Judge Upholds Deadline for Prudential Settlement

NEW YORK —  A federal judge Tuesday turned down a request by California and at least three other states to push back a Saturday deadline by which investors in Prudential Securities’ Energy Income partnerships must decide whether to accept a class-action settlement.

Gary S. Mendoza, California’s corporations commissioner, had requested a 90-day delay, arguing that investors were hopelessly confused and had no way to calculate how much they would receive under the settlement.

In a brief order, U.S. District Judge Marcel Livaudais Jr. in New Orleans rejected the request. Livaudais, who presides over the federal Energy Income class-action suit, said he was persuaded by written arguments from Prudential and other parties that investors have had enough time to make up their minds.

However, Livaudais has not given final approval to the settlement and is not due to make a final ruling until after a “fairness hearing” next week.

In a separate order, he said he will allow Stuart C. Goldberg, an investors’ lawyer who objects to the settlement, to call a witness at the hearing and present evidence in support of his position that the settlement is inadequate.

The Energy Income Funds, a series of money-losing oil and gas investments, were the largest of Prudential Securities’ limited partnership programs. More than 130,000 investors--many of them retirees or people near retirement--put $1.44 billion into the program from 1983 to 1990.

The Securities and Exchange Commission has charged that Prudential deliberately misled customers about the safety and performance of the partnerships. The proposed class-action settlement would pay about $120 million. After attorneys’ fees, investors are expected to get $90 million--less than one-third of their out-of-pocket losses.

Investors must mail in a form “opting out” of the settlement by Saturday or they will be bound by it automatically. Those who opt out may pursue individual arbitration cases against Prudential or participate in a separate procedure resulting from the firm’s recent settlement with the SEC. However, it is not yet clear how much investors are likely to receive under the SEC procedure.

Mendoza called Livaudais’ decision “very disappointing” and complained that Prudential has been unfairly pressing investors to make a quick decision about settling.

“This case has shown Prudential’s failure to provide investors with enough information to make appropriate decisions, and I’m afraid that pattern appears to be continuing,” Mendoza said.

John Murray, director of corporate risk management at Prudential, acknowledged Tuesday that there is no way for customers to figure out how much they will receive under the class-action settlement. The sums will vary depending on how many participate and the precise amount of attorneys’ fees awarded.