Pru-Bache woes echo through Southland: controversy focuses on limited partnership dealings.

Pru-Bache woes echo through Southland 

Some of the national troubles of stock brokerage house Prudential Securities (formerly Prudential Bache) are coming home to roost in the firm's large Southland operations.

Prudential Securities, purchased by Newark-based insurance giant Prudential Insurance Co. of America in 1981 for $385 million, has lost more than $250 million in the last 10 years, although company officials say the brokerage house is profitable now and that broker morale is high.

Last week, the national financial magazine Business Week reported on large losses -- perhaps $3 billion -- customers have suffered on real estate and energy limited partnerships underwritten by Prudential-Bache.

Prudential is investigating whether former top management engaged in conflicts of interest in connection with some of the partnerships. Last week, a company spokeswoman said the Business Week article contained "exaggerations."

In limited partnerships, brokerage houses sell "units" to investors, usually in $500 or $1,000 chunks. Typically, an office building or oil field will be "syndicated" or sold to investors through these units. The brokerage house and other packagers generally take between 10 cents and 20 cents of every investment dollar up front -- one reason the brokerage houses pushed the limited partnerships.

When a national brokerage house, such as Prudential, becomes involved, the number of investors and the size of the partnerships can become large. Some single partnerships have thousands of investors and sold for $75 million or more.

Real estate and energy partnerships, in general, have done poorly. For example, a limited partnership named Prudential-Bache Energy Series III-15/Graham Resources, sold to investors in 1986, traded for as little as 27 cents per dollar of face value in the fourth quarter of 1990, according to market-makers.

In Los Angeles County, Prudential operates 12 brokerage branches, employing 380 stock brokers. Morale in those branches is reported mixed.

In the Southland, Prudential brokers largely blame national management for ill-conceived limited partnerships and other Pru-Bache products, which cost customers money and led to some turnover of brokers in Prudential offices.

"When I left the company late last year, morale was at an all-time low," said one former broker, in comments echoed by others. "They pushed the high-profit-margin real estate limited partnerships, which have turned out to be a complete disaster for investors." Most former Prudential brokers asked not to be identified, as they are still employed in the brokerage business.

John "Jack" Graner, 49, Los Angeles-based Prudential Securities senior vice president, regional director and national board member, could not be reached for comment last week. Inquiries were directed to Prudential Securities' national headquarters in New York, which declined to comment.

To be sure, not all former Pru-Bache managers and brokers feel negatively about the firm. Said Brad Weddon, now branch manager for brokerage house Cruttenden & Co. and formerly a branch manager for Pru-Bache in Newport Beach, "They tried to be a good firm, and in many ways they c succeeded."

Weddon said he left Prudential last October because of the opportunity to develop Cruttenden's retail operations.

Yet two former brokers said they were personally disheartened by a 1989 meeting in the Rolling Hills Estates branch office of Prudential, led by Graner, the regional manager.

A broker in the branch complained bitterly to Graner that the real estate limited partnerships were causing him to lose clients, and causing his clients to lose money.

Graner responded by asking the branch manager, "Have you told me about these problems?"

To two former brokers, Graner's comments meant that Pru-Bache management wasn't clued into the problems the limited partnerships were causing among the troops or the customers -- or at least wanted to appear ignorant of the problems.

"He appeared, or wanted to appear, oblivious. Yet these had been the foremost issues for some time, even then," said a former broker.

Several former brokers have alleged in arbitrations and civil court proceedings that Pru-Bache pressured them to sell the partnerships and other Pru-Bache product, even when the product wasn't suitable for clients.

In a case filed at Los Angeles Superior Court but settled out of court for undisclosed terms, former broker John O'Shea, a 25-year veteran of the firm, alleged in 1988 that he had been fired, in part, for refusing to sell Pru-Bache product to clients that he felt was inappropriate for those clients.