Prudential 2012 Annual Report Download - page 221

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
punitive damages. The matter was originally filed in 2008 and certain of the claims in the first four complaints were dismissed. In February
2012, plaintiffs filed a motion for class certification. In July 2012, Prudential Insurance moved for summary judgment on certain of
plaintiffs’ claims. In February 2013, the Court denied plaintiffs’ motion for class certification and granted the motion by Prudential
Insurance for summary judgment against two of the named plaintiffs and denied summary judgment against two other plaintiffs.
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. In
March 2012, the court affirmed the dismissal.
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 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. In June 2012, the court granted summary judgment against an additional plaintiff reducing to 39 the number of
plaintiffs asserting claims against the Company.
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
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 did not rule on State
Street’s counterclaims and reserved judgment on PRIAC’s requests for pre-judgment interest and attorney’s fees. In May 2012, the
Company filed a motion seeking partial summary judgment to dismiss State Street’s counterclaims which was denied by the court in
Prudential Financial, Inc. 2012 Annual Report 219