No Indictment Sought in Prudential Debacle : Wall Street: Sources say that brokerage won’t face criminal charges, but executives still may.

NEW YORK —  Federal prosecutors have decided not to seek an indictment of Prudential Securities, the Wall Street brokerage that has been under criminal investigation for more than a year in connection with sales of $8 billion in limited partnerships that allegedly defrauded thousands of small investors, sources confirmed Wednesday.

People close to discussions between Prudential and the government said the troubled brokerage has been told no indictment will be returned--provided there are no new complaints of serious wrongdoing by the firm.

The U.S. attorney’s office in Manhattan, which has conducted the investigation, declined to comment on the case.

The sources said that the decision not to prosecute, first reported Wednesday by the Wall Street Journal, does not cover all the current or former Prudential executives and other individuals who also have been under investigation.

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In addition, the Securities and Exchange Commission is understood to be continuing civil investigations of former Prudential executives. The firm itself settled SEC civil charges last year, agreeing to pay a fine and an open-ended amount of restitution to customers. To date, Prudential has paid out more than $1 billion in settlements, judgments and legal fees.

The brokerage firm, a subsidiary of Prudential Insurance, would neither confirm nor deny on Wednesday that it had been told that it will not face criminal charges.

“We are currently engaged in constructive discussions with the U.S. attorney’s office,” the parent company said in a written statement. “We are confident that Prudential Securities will emerge as a stronger organization, well prepared to move forward.”

Even without an indictment, however, Prudential Securities faces severe problems as a result of the partnership debacle. The firm has lost over $320 million so far this year, in large part because of the continuing costs of the scandal. Over 1,000 brokers have left Prudential this year, including many of its top producers, and the firm has had to offer unusually generous compensation packages to lure new brokers.

However, Prudential Securities spokesman Charles Perkins said the firm’s work force has stabilized.

“Within current market conditions we have a very strong business,” he said. Prudential Insurance on Wednesday denied ongoing speculation that the subsidiary might be sold.

It was not immediately clear whether the decision not to prosecute was made by Mary Jo White, the U.S. attorney in Manhattan, or by higher level Justice Department officials in Washington.

Several individuals who long have been closely involved in lawsuits against Prudential speculated that the government is reluctant to take steps that might lead to the firm going out of business, at the potential cost of 18,300 jobs.

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David Van Houmissen of Escondido, who heads a group of former Prudential customers seeking compensation from the firm, said he was disappointed, if not surprised, that the firm will not be indicted. “I just don’t think it’s possible in our political system for someone with that leverage to get nailed as hard as they should be nailed,” he said.

From the early 1980s through about 1991, Prudential heavily promoted highly risky limited partnership investments in real estate, oil and gas and other ventures to retirees and other small investors, contending that they were safe investments comparable to bank certificates of deposit. Most investors lost much of the money they put into the deals.