Wall Street Journal 4/8/93
Prudential-Bache Inflated Partnership Payouts

NEW YORK - Prudential-Bache Securities, Inc. inflated payouts on some of its money-losing energy limited partnerships sold in the 1980s by distributing borrowed funds to investors, internal brokerage documents show. The documents were made public last week, when a federal judge in New Orleans lifted a confidentiality order in a case brought by 130,000 investors who lost about half of the $1.4 billion they put into energy partnerships sold by the firm, now called Prudential Securities Inc.

Prudential Securities was one of Wall Street's biggest sellers of limited-partnership investments, many of which have soured and triggered lawsuits by investors. Many of the partnership investments were hurt by tax-law changes and slumps in the energy industry and, later, in real estate.

But the thousands of pages of newly public internal Prudential-Bache memorandums, marketing materials, and meeting summaries suggest that Prudential Securities knew in the mid-1980s that there were problems in paying out distributions to investors from energy partnerships. However, Prudential kept rolling out new partnerships until 1989.

"The distributions were manipulated in order to fuel a marketing effort" alleges Robert H. Rex, a partner at Dickenson Murdoch Rex and Sloan , a Boca Raton, Florida law firm that represents about 100 energy partnership investors with claims against the brokerage firm.

Prudential Securities, a unit of Prudential Insurance Co. of America, vigorously denies that allegation.