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conveyed the essence of reliability and trust: Prudential-Bache Securities.
The cost of the fraud, in financial and human terms, was so large it surpasses imagination. More than $8 billion worth of risky partnerships packaged by Pru-Bache collapsed after they had been falsely sold as safe and secure. Even after the partnerships lost most of their value, investors had no idea what had happened. Every month, on millions of account statements, Prudential-Bache lied about the true worth of the partnership portfolios, showing them as never having lost a penny in value. And so the damage spread unchecked for more than a decade, like a low-grade fever building slowly toward a fatal disease.
In the end, no single brokerage firm, banker, or trader destroyed the financial security of more people than Prudential-Bache. The losses from the celebrated insider-trading and junk-bond scandals of the 1980s add up to only a small fraction of the damage suffered by investors from the betrayals at Pru-Bache. And yet the hue and outcry that swept the country over the harm inflicted on powerful corporations and institutions by those scandals went unheard for years in the partnership debacle; for too long, the financially unsophisticated victims of Prudential-Bacheâs crimes did not have powerful lawyers fighting for them or the financial firepower to make their voices heard in Washington. They suffered alone, their scars unseen or ignored for years.
The crime was finally visible when, by the thousands, the firmâs clients faced the prospect of losing their homes, their retirements, their childrenâs education. Some investors who carefully pinched pennies for decades wound up in bankruptcy. Scores of Prudential-Bache brokers saw their careers, their health, and their lives fall apart, often because they unwittingly repeated the firmâs lies about the investments. Still other brokers, caught up in the greedy revelry of the firm, violated securities laws and common sense by concentrating the portfolios of elderly retirees in the high-commission investments.
The fraud, beginning in the early 1980s, brought in more than a billion dollars in profits to the firm, through the fees and commissions paid by the partnership sales. At the center of the scandal was the Direct Investment Group, the little-known department that propelled Prudential-Bache to the forefront of the partnership business. For executives at the senior reaches of the firm, the flow of cash from the departmentâs business became personal piggy banks, financing profligate corporate spending, regal lifestyles, and even sexual conquest. Limousines, wild parties, and expensive overseas junkets became the order of the day, paid for out of clientsâ investment dollars.
Overseeing this money machine was a small group of executives who cut corners or ignored problems as they promoted the firm and built personal empires. Alone, none of these men could have created the disaster that emerged from Prudential-Bache; together, their weaknesses and desires combined to push the firm inexorably toward scandal. At the head of the partnership department was James J. Darr, a hard-charging executive who took over in 1979 after his scrupulous predecessor was fired for refusing to sell deals of questionable quality. Darr transformed the department into an organization overwhelmed by charges of corruption.
But the executives who were supposed to watch Darr and rein in rule-breakers simply celebrated the departmentâs financial success, with little attention to how the business was being done. At the top were George L. Ball, a celebrated wunderkind of Wall Street who, as president of E. F. Hutton & Co., oversaw a separate and fatal scandal for that firm before abandoning it to take over as chairman of Prudential-Bache; Loren Schechter, the firmâs general counsel and chief law enforcer, who for years failed to notice the evidence of wrongdoing in his midst; and Robert Sherman,
The cost of the fraud, in financial and human terms, was so large it surpasses imagination. More than $8 billion worth of risky partnerships packaged by Pru-Bache collapsed after they had been falsely sold as safe and secure. Even after the partnerships lost most of their value, investors had no idea what had happened. Every month, on millions of account statements, Prudential-Bache lied about the true worth of the partnership portfolios, showing them as never having lost a penny in value. And so the damage spread unchecked for more than a decade, like a low-grade fever building slowly toward a fatal disease.
In the end, no single brokerage firm, banker, or trader destroyed the financial security of more people than Prudential-Bache. The losses from the celebrated insider-trading and junk-bond scandals of the 1980s add up to only a small fraction of the damage suffered by investors from the betrayals at Pru-Bache. And yet the hue and outcry that swept the country over the harm inflicted on powerful corporations and institutions by those scandals went unheard for years in the partnership debacle; for too long, the financially unsophisticated victims of Prudential-Bacheâs crimes did not have powerful lawyers fighting for them or the financial firepower to make their voices heard in Washington. They suffered alone, their scars unseen or ignored for years.
The crime was finally visible when, by the thousands, the firmâs clients faced the prospect of losing their homes, their retirements, their childrenâs education. Some investors who carefully pinched pennies for decades wound up in bankruptcy. Scores of Prudential-Bache brokers saw their careers, their health, and their lives fall apart, often because they unwittingly repeated the firmâs lies about the investments. Still other brokers, caught up in the greedy revelry of the firm, violated securities laws and common sense by concentrating the portfolios of elderly retirees in the high-commission investments.
The fraud, beginning in the early 1980s, brought in more than a billion dollars in profits to the firm, through the fees and commissions paid by the partnership sales. At the center of the scandal was the Direct Investment Group, the little-known department that propelled Prudential-Bache to the forefront of the partnership business. For executives at the senior reaches of the firm, the flow of cash from the departmentâs business became personal piggy banks, financing profligate corporate spending, regal lifestyles, and even sexual conquest. Limousines, wild parties, and expensive overseas junkets became the order of the day, paid for out of clientsâ investment dollars.
Overseeing this money machine was a small group of executives who cut corners or ignored problems as they promoted the firm and built personal empires. Alone, none of these men could have created the disaster that emerged from Prudential-Bache; together, their weaknesses and desires combined to push the firm inexorably toward scandal. At the head of the partnership department was James J. Darr, a hard-charging executive who took over in 1979 after his scrupulous predecessor was fired for refusing to sell deals of questionable quality. Darr transformed the department into an organization overwhelmed by charges of corruption.
But the executives who were supposed to watch Darr and rein in rule-breakers simply celebrated the departmentâs financial success, with little attention to how the business was being done. At the top were George L. Ball, a celebrated wunderkind of Wall Street who, as president of E. F. Hutton & Co., oversaw a separate and fatal scandal for that firm before abandoning it to take over as chairman of Prudential-Bache; Loren Schechter, the firmâs general counsel and chief law enforcer, who for years failed to notice the evidence of wrongdoing in his midst; and Robert Sherman,
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