According to the latest docket posted, on January 14, 2005, the plaintiffs filed a Proposed Notice of Voluntary Dismissal, and on February 23, 2005, the Court entered the Stipulation and Order Dismissal, signed by U.S. District Judge Samuel Conti. By the Stipulation of Dismissal, the case was dismissed with prejudice.
The complaint alleges that as a matter of corporate policy, Prudential with deliberate recklessness encouraged its brokers to promote writing put options for its customers. A person who 'writes' a put agrees, in return for a small fee, to purchase a stock from any investor who purchases said put during a period of specified duration in the future at a specified price, at the purchaser's option, even if the stock sells for a lower price on the open market. As alleged in the complaint, it is a high risk strategy.
The complaint further alleges that while Prudential was writing puts on behalf of its customers, Prudential and its parent company, Prudential Insurance Company of America, were buying puts as a means of hedging against potential losses from market price declines in equities which they held for their own accounts. The complaint alleges that the above actions created an undisclosed conflict of interest between Prudential and its customers because Prudential was buying puts in the same markets in which it was encouraging its customers to write puts. Prudential was, in effect, protecting itself and its parent company by transferring their own investments risks to its customers. Furthermore, the complaint alleges that since Prudential was itself following the opposite strategy of what it was advising its customers, thus with deliberate recklessness giving advice that it did not believe.
Based on the foregoing, the complaint seeks damages, restitution and injunctive relief based on claims that Prudential breached its fiduciary and statutory duty to class members and that Prudential violated Section 10(b) of the Securities Exchange Act of 1934.
According to a news article from August 2003, Prudential Securities, Inc. wrote in a June 20, 2003 San Francisco federal court filing that the proposed securities fraud class action alleging put option chicanery is 'absurd,' lacks factual support and should be dismissed. The first effort in the U.S. District Court for the Northern District of California sought damages for state law fraud, negligence and breach of fiduciary duty. The court dismissed that cause of action May 27, 2003. The first amended complaint at issue here had been filed in the same court May 22, 2003.
Note: The class contains California residents who, while customers of Prudential Securities, Inc., and in the course of the relationship, engaged in the investment process known as writing put options in not less than three years prior to the filing of the original complaint in this matter, which was February 4, 2003.