Prudential 2011 Annual Report Download - page 271

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
Company’s U.S. Retirement Solutions and Investment Management Division, for the year ended December 31, 2007 include a pre-tax
charge of $82 million, reflecting these payments to plan clients and certain related costs. In September 2008, the United States District
Court for the Southern District of New York denied the State Street defendants’ motion to dismiss claims for damages and other relief
under Section 502(a)(2) of ERISA, but dismissed the claims for equitable relief under Section 502(a)(3) of ERISA. In October 2008,
defendants answered the complaint and asserted counterclaims for contribution and indemnification, defamation and violations of
Massachusetts’ unfair and deceptive trade practices law. In February 2010, State Street reached a settlement with the SEC over charges that
it misled investors about their exposure to sub-prime investments, resulting in significant investor losses in mid-2007. Under the settlement,
State Street paid approximately $313 million in disgorgement, pre-judgment interest, penalty and compensation into a Fair Fund that was
distributed to injured investors and consequently, State Street paid PRIAC, for deposit into its separate accounts, approximately $52.5
million. By the terms of the settlement, State Street’s payment to PRIAC does not resolve any claims PRIAC has against State Street or
SSgA in connection with the losses in the investment funds SSgA managed, and the penalty component of State Street’s SEC settlement
cannot be used to offset or reduce compensatory damages in the action against State Street and SSgA. In June 2010, PRIAC moved for
partial summary judgment on State Street’s counterclaims. At the same time, State Street moved for summary judgment on PRIAC’s
complaint. In March 2011, the district court denied State Street’s motion for summary judgment and denied in part and granted in part
PRIAC’s motion for partial summary judgment on State Street’s counterclaims. In October 2011, the court held a bench trial to determine
whether State Street had breached its fiduciary duty to PRIAC’s plan clients. In February 2012, the court issued a decision holding that
State Street breached its fiduciary duty to the plans under ERISA to manage the investment funds prudently and to diversify them. The
court held that PRIAC did not prove that State Street breached its duty of loyalty to the plans under ERISA. The court held that State
Street’s breaches caused the plans’ losses in the amount of $76.7 million and, after crediting State Street for an earlier payment, awarded
$28.1 million in damages in addition to the amount previously recovered as a result of the SEC settlement. The court has not yet ruled on
State Street’s counterclaims and has reserved judgment on PRIAC’s requests for pre-judgment interest and attorney’s fees.
Other Matters
In October 2006, a purported class action lawsuit, Bouder v. Prudential Financial, Inc. and Prudential Insurance Company of
America, was filed in the United States District Court for the District of New Jersey, claiming that Prudential failed to pay overtime to
insurance agents in violation of federal and Pennsylvania law, and that improper deductions were made from these agents’ wages in
violation of state law. The complaint seeks back overtime pay and statutory damages, recovery of improper deductions, interest, and
attorneys’ fees. In March 2008, the court conditionally certified a nationwide class on the federal overtime claim. Separately, in March
2008, a purported nationwide class action lawsuit was filed in the United States District Court for the Southern District of California, Wang
v. Prudential Financial, Inc. and Prudential Insurance, claiming that the Company failed to pay its agents overtime and provide other
benefits in violation of California and federal law and seeking compensatory and punitive damages in unspecified amounts. In September
2008, Wang was transferred to the United States District Court for the District of New Jersey and consolidated with the Bouder matter.
Subsequent amendments to the complaint have resulted in additional allegations involving purported violations of an additional nine states’
overtime and wage payment laws. In February 2010, Prudential moved to decertify the federal overtime class that had been conditionally
certified in March 2008 and moved for summary judgment on the federal overtime claims of the named plaintiffs. In July 2010, plaintiffs
filed a motion for class certification of the state law claims. In August 2010, the district court granted Prudential’s motion for summary
judgment, dismissing the federal overtime claims. The motion for class certification of the state law claims is pending.
Summary
The Company’s litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their
outcome cannot be predicted. It is possible that the Company’s results of operations or cash flow in a particular quarterly or annual period
could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the
results of operations or cash flow for such period. In light of the unpredictability of the Company’s litigation and regulatory matters, it is
also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a
material adverse effect on the Company’s financial position. Management believes, however, that, based on information currently known to
it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to
indemnification, is not likely to have a material adverse effect on the Company’s financial position.
Prudential Financial, Inc. 2011 Annual Report 269