ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, November 16, 1996 TAG: 9611180033
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
DATELINE: PHILADELPHIA
SOURCE: Associated Press
Prudential Securities Inc. will pay $18 million to settle four lawsuits filed by dozens of nonprofit groups following one of the biggest charity frauds in U.S. history.
The agreement covers complaints by groups bilked in the collapse of the Foundation for New Era Philanthropy, which had promised to double the organizations' investments with contributions from anonymous donors.
More than 600 religious groups, colleges, museums and philanthropists claimed more than $500 million in losses when New Era went under in 1995. The charity had only $34 million in assets at the time.
Prudential Securities was the charity's broker.
New Era collapsed when Prudential moved to freeze the foundation's assets to cover a $45 million credit line it had extended to John G. Bennett Jr., the charity's founder. New Era filed for bankruptcy court protection within a week.
A federal district court judge approved the settlement Friday, but a federal bankruptcy judge still must agree to the arrangement. Under its terms, Prudential Securities would be released from all claims against it, according to Charles Perkins, Prudential's attorney, and Stuart Brown, attorney for the bankruptcy trustee.
``The funds provided by Prudential Securities to the bankruptcy estate from the settlement will benefit the various nonprofit organizations that were victimized by New Era,'' the joint statement said.
Prudential also said it will withdraw all objections to other settlements made by the trustee.
``This settlement should assure the swift administration of the bankruptcy case and enable me to obtain authorization to make an interim distribution of funds to those charities victimized,'' bankruptcy trustee Arlin Adams said.
While the settlements announced Friday take care of all outstanding New Era cases against Prudential, about a dozen cases involving other parties remain pending, according to a source familiar with the litigation.
``This would deplete the bulk of the matters,'' the source said.
New Era, based in Radnor, Pa., sought bankruptcy court protection in May 1995 amid allegations that Bennett was operating a Ponzi scheme - paying off previous debts with new payments he promised to double.
Bennett is awaiting trial on fraud and money laundering charges. If convicted, he could spend the rest of his life in prison and face $28 million in fines.
Under a compromise bankruptcy settlement worked out by the trustee in August, groups that made money from New Era will be asked to return 65 percent to 93 percent of the money they collected above their original investments. If they refuse, they face a lawsuit by Adams.
Groups stung by the scheme would get 60 percent to 65 percent of their losses back.
Prudential Securities had disagreed with the terms. The company wanted all groups to return 100 percent of the money they received.
The settlement covers a $113 million suit filed by Adams, who argued Prudential should have known New Era's finances were shaky.
Another suit in the settlement was brought by 31 nonprofit organizations accusing Prudential of legitimizing New Era's fraud by allowing its name and reputation to be linked to the foundation.
Because of Prudential's standing as a ``trustworthy fiduciary,'' the lawsuit said, the groups thought their investments in Bennett's New Era foundation were safe.
LENGTH: Medium: 69 linesby CNB