Prudential Reportedly Set to Pay $120 Million : Investing: Sources say the firm will agree to cash settlement of a suit over failed energy partnerships.

NEW YORK â€”  Prudential Securities is expected to agree to pay a cash settlement of about $120 million in a federal class-action lawsuit involving its failed Energy Income Funds partnerships, sources close to the negotiations said Thursday.

The oil and gas limited partnerships are at the center of government investigations and civil claims alleging fraud and misrepresentation, charges that Prudential denies. About 137,000 investors put $1.45 billion into the funds in the 1980s. Their out-of-pocket losses--not counting interest they might have earned in other investments--totaled more than half that amount.

The anticipated settlement is the latest in a series of developments that mean investors participating in the class-action will get back much more of their money than the roughly $30 million in cash--just pennies on the dollar--that Prudential had offered earlier.

That plan was derailed by a federal judge in February.

Earlier this month, Parker & Parsley Petroleum completed its purchase of the partnerships for $491 million.

Combined with the expected new settlement offer and the $650 million already paid out by the partnerships, investors would be left with about $300 million in out-of-pocket losses.

Prudential has said it will announce a new settlement offer by Aug. 13. Both the firm and Edward Grossman, lead lawyer for investors in the class-action, confirmed that intense negotiations have been underway in recent days. Grossman declined to comment on the sums under discussion.

Lawyers said the new proposal stands a much better chance of winning court approval. But they noted a sharp contrast between the new settlement and the sums recouped recently by investors who elected to file individual arbitration cases rather than participate in the class action.

In a series of arbitrations, investors not only have gotten all their money back, but also received substantial punitive damages.

In a decision announced Thursday, arbitrators in Tampa, Fla., awarded three investors $958,180, including $707,378 in punitive damages.

Their lawyer, Guy M. Burns, said the investors lost about half of their combined net worth after investing $253,000 in the Energy Income Funds and other Prudential partnerships in the 1980s.

The Securities Arbitration Commentator, which tracks arbitration awards, said there have been seven punitive damage awards against Prudential involving limited partnerships over the last year.

Prudential spokesman William J. Ahearn declined to comment on the Tampa award.