Federal Agency Fines Prudential Securities $800,000 in New Era Philanthropy Scandal

By DEBRA E. BLUM

The Securities and Exchange Commission has fined Prudential Securities $800,000 for its part in a scandal involving the Foundation for New Era Philanthropy.

The fine is in addition to the $18-million that the brokerage company agreed to pay in 1996 to settle lawsuits filed by a federal bankruptcy trustee handling the New Era case and by nonprofit groups that lost money in the scandal. Prudential had held and invested millions of dollars for New Era, which collapsed in 1995 after being exposed as a pyramid scheme.

The commission penalized the company for failing to properly supervise the broker who handled New Era’s investment accounts. The broker, Stuart P. Bianchi, who is now retired, was fined $64,586 by the S.E.C. In addition, the commission levied a $15,000 fine against Mr. Bianchi’s former supervisor, John C. Burch.

The Foundation for New Era Philanthropy took in more than $350-million from more than 1,000 nonprofit groups and dozens of donors, promising that the money would be matched by anonymous philanthropists, with the total going to the nonprofit groups. Those anonymous philanthropists did not exist.

The Securities and Exchange Commission said that Mr. Bianchi “willfully aided and abetted” New Era in misleading charities and donors about the nature of their investments, and that Mr. Burch “missed significant red flags” that indicated Mr. Bianchi was not following the rules.

The commission said that Mr. Bianchi failed to tell investors that their money was not held in escrow or “quasi-escrow” accounts, as they were led to believe. Investors were also not informed that New Era’s president, John G. Bennett Jr., had borrowed money from Prudential using treasury bills purchased with investors’ money as collateral. Mr. Bennett is now serving a 12-year prison sentence.