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Mass Action Case Results

Prudential Bache

During its years of litigating against large and powerful opponents, James R Moriarty has learned that nothing levels the playing field against an organization with deep pockets like teamwork. Working cooperatively side by side with other lawyers and firms has been standard practice for James R Moriarty PC for nearly two decades, and has led to unprecedented results for its clients.

An early example of that came in the 1990s, when Jim Moriarty joined with Daryl Bristow and Stephen Hackerman to represent some 5,000 people who had been cheated out of their investments, and in some instances their life savings, by the greed of one of the largest brokerage firms on Wall Street. The team proved a success. Where the clients of other lawyers going after the same brokerage firm realized pennies on the dollar for their supposedly secure investments, the clients of the Bristow, Hackerman and Moriarty team managed to win not just the return of their original investment but, in many instances, an actual profit.

On one side of this case were Graham Resources, a Texas-based company, and Prudential-Bache, then a Wall Street division of Prudential Insurance, known to many Americans as "The Rock." On the other side were thousands of investors, more than a few of them elderly, who had been promised a safe and stable place to tuck away the money they had spent a lifetime earning. At the time, securities regulations had been loosened, and once sedate Wall Street firms had begun expanding into a whole host of new investment products. Among these was the limited partnership, in which investors would pool their money to buy into a company or an investment opportunity.

The idea was not necessarily a bad one; at its best, it allowed small investors to do what large investors had long done, buy directly into a business and help fund it, then benefit from its success. At its worst, though, it allowed unscrupulous brokers to lure unsophisticated investors into investments that in some cases, were fraudulent.

That was the case with Prudential-Bache and Graham Resources. Graham Resources had created something called an Energy Growth Fund that was designed to buy discounted energy loans from banks in Texas. The idea was that the fund would purchase loans that a bank had written down as much as 60 percent, then benefit both from the interest on the loan and when the loan was repaid. There was always a chance that a loan would not be paid back, but Graham skirted that issue by allegedly only buying loans with collateral that covered any potential default.

Prudential-Bache was brought in to sell partnerships in Graham's growth funds. Using its nationwide network of brokers, Prudential-Bache touted the funds as not only having the potential for large returns, but also as having minimal risk. The issue of risk was particularly important to many of the potential investors targeted by Prudential-Bache - retirees or near-retirees who were looking for a secure spot to park their savings, one that would guarantee them an income as they settled into their golden years.

Unfortunately, there was a drastic difference between what the investors were being told, and what Prudential-Bache and Graham were actually doing.  Instead of spending the invested money on deeply discounted, safe energy loans, the money was going to Prudential-Bache and Graham in the form of excessive fees and charges for lavish hunting trips, among others. Some of the money was also being returned to investors as supposed profits, when in fact it was simply a repayment of investment. The profits didn't exist.

One of the first lawyers to get wind of this was Daryl Bristow, a prominent Houston attorney with a storied history of success in the courtroom. Information he received from a broker friend suggested to Bristow that there was something suspicious both about the funds and the way they had been marketed. With one of his partners, Stephen Hackerman, another well-known Houston attorney whose talent for digging through financial records has become legendary,Bristow dug deeper into Graham and Prudential-Bache, and what he found convinced him that the investors into the energy funds had been deceived and defrauded.

One problem Bristow had, however, was the number of potential clients he faced. Thousands of people had been lured into the energy funds, and dealing with each of them would be a logistical nightmare for most law firms. So Bristow brought in Jim Moriarty, who was known for his expertise in managing large numbers of clients, making sure they all stay informed and get the individual treatment they deserve.

The team of Bristow, Hackerman, and Moriarty proved a formidable opponent to Prudential-Bache and Graham. The two firms attempts to use their size and resources to steamroll any investors who questioned how they had been treated were stopped short in their tracks by Bristow and Hackerman. When their size and resources failed to do the trick, they tried to minimize their liabilities by offering class-action settlements of as little as two to three cents on every dollar invested. One such class action offer led to a dramatic moment in a New Orleans courtroom, where Moriarty made a strong plea for those who had been deceived by Prudential-Bache and Graham.

As recounted in Serpent on the Rock, a book by New York Times reporter Kurt Eichenwald that details the history of Prudential-Bache, Moriarty was arguing against a class-action settlement that would have netted growth fund investors five cents on the dollar or less.  What Bristow, Hackerman, and Moriarty wanted was not a class action, but to have Prudential-Bache and Graham answer more directly to the individual needs of each of their investors. Standing in front of the New Orleans judge and pointing to the representatives of Prudential-Bache and Graham, Moriarty noted that "the only parties in this room that benefit from this scheme are the defendants who stand the likelihood of extinguishing hundreds of millions of dollars of liability." Instead, he said, he and his partners should be allowed to argue the case against Prudential-Bache and Graham in front of a jury

The judge agreed, and the class-action agreement was quashed. As it happened, the case Bristow, Hackerman, and Moriarty were preparing against Prudential-Bache and Graham never made it to court. Instead, the firms backed down and decided to settle with the legal team's clients. Though the details of the settlement are confidential, news reports indicated that in the end the clients of their team received more than ten times the cash that Prudential-Bache and Graham had originally offered. Kurt Eichenwald reported that once various distributions, the retained value of the investment, and the settlement were combined, the Bristow, Hackerman and Moriarty clients who had invested $1,000 in one of the growth funds would get $1,058 back. Clients who had invested the same amount into a second growth fund would receive $1,138.

Though the case against Prudential-Bache and Graham proved that the energy partnerships they were touting weren't worth much, it also proved that the right legal partnership can be worth a great deal. In the nearly two decades since Prudential-Bache and Graham were made to answer to the investors they deceived, Moriarty Leyendecker has continued in that belief, and continued to work hand in hand with other lawyers and firms to get the best results for its clients.

Serpent On The Rock

James R Moriarty PC helped take Prudential Bache down. The saga was so thick, so compelling, so interesting, that Kurt Eichenwald decided to write a book about it. Serpent on the Rock is a real-life thriller—the story of kickbacks and payoffs, of shady deals struck in secret with known felons; a story in which half a million people lose enormous sums—some their life’s savings—in the largest securities fraud of the 1980s, with names like Onassis and Bush numbered among the victims.

"As long as there is greed, as long as crimes go unpunished, as long as Wall Street can make millions even when clients lose money, the scandal at Prudential will be just another chapter in an ongoing saga of financial fraud . . . If history is any guide, that is a certainty. The only questions are: Who will do it next time? And when?" --Preface to Serpent on the Rock by Kurt Eichenwald (1995)

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