Former Prudential Auditor Says He Was Ignored About Fraud
NEW YORK (AP) _ A former executive of Prudential Insurance Co. of America says he told company officials as early as 1982 that Prudential agents had fraudulently sold insurance policies, and that he told them how to fix the problem but was ignored.
The company said earlier this year that it had learned of the problem in 1992.
A company spokesman said Thursday that Prudential had already acknowledged that the fraud had taken place as early as 1982. He said he did not know when Prudential officials first learned of the problem.
But the auditor, John Cressman, said in a phone interview with The Associated Press that he discovered and told company officials in 1982 that Prudential agents in Cedar Rapids, Iowa, and in offices in Wisconsin and Michigan had ``churned″ accounts. That means they persuaded customers, many of whom were elderly or of modest means, to use the built-up cash value of older life insurance policies to finance more expensive ones.
Cressman, who holds a master’s degree in business administration and held various positions, including auditing, at Prudential from 1971 to 1993, designed a computer program to catch the fraudulent agents.
But in a meeting with top marketing and compliance officials in December 1986, Cressman said, he told the company that it was not properly implementing his suggestions and wasn’t doing enough to stop the churning.
The claims of fraud resulted in investigations by insurance officials in 13 states and in numerous lawsuits including a class action one.
Prudential agreed in September to pay at least $410 million to settle the class action. Initial estimates were that the settlement could cost up to $1 billion, but that figure reportedly has been nearly doubled.
Settlement offers were sent to all 10.7 million consumers who bought Prudential policies between 1982 and 1995. Recipients must decide by Dec. 19 whether to opt out of the settlement and pursue their own legal actions.
Cressman, who now works for the Department of Housing and Urban Development in Washington, has joined a number of attorneys and others who say the settlement is a bad deal for policyholders.
Cressman and his attorney, Samuel Wilner, said the fraud had cost Prudential policyholders ``several times more than″ $1 billion, and that the settlement terms make it too difficult for potential victims to tell whether they are entitled to money and how much.
Prudential spokesman Richard Riley said Cressman’s claims have already been reported. The company agreed with a multi-state task force that ``steps we took prior to the ’90s were insufficient to solve″ the problem. ``We have said we will pay every legitimate customer claim.″
But Cressman and his attorney insisted that top company officials ignored early evidence of wrongdoing and allowed it to continue.