capable of speaking for themselves, and protecting themselves," he said in an interview.
Some of the 12 states that were active participants in the task force are now having second thoughts. Massachusetts and California have refused to sign the settlement and are demanding better terms.
The outcome of the New Jersey investigation troubles consumer advocates because, unlike the securities and banking industries, the insurance trade has no federal regulator. That means a company's home-state insurance agency is the public's main line of defense against fraud--even in cases like giant Prudential, which has millions of customers throughout the country, including more than 1 million in California.
"Because these are often the largest employers in a state and carry enormous political weight, they are often able to curry favor with the local politicians and insurance departments," said Jason Adkins, head of the Center for Insurance Research, a nonprofit consumer advocacy organization based in Cambridge, Mass.
Indeed, Prudential, New Jersey's third-largest private employer, has long maintained close corporate ties with the state's political establishment.
In a unique arrangement, six of the 23 members of its board of directors are appointed by the state's chief justice. These appointees have included several of New Jersey's former governors--among them Brendan T. Byrne, who spent 11 years on Prudential's board after leaving office.