Prudential 2003 Annual Report Download - page 172

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. COMMITMENTS AND GUARANTEES, CONTINGENCIES AND LITIGATION (continued)
The MSD filed an administrative complaint against three former brokers and two former managers of a branch
office in Boston, MA (the “Boston Branch”) of the retail brokerage business formerly owned by Prudential Securities,
Inc. (“PSI”), alleging violations of state securities laws. The Securities and Exchange Commission has filed a similar
civil action against five former brokers and one former manager of the Boston Branch in Massachusetts federal court.
The Company is not a party to these actions. In addition, the Company has received subpoenas from the USAM for
documents pertaining to the purchase and sale of mutual fund shares and certain former brokers and their supervisors.
The MSD also filed an administrative complaint against PSI alleging that PSI knew or should have known about
alleged deceptive market timing and late trading in mutual funds in the Boston Branch, failed reasonably to supervise
the conduct of the brokers in the Boston Branch and failed to implement controls designed to prevent and detect
violations of Massachusetts securities law.
These matters could lead to proceedings that result in disgorgement, fines or other sanctions. The Company is
unable to estimate its ultimate exposure at this time.
The Company retained all liabilities for the litigation associated with its discontinued healthcare business that
existed at the date of closing with Aetna (August 6, 1999), or commenced within two years of that date, with respect to
claims relating to events that occurred prior to the closing date. This litigation includes purported class actions and
individual suits involving various issues, including payment of claims, denial of benefits, vicarious liability for
malpractice claims, and contract disputes with provider groups and former policyholders. Some of the purported class
actions challenge practices of the Company’s former managed care operations and assert nationwide classes. In
October 2000, by Order of the Judicial Panel on Multi-district Litigation, class actions brought by policyholders and
physicians were consolidated for pre-trial purposes, along with lawsuits pending against other managed health care
companies, in the United States District Court for the Southern District of Florida in a consolidated proceeding
captioned In Re Managed Care Litigation. The policyholder actions have been resolved. The class actions brought by
the physicians allege, among other things, breach of contract, violations of ERISA, violations of and conspiracy to
violate RICO and industry-wide conspiracy to defraud physicians by failing to pay under provider agreements and by
unlawfully coercing providers to enter into agreements with unfair and unreasonable terms. The remedies sought
include unspecified damages, restitution, disgorgement of profits, treble damages, punitive damages and injunctive
relief. In September 2002, the court granted plaintiffs’ motion for certification of a nationwide class of physicians. The
Company and the other managed care defendants have appealed the certification to the United States Court of Appeals
for the Eleventh Circuit. That appeal is pending.
A joint venture in which an affiliate of PSI is a participant brought an arbitration claim against Kyocera
Corporation (“Kyocera”) in 1986 alleging, among other things, claims of breach of contract relating to the manufacture
and distribution of computer disk drives. The arbitration panel decided in favor of the claimants. In December 2003,
Kyocera paid $332 million to certain subsidiaries of the Company in settlement of the arbitration award rendered
against Kyocera.
In 1999, a class action lawsuit, Burns, et al. v. Prudential Securities Inc., et al., was filed in the Marion County,
Ohio Court of Common Pleas against Jeffrey Pickett (a former PSI financial advisor) and PSI alleging that Pickett
transferred, without authorization, his clients’ equity mutual funds into fixed income mutual funds in October 1998.
The claims were based on theories of conversion, breach of contract, breach of fiduciary duty and negligent
supervision. Compensatory and punitive damages in unspecified amounts were sought by plaintiffs. In October 2002,
the case was tried and the jury returned a verdict against PSI and Pickett for $11.7 million in compensatory damages
and against PSI for $250 million in punitive damages. In July 2003, the court denied PSI’s motion to set aside or
reduce the jury verdict, and sustained the judgment in the amount of $269 million including interest and attorneys fees.
PSI has appealed.
Growing and Protecting Your Wealth170