Investor sues Prudential over 'misleading' note offering

An investor has filed a class action against Prudential Financial Inc. and a slate of its executives, alleging that the insurer violated federal securities laws in a June 2008 public offering of junior subordinated notes. Karen M. Bauer, the lead plaintiff, filed suit against the Newark, N.J.-based carrier in U.S. District Court in Newark, claiming that the registration statement and prospectus for the $920 million offering of the 9% junior subordinated notes failed to disclose that Prudential’s asset-backed securities — which were collateralized with subprime mortgages — were more toxic than the company originally let on. Among the executives named in the suit are Arthur F. Ryan, Prudential’s chairman and chief executive; Richard J. Carbone, senior vice president and finance chief; and Peter B. Sayre, the company’s controller. The suit also named offering underwriters RBC Capital Markets Corp. in Minneapolis; UBS Securities LLC of Stamford, Conn.; Wachovia Capital Markets LLC in Charlotte, N.C.; as well as Banc of America Securities LLC, Citigroup Global Markets Inc., J.P. Morgan Securities Inc., Merrill Lynch & Co. Inc. and Morgan Stanley, all of New York. Prudential’s goodwill associated with some subsidiaries was also impaired to a greater extent than originally revealed, according to the complaint. Ms. Bauer also alleged that the defendants failed to properly record losses for these toxic assets and that Prudential’s internal controls were inadequate. Although the original offering sold off 36.8 million shares of the notes at $25 a share, the price of the securities ultimately took a dive when the insurer announced large writedowns related to its subprime exposure. Ms. Bauer and the rest of the class, represented by Bensalem, Pa., lawyer Howard G. Smith, are seeking compensatory damages, coverage of legal fees and any other relief deemed equitable by the court. The plaintiffs are also seeking a trial jury. Other would-be plaintiffs have until May 11 to join the class. We understand the frustration of investors in today’s turbulent market environment. "While we cannot comment on the specifics, we understand that these types of lawsuits are often filed when securities have significantly declined even when the decrease is due to broader market conditions," said Prudential spokesman Bob DeFillippo.