Category Archives: Settlement

Continuing to fulfill its pledge to “put the entire era behind us,” Citigroup, Inc. (NYSE: C) has announced a preliminary settlement of the claims brought against it as part of the Global Crossing securities class action pending in the S.D.N.Y. According to a Reuters report, the company acted as one of Global Crossing’s bankers and was accused “of issuing inflated research reports and failing to disclose conflicts of interest.” The settlement is for $75 million (pre-tax), with two-thirds of the settlement scheduled to go to investors in underwritten public offerings of Global Crossing securities and one-third to other Global Crossing investors.

Can a securities class action be too easy to settle? The answer may be “yes,” if you are plaintiffs’ counsel and plan to request a significant fees award.

The Bristol-Myers securities class action filed in the S.D.N.Y. alleged violations of federal securities laws in connection with the company’s investment in and relationship with ImClone Systems and issues related to wholesaler inventory and sales incentives, the establishment of reserves, and accounting for certain asset and other sales. The case was settled in July 2004 for $300 million, even though the district court had previously dismissed the claims with prejudice (the decision was under appeal). A few days after the class action settlement, the company also settled a case brought by the SEC.

Plaintiffs’ counsel in the securities class action sought $22 million in legal fees (about 7.5% of the funds) as part of the settlement. Last week, however, Judge Preska cut that amount nearly in half, awarding plaintiffs’ counsel $12 million. According to a New York Law Journal article (via law.com – free regist. req’d) on the decision, the judge described the case as relatively low risk for plaintiffs’ counsel and noted that the “simultaneous settlement of the SEC action suggests that it was the Company’s desire, prompted by the SEC, to put its house in order that caused the settlement, not any action on the part of Lead Counsel.” This is the second case in the last six months where a court has significantly reduced a proposed fee award based on a determination that the case was low risk (see this post on the earlier decision).

Quote of note: “‘[I]t is not thirty times more difficult to settle a thirty million dollar case as it is to settle a one million dollar case,’ Southern District Judge Lorretta A. Preska wrote.”

Novell, Inc. (NASDAQ: NOVL), a Massachusetts-based information solutions provider, has obtained preliminary court approval for a settlement of the securities class action pending against the company in the D. of Utah. The case was filed nearly five years ago and alleges that Novell engaged in accounting fraud. Although the case was initially dismissed, the U.S. Court of Appeals for the 10th Circuit partially overturned the decision in 2003 (see this post). The settlement is for $13.9 million.

ConAgra Foods, Inc. (NYSE: CAG) has announced the preliminary settlement of the securities class action pending against the company in the D. of Neb. The complaint, originally filed in 2001, alleged that the company had engaged in fraud by permitting its United Agri Products subsidiary to prematurely recognize revenue from sales where the delivery of the goods had not yet taken place. The case is perhaps best known for generating a notable appellate decision on loss causation and materiality. The settlement is for $14 million and is “largely covered by insurance.”

TXU Corp. (NYSE: TXU), a Dallas-based energy company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Tex. The case was originally filed in Oct. 2002 and alleges that the company misled investors about its financial performance. The settlement is for $150 million, with at least $66 million to be paid by TXU’s insurers, and also includes certain corporate governance reforms.

ImClone Systems, Inc. (NASDAQ: IMCL), a New York-based biopharmaceutical company, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case was originally filed in 2002 and alleges that the company made false or misleading statements regarding the prospects for FDA approval of its Erbitux cancer drug. The events surrounding the case are probably best known for leading to Martha Stewart’s conviction for lying to federal investigators about her sale of ImClone shares. The settlement is for $75 million.

One of the longest-running securities class actions has settled. The case against Cabletron Systems, Inc. was originally filed in the D. of N.H. in 1997. The plaintiffs alleged that the company hid problems with its main products and engaged in accounting fraud.

In a remarkable series of events, the case was dismissed in 1998 with leave to amend, reassigned several times after the original judge passed away, dismissed again in 2001, reinstated by the U.S. Court of Appeals for the First Circuit in 2002 (in a well-known opinion), and has since been bogged down in discovery and procedural disagreements. In the interim, Cabletron has been replaced with a successor company, Enterasys Networks, which is settling the suit.

According to Enterasys’ announcement, the preliminary settlement is for $10.5 million. All but $500,000 of that amount is expected to come from the proceeds of certain insurance policies. This is the second securities class action Enterasys has settled in the last fifteen months.