December, 11 1994
By Danielle Herubin
The Palm Beach Post
Harry and Sylvia Smaller worked a lifetime of 14-hour days and seven-day weeks, planning for the day when they could sell their Michigan fruit stand and move to Florida. It wasn’t easy. Harry used to go to the farmer’s market at 3:30 a.m. to get the best produce. And Mom’s Food Market didn’t really make it big until they bought a meat slicer and made the fruit stand into a deli.
But it became a classic American success story.
So why is 73-year-old Harry now desperately seeking a minimum wage job? And Sylvia working in an office three days a week?
Because now it’s become a classic American scam story.
A Prudential Securities broker convinced them to invest the bulk of their retirement money in what he called a sure-fire, totally safe investment.
Those limited partnerships – now nearly worthless land and energy ventures – turned into one of Wall Street’s biggest scandals. The Smallers’ $150,000 “safe” investment more than a decade ago is now worth about $18,000, by Prudential’s estimate. Now that they understand what they sunk their money in, the Tamarac couple wonders who would even buy it for that.
Although Prudential has put up $660 million to pay off investors who lost money as part of a broader settlement over securities fraud allegations, people such as the Smallers have yet to see a dime.
“We worked so hard for the money,” Smaller said. “I told a few people my story, and they say, `You must be a man of iron.’ I say, `What can I do, kill myself?’ ”
There were so many people like the Smallers who lost money in the partnerships – about 340,000 – that an entire cottage industry has sprung up to handle investors’ claims against Prudential.
Marc Baldinger, who owns Securities Arbitration Services Inc. in Palm City, is trying to get the Smallers’ money back. And the money of quite a few other people. Right now Prudential cases are making up 60 percent of his business.
And West Palm Beach attorney Lawrence L. Klayman is so busy with Prudential cases that he’s hired extra help to handle paperwork. They’re all working nights and weekends too. His firm – Davis, Gordon & Doner, P.A. – has a couple hundred of the cases, he said.
They both expect a lot more business before the Jan. 9 deadline for investors who want to file a claim against Prudential. A good two-thirds of the people who lost money in the partnerships haven’t asked for the settlement, and only about half the money has been doled out. Klayman said some of the missing investors may be people whose money is in trusts, and even the trust officers are not aware the money was invested in the partnerships.
“Not only were these people in the dark when they purchased these investments, they’re still in the dark,” Klayman said.
Investors who believe they were misled about the partnerships have several ways to recover some or all of their money, but most people involved disagree about which way is best.
They can call Prudential’s claims administrator, at (800) 774-0700, and try to negotiate directly. They can get an attorney, who may be able to negotiate a higher settlement but will keep 30 percent to 40 percent of the money. They can use a securities arbitrator, who may also use an attorney but probably will charge less. Or they could join any of a number of class-action suits against Prudential.
Baldinger argues his firm, which guides the case before an independent panel that acts like a judge in the matter, is more experienced in the nuances of arbitration. He says an inexperienced attorney can actually lose all of the potential refund in the process.
Yet attorneys argue they are better at getting all the money back.
And attorneys representing investors who are in the class-action suits believe they will get their clients even more money.
No matter who handles the case, the size of the settlement is tied directly to a “scam factor.” In other words, an investor who will be entitled to the maximum amount of money – losses plus interest – will be someone who was truly “taken in” – such as a naive widow whose entire retirement was put into the partnerships. Sophisticated investors are being offered about half of their net losses.
“People should make their own legal decision,” said Prudential spokesman Charles Perkins. “But the settlement process was set up to equitably handle everyone’s claims.”
Perkins refused to discuss whether any action was taken against Prudential’s managers and brokers who sold the partnerships throughout the 1980s as safe retirement investments.
“The firm made some mistakes, the firm is responsible for those mistakes,” Perkins said. “The vast majority of brokers were doing what they thought was the right thing for their clients.”
And while some people are getting money back they figured they would never see again, it has done little to cool the anger many people feel over being misled.
A North Miami woman who asked not to be named said her husband’s broker showed up at his funeral. He told her that she shouldn’t worry, he would take care of everything for her and she would never have to worry about money. She had one blind retarded child and another headed for college. She knew nothing about investing. So she let him handle it.
She’s barely getting by now that her $159,000 investment has shrunk to a paper value of $40,000 – a figure she laughs at, wondering who would pay so much for it. She has Baldinger trying to help her as well.
“You know where that money’s going if I get any back?” she said. “CDs. That’s the only thing I’m comfortable with.”