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Serious Personal Injury - Life Insurance Sales Fraud - Class Action

Prudential Told Staff to Destroy Documents

Los Angeles Times, JUNE 26, 1996

Prudential Told Staff to Destroy Documents, Memo Shows

A regional headquarters of Prudential Insurance Co., believing that one state had begun investigating possible misconduct in the sale of life insurance, in 1994 ordered managers in 14 states to destroy documents that might be sought in the inquiry, according to an internal Prudential memorandum.

The appearance of the memo comes at an unfortunate time for Prudential, which has been hoping to quietly reach a settlement with state insurance departments that alleged fraud in the sale of life insurance policies.

Although some lawyers for customers and insurance agents suing the company contend that its liability is in the billions of dollars, Prudential reportedly has been hoping to reach a global settlement with the states for $1 billion or less.

A copy of the memo was recently sent to a federal judge in Newark, N.J., who is presiding over a class-action lawsuit against Prudential, the nation’s biggest life insurance company. A Prudential spokesman confirmed the authenticity of the memo and said the order to destroy large amounts of documents was countermanded nearly a month after it was sent.

He strongly denied that the intent was to thwart any investigation, and he said he did not know if any documents had been destroyed.

Although it turned out that Prudential was not yet under investigation when the memo was sent, it is now the subject of an investigation by a multi-state task force led by its home state, New Jersey. The task force has already drafted a confidential report, expected to be released in July, and Prudential is hoping to reach a settlement based on the report’s findings.

The disclosure of the memo and possible wrongdoing that the task force has not looked into could reduce the chances that the states would agree to an early settlement with Prudential.

A spokeswoman for the New Jersey insurance department said the task force had not been aware of any alleged destruction of potential evidence until it was shown a copy of the memo by The Times.

The spokeswoman, Kathleen Bird, added that the task force had not specifically looked into the materials related to Prudential’s “private pension” program, which were the subject of the memo. She said the department planned to notify regulators in Florida, where the memo was written, for a possible investigation.

Prudential spokesman Robert DeFillippo confirmed that the Jan. 5, 1994, memo was sent by Sally Edwards, an executive in the company’s Jacksonville, Fla., home office, to general managers in the 14 mostly Southern states over which the office had jurisdiction.

Edwards is a field compliance consultant, responsible for making sure that sales practices conform to laws and company policy. DeFillippo said Edwards sent the memo on orders from superiors, whom he declined to identify.

The memo refers to sales material Prudential agents used to sell the firm’s private pension program, in which older people were urged to take money out of other investments, such as certificates of deposit, and invest it with Prudential for retirement income. Some Prudential customers have alleged in lawsuits that they were misled into believing they were making investments and weren’t told they were actually buying life insurance.

The memo, sent via the firm’s internal message system, stated: “We just learned this morning that one state is looking into possible violations regarding our ‘private pension’ materials. You must destroy all private pension letters other than the approved versions I referred to in my earlier focus message today. . . . Again, destroy and discard any other letters. I remind you that we’re mailing you copies of the approved versions today. ‘Life insurance’ now appears in both.”

DeFillippo contended that “the intent wasn’t to destroy anything” and  deceive investigators, but to prevent the local offices from accidentally using any of the improper material.

He said that within weeks, “there was a realization that a misunderstanding had taken place.” On Feb. 2, 1994, he said, David Fastenberg, then a senior vice president in the Jacksonville office, countermanded Edwards’ order to destroy documents.

He said Fastenberg sent a memo to the same managers, telling them that “although steps should be taken to guard against the use of the private pension material, it is imperative not to destroy or discard any documents or computer files.”

DeFillippo said he didn’t know how much material, if any, was destroyed in the interim. He said he did not know why Fastenberg’s instructions were not sent until weeks after the original memo. Fastenberg, now in Prudential’s Plainfield, N.J., office, did not return a call seeking comment.

In interviews, lawyers representing Prudential customers and J. Robert Hunter, director of insurance for the Consumer Federation of America, called for a full-scale investigation into whether Prudential tried to conceal evidence from state investigators.

“It sure sounds like a cover-up and should be aggressively looked into,” said Hunter, who was shown a copy of the memo by The Times.

DeFillippo said the issue of destruction is irrelevant because when Edwards’ memo was sent, Prudential’s headquarters had already gathered copies of the suspect sales material on its own initiative to weed out anything improper. “We believe we {still} have them,” he said.

But pressed to say whether he was certain that the company still had the copies, DeFillippo repeatedly declined to answer. He also declined to say if Prudential had turned over any information about the material to the task force.

The task force’s investigation focuses mainly on allegations that Prudential

agents “churned” customer accounts, persuading customers to trade in old policies or borrow against them to buy additional ones, often with false promises that customers wouldn’t have to pay any added premiums. Prudential has admitted that some wrongdoing occurred, but blames rogue local agents and managers and denies that the problem was systemic.

But the private-pension memos raise a question central to Prudential’s contention that any wrongdoing at the firm was the fault of local agents and managers rather than more senior executives. In a telephone interview, DeFillippo said the improper sales material that was the subject of Edwards’ memo “were all written on a local level. They weren’t company-approved.”

However, later during the same interview he said he had misspoken and that the material had actually been drawn up and approved by executives in the Jacksonville home office and distributed to local offices throughout the 14 states it oversaw.

DeFillippo said that when the memo was sent, executives may have mistakenly believed that Florida, which was then looking into similar allegations against Metropolitan Life, was also investigating Prudential. But he said Florida and other states did not actually begin their investigations until later.

Several of the nation’s biggest life insurance companies have been the targets of various state inquiries since 1993, when it surfaced that Met Life agents had aggressively marketed a “retirement plan” for nurses without telling them they were really buying life insurance. Met Life has since settled with regulators. The Prudential inquiry is by far the largest pending investigation.

The Edwards memo originally was obtained from Prudential through discovery by a Houston lawyer, David L. Sheller, who represented a Texas couple who sued Prudential for alleged churning and later settled with the firm.

A copy was later obtained by J. Bruce Miller, a Kentucky attorney who is one of the lead lawyers in a massive class-action lawsuit filed against Prudential in federal court in Newark. The suit alleges widespread fraud in the sale of life insurance.

Miller on June 6 sent a copy of the memo to U.S. District Judge Alfred M. Wolin Jr., who is presiding over the case, expressing concern that the company may have destroyed documents relevant to the case. Wolin has delayed all proceedings in the case pending the results of the task force’s investigation.

In an interview, Miller charged that the memo, “a smoking gun,” showing that Prudential had attempted to thwart state investigations. Miller and other lawyers in that case argue that the task force’s investigation has been hasty and incomplete and might allow Prudential to settle a nationwide claim for damages on terms favorable to itself.

They contend that the New Jersey insurance department, leading the task force, may be biased in Prudential’s favor, since the Newark-based company is one of the state’s largest employers.

Bird said that when the task force report comes out, “it will speak for itself.”

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