Prudential 2007 Annual Report Download - page 183

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
21. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
Litigation and Regulatory Matters
The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions
include proceedings relating to aspects of the Company’s businesses and operations that are specific to it and proceedings that are typical of
the businesses in which it operates, including in both cases businesses that have either been divested or placed in wind-down status. Some
of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these matters, the plaintiffs are
seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter,
and the amount or range of potential loss at any particular time, is often inherently uncertain.
Insurance and Annuities
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. The cases were consolidated for pre-trial proceedings in New Jersey Superior Court, Essex
County and captioned Lederman v. Prudential Financial, Inc., et al. The complaints allege that an alternative dispute resolution agreement
entered into among Prudential Insurance, over 350 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 2004, the Superior Court sealed these lawsuits and compelled them to
arbitration. In May 2006, the Appellate Division reversed the trial court’s decisions, held that the cases were improperly sealed, and should
be heard in court rather than arbitrated. In November 2006, plaintiffs filed a motion seeking to permit over 200 individuals to join the cases
as additional plaintiffs, to authorize a joint trial on liability issues for all plaintiffs, and to add a claim under the New Jersey discrimination
law. In March 2007, the court granted plaintiffs’ motion to amend the complaint to add over 200 additional plaintiffs and a claim under the
New Jersey discrimination law but denied without prejudice plaintiffs’ motion for a joint trial on liability issues. In June 2007, PFI and
PICA moved to dismiss the complaint. In November 2007, the court granted the motion, in part, and dismissed the commercial bribery and
conspiracy to commit malpractice claims and denied the motion with respect to other claims. In January 2008, plaintiffs filed a demand
pursuant to New Jersey law stating that they were seeking damages in the amount of $6.5 billion.
The Company, along with a number of other insurance companies, received formal requests for information from the State of New
York Attorney General’s Office (“NYAG”), the Securities and Exchange Commission (“SEC”), the Connecticut Attorney General’s
Office, the Massachusetts Office of the Attorney General, the Department of Labor, the United States Attorney for the Southern District of
California, the District Attorney of the County of San Diego, and various state insurance departments relating to payments to insurance
intermediaries and certain other practices that may be viewed as anti-competitive. The Company may receive additional requests from
these and other regulators and governmental authorities concerning these and related subjects. The Company is cooperating with these
inquiries and has had discussions with certain authorities in an effort to resolve the inquiries into this matter. In December 2006, Prudential
Insurance reached a resolution of the NYAG investigation. Under the terms of the settlement, Prudential Insurance paid a $2.5 million
penalty and established a $16.5 million fund for policyholders, adopted business reforms and agreed, among other things, to continue to
cooperate with the NYAG in any litigation, ongoing investigations or other proceedings. Prudential Insurance also settled the litigation
brought by the California Department of Insurance and agreed to business reforms and disclosures as to group insurance contracts insuring
customers or residents in California and to pay certain costs of investigation. These matters are also the subject of litigation brought by
private plaintiffs, including purported class actions that have been consolidated in the multidistrict litigation in the United States District
Court for the District of New Jersey, In re Employee Benefit Insurance Brokerage Antitrust Litigation. In August and September 2007, the
court dismissed the anti-trust and RICO claims. In January 2008, the court dismissed the ERISA claims with prejudice but has not yet
resolved the state law claims. The regulatory settlement may adversely affect the existing litigation or cause additional litigation and result
in adverse publicity and other potentially adverse impacts to the Company’s business.
In April 2005, the Company voluntarily commenced a review of the accounting for its reinsurance arrangements to confirm that it
complied with applicable accounting rules. This review included an inventory and examination of current and past arrangements, including
those relating to the Company’s wind down and divested businesses and discontinued operations. Subsequent to commencing this
voluntary review, the Company received a formal request from the Connecticut Attorney General for information regarding its participation
in reinsurance transactions generally and a formal request from the SEC for information regarding certain reinsurance contracts entered into
with a single counterparty since 1997 as well as specific contracts entered into with that counterparty in the years 1997 through 2002
relating to the Company’s property and casualty insurance operations that were sold in 2003. These investigations are ongoing and not yet
complete and it is possible that the Company may receive additional requests from regulators relating to reinsurance arrangements. The
Company intends to cooperate with all such requests.
The Company’s subsidiary, American Skandia Life Assurance Corporation, has commenced a remediation program to correct errors
in the administration of approximately 11,000 annuity contracts issued by that company. The owners of these contracts did not receive
notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred
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