Prudential 2011 Annual Report Download - page 270

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
In January 2011, a purported state-wide class action, Garcia v. The Prudential Insurance Company of America was dismissed by the
Second Judicial District Court, Washoe County, Nevada. The complaint was brought on behalf of Nevada beneficiaries of individual life
insurance policies for which, unless the beneficiaries elected another settlement method, death benefits were placed in retained asset
accounts. The complaint alleges that by failing to disclose material information about the accounts, the Company wrongfully delayed
payment and improperly retained undisclosed profits, and seeks damages, injunctive relief, attorneys’ fees and pre and post-judgment
interest. In February 2011, plaintiff appealed the dismissal to the Nevada Supreme Court. As previously reported, in December 2009, an
earlier purported nationwide class action raising substantially similar allegations brought by the same plaintiff in the United States District
Court for the District of New Jersey, Garcia v. Prudential Insurance Company of America, was dismissed. In December 2010, a purported
state-wide class action complaint, Phillips v. Prudential Financial, Inc., was filed in state court and removed to the United States District
Court for the Southern District of Illinois. The complaint makes allegations under Illinois law, substantially similar to the Garcia cases, on
behalf of a class of Illinois residents whose death benefit claims were settled by retained assets accounts. In March 2011, the complaint was
amended to drop the Company as a defendant and add Pruco Life Insurance Company as a defendant and is now captioned Phillips v.
Prudential Insurance and Pruco Life Insurance Company. In November 2011, the complaint was dismissed. In December 2011, plaintiffs
appealed the dismissal.
In July 2010, the Company, along with other life insurance industry participants, received a formal request for information from the
State of New York Attorney General’s Office in connection with its investigation into industry practices relating to the use of retained asset
accounts. In August 2010, the Company received a similar request for information from the State of Connecticut Attorney General’s
Office. The Company is cooperating with these investigations. The Company has also been contacted by state insurance regulators and
other governmental entities, including the U.S. Department of Veterans Affairs and Congressional committees regarding retained asset
accounts. These matters may result in additional investigations, information requests, claims, hearings, litigation and adverse publicity.
In February 2011, a fifth amended complaint was filed in the United States District Court for the District of New Jersey in Clark v.
Prudential Insurance Company. The complaint brought on behalf of a purported class of California, Indiana, Ohio and Texas residents who
purchased individual health insurance policies alleges that Prudential Insurance failed to disclose that it had ceased selling this type of
policy in 1981 and that, as a result, premiums would increase significantly. The complaint alleges claims of fraudulent misrepresentation
and omission, breach of the duty of good faith and fair dealing, and California’s Unfair Competition Law and seeks compensatory and
punitive damages. The matter was originally filed in 2008 and certain of the claims in the first four complaints were dismissed.
In April 2009, Schultz v. The Prudential Insurance Company of America, a purported nationwide class action on behalf of participants
claiming disability benefits under certain employee benefit plans insured by Prudential, was filed in the United States District Court for the
Northern District of Illinois. As amended, the complaint alleges that Prudential Insurance and the defendant plans violated ERISA by
characterizing family Social Security benefits as “loss of time” benefits that were offset against Prudential contract benefits. The complaint
seeks a declaratory judgment that the offsets were improper, damages and other relief. The Company has agreed to indemnify the named
defendant plans. In April 2011, Schultz was dismissed with prejudice, and plaintiffs appealed to the Seventh Circuit Court of Appeals. The
appeal has been argued and is submitted for decision.
From November 2002 to March 2005, eleven separate complaints were filed against the Company and the law firm of Leeds
Morelli & Brown in New Jersey state court and in the New Jersey Superior Court, Essex County as Lederman v. Prudential Financial, Inc.,
et al. The complaints allege that an alternative dispute resolution agreement entered into among Prudential Insurance, over 235 claimants
who are current and former Prudential Insurance employees, and Leeds Morelli & Brown (the law firm representing the claimants) was
illegal and that Prudential Insurance conspired with Leeds Morelli & Brown to commit fraud, malpractice, breach of contract, and violate
racketeering laws by advancing legal fees to the law firm with the purpose of limiting Prudential’s liability to the claimants. In February
2010, the New Jersey Supreme Court assigned the cases for centralized case management to the Superior Court, Bergen County. The
Company participated in a court-ordered mediation that resulted in a settlement involving 193 of the remaining 235 plaintiffs. The amounts
paid to the 193 plaintiffs were within existing reserves for this matter. The remaining 42 plaintiffs continue to pursue their individual
lawsuits, and have filed offers of judgment totaling approximately $90 million. In February 2012, the court granted summary judgment
against two of the remaining plaintiffs.
Retirement Solutions and Investment Management
In October 2007, Prudential Retirement Insurance and Annuity Co. (“PRIAC”) filed an action in the United States District Court for
the Southern District of New York, Prudential Retirement Insurance & Annuity Co. v. State Street Global Advisors, in PRIAC’s fiduciary
capacity and on behalf of certain defined benefit and defined contribution plan clients of PRIAC, against an unaffiliated asset manager,
State Street Global Advisors (“SSgA”) and SSgA’s affiliate, State Street Bank and Trust Company (“State Street”). This action seeks,
among other relief, restitution of certain losses attributable to certain investment funds sold by SSgA as to which PRIAC believes SSgA
employed investment strategies and practices that were misrepresented by SSgA and failed to exercise the standard of care of a prudent
investment manager. Given the unusual circumstances surrounding the management of these SSgA funds and in order to protect the
interests of the affected plans and their participants while PRIAC pursues these remedies, PRIAC implemented a process under which
affected plan clients that authorized PRIAC to proceed on their behalf have received payments from funds provided by PRIAC for the
losses referred to above. The Company’s consolidated financial statements, and the results of the Retirement segment included in the
268 Prudential Financial, Inc. 2011 Annual Report