Prudential 2005 Annual Report Download - page 164

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
21. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
Other
In November 2003, an action was commenced in the United States Bankruptcy Court for the Southern District of New York,
Enron Corp. v. J.P. Morgan Securities, Inc., et al., against approximately 100 defendants, including Prudential Insurance and
related entities, which invested in Enron’s commercial paper. The complaint alleges that Enron’s October 2001 prepayment of its
commercial paper is a voidable preference under the bankruptcy laws and constitutes a fraudulent conveyance and that the
Company and related entities received prepayment of $125 million. A motion by all defendants to dismiss the complaint was denied
in June 2005. Defendants’ motion for leave to appeal is pending.
In August 1999, a Prudential Insurance employee and several Prudential Insurance retirees filed an action in the United States
District Court for the Southern District of Florida, Dupree, et al., v. Prudential Insurance, et al., against Prudential Insurance and its
Board of Directors in connection with a group annuity contract entered into in 1989 between the Prudential Retirement Plan and
Prudential Insurance. The suit alleged that the annuitization of certain retirement benefits violated ERISA and that, in the event of
demutualization, Prudential Insurance would retain shares distributed under the annuity contract in violation of ERISA’s fiduciary
duty requirements. In July 2001, plaintiffs filed an amended complaint dropping three counts, and we filed an answer denying the
essential allegations of the complaint. The amended complaint seeks injunctive and monetary relief, including the return of what are
claimed to be excess investment and advisory fees paid by the Retirement Plan to Prudential. In March 2002, the court dismissed
certain of the claims against the individual defendants. A non-jury trial was concluded in January 2005. The court has not yet issued
its decision.
In September and October 2005, five purported class action lawsuits were filed against the Company, PSI and Prudential
Equity Group LLC claiming that stock brokers were improperly classified as exempt employees under state and federal wage and
hour laws and, therefore, were improperly denied overtime pay. The complaints seek back overtime pay and statutory damages,
interest, and attorneys’ fees. Two of the complaints, Janowsky v. Wachovia Securities, LLC and Prudential Securities Incorporated
and Goldstein v. Prudential Financial, Inc., were filed in the United States District Court for the Southern District of New York.
The Goldstein complaint purports to have been filed on behalf of a nationwide class. The Janowsky complaint alleges a class of
New York brokers. The three complaints filed in California Superior Court, Dewane v. Prudential Equity Group, Prudential
Securities Incorporated, and Wachovia Securities LLC;DiLustro v. Prudential Securities Incorporated, Prudential Equity Group,
Inc. and Wachovia Securities; and Carayanis v. Prudential Equity Group LLC and Prudential Securities Inc., purport to have been
brought on behalf of classes of California brokers.
Discontinued Operations
In November 1996, plaintiffs filed a purported class action lawsuit against Prudential Insurance, the Prudential Home
Mortgage Company, Inc. and several other subsidiaries in the Superior Court of New Jersey, Essex County, Capitol Life Insurance
Company v. Prudential Insurance, et al., in connection with the sale of certain subordinated mortgage securities sold by a subsidiary
of Prudential Home Mortgage. In February 1999, the court entered an order dismissing all counts without prejudice with leave to
refile after limited discovery. In May 2000, plaintiffs filed a second amended complaint that alleges violations of the New Jersey
securities and RICO statutes, fraud, conspiracy and negligent misrepresentation, and seeks compensatory as well as treble and
punitive damages. Defendants filed a motion to dismiss that was denied in October 2001. In October 2002, plaintiffs’ motion for
class certification was denied. Since that time, the court has permitted nine additional investors to intervene as plaintiffs. In August
2005, the court dismissed the New Jersey Securities Act and RICO claims and the negligent misrepresentation claim. Plaintiffs’
application for interlocutory appeal of this ruling was denied.
In 2000, a nationwide class action, Shane v. Humana, et al., was brought on behalf of provider physicians and physician
groups in the United States District Court for the Southern District of Florida. The complaint alleges that Prudential Insurance and
other health care companies engaged in an 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. An amended
complaint, naming additional plaintiffs, including three state medical associations, and an additional defendant, was filed in March
2001, and alleges claims of breach of contract, quantum meruit, unjust enrichment, violations of the Racketeer Influenced and
Corrupt Organizations Act, or RICO, conspiracy to violate RICO, aiding and abetting RICO violations, and violations of state
prompt pay statutes and the California unfair business practices statute. The amended complaint seeks compensatory and punitive
damages in unspecified amounts, treble damages pursuant to RICO, and attorneys’ fees. In September 2002, the District Court
granted plaintiffs’ motion for class certification of a nationwide class of provider physicians which was affirmed in September 2004
by the United States Court of Appeals for the Eleventh Circuit with respect only to the federal claims for conspiracy to violate
RICO and aiding and abetting RICO violations. In September 2005, the district court entered a final order approving the settlement
of these claims by Prudential Insurance, which provides for payment to plaintiffs in the amount of $22 million. Two members of the
plaintiff class have appealed the final order. In February 2006, the appeals were dismissed.
Prudential Financial 2005 Annual Report162