KIPLINGER'S PERSONAL FINANCE MAGAZINE

LP INVESTORS: Don't get mad, get even

Lloyd Golden opened his mail on may 9 and found something he'd lost hope of seeing: a big check from a bad investment in limited partnerships. Golden, 78, is one of about 100,000 investors offered restitution by Prudential Securities to settle federal charges that the company improperly marketed and sold limited partnerships during the 1980s. By the time the last claim is settled, Prudential is expected to pay between $850 million and $1 billion to investors, making this one of the costliest settlements in Securities and Exchange Commission history.

Do you believe you were misled into investing in an LP that subsequently went sour? Investors in limited partnerships are increasingly turning to arbitration to win back some of their money. Those who want to arbitrate had better not wait. Most standard brokerage contracts require that claims be submitted to arbitration forums that limit your filing time to six years from the purchase date of the limited partnership. An exception is brokerage agreements that refer disputes to the American Arbitration Association which has no filing deadline. Prudential and Kidder Peabody agreements often referred disputes to the AAA, Smith Barney, PaineWebber and Dean Witter agreements occasionally do.

Write to the legal department of your brokerage for a copy of your contract. The Public Investors Arbitration Bar Association (800-292-0077) can refer you to a securities lawyer in your area who can help determine if you have acclaim worth pursuing. Many will work on a contingency basis for a share of the settlement or award.

The deciding issue in arbitration is not whether you lost money, but whether the investment was unsuitably recommended given your age, assets and income. Some brokers over-loaded their clients' portfolios with limited partnerships that should represent only a fraction of assets, say 5% or 10%. Because each arbitration is decided on its merits, there are no hard and fast guidelines as to what's appropriate and what's not.

Prudential brokers recommended the risky investments to retirees like Golden who should be conserving their capital. "They were selling these things like vanilla ice cream" says Pat Conti, an SEC enforcement chief, "and as a result a lot of sales were made in violation of securities regulations."

Prudential agreed to make restitution to investors who filed arbitration claims by January 10, 1995. It also agreed to waive the statute of limitations, which opened the door for all those who invested between 1980 and 1990. With the help of Boca Raton securities lawyer Robert Rex, Golden beat the filing deadline by one day. The check he received on May 9 was for $19,132. After paying Rex  a $4,783 contingency fee and $223 for expenses, Golden was left with $14,126 - quite a comedown from the $55,000 he had invested in two aircraft leasing partnerships that crashed when the airline industry went into a tailspin. Says Golden: "What I can tell you is $14,000 is a whole lot better than nothing."