Category Archives: Settlement

Washington Mutual, Inc., the former owner of the biggest U.S. bank to fail during the credit crisis, has entered into a preliminary settlement of the securities class action pending against the company and related defendants in the W.D. of Washington. The suit alleges that Washington Mutual mislead investors about the nature and riskiness of its loan portfolio. The company filed for bankruptcy in September 2008 after its banking unit was taken over by federal regulators and sold to JPMorgan Chase.

The settlement is for $208.5 million ($105 million from the company’s insurers, $85 million from the company’s underwriters, and $18.5 million from the company’s outside auditor). According to press reports, however, if all eligible common shareholders participate in the settlement they will only receive 5 cents per damaged share. The Seattle Times has a lengthy article on the settlement.

A round-up of significant securities class action settlements in the first quarter of 2011:

(1) Credit Suisse Group (NYSE: CS), a Switzerland-based financial services company, agreed to settle the securities class action pending against the company in the S.D. of New York. The case, originally filed in April 2008, stems from allegations that Credit Suisse made materially false statements regarding its mortgage-related exposure. The settlement is for $70 million. The D&O Diary has a detailed post.

(2) Tremont Group Holdings, Inc., a New York-based investment manager that is a subsidiary of Massachusetts Mutual Life Insurance Co., agreed to settle the securities litigation pending against the company in the S.D. of New York. The cases, originally filed starting in December 2008, stem from allegations that Tremont made material misstatements regarding the due diligence that was conducted on investment vehicles run by Bernard L. Madoff, to which Tremont transferred a substantial portion of its investment capital.

The partial settlement, which is for $100 million, resolves class action and derivative lawsuits. Additional money from Tremont will be added to the settlement fund following the wind-down of the company’s operations. Class members also may receive a portion of any recovery Tremont obtains from claims against third parties. Reuters has an article on the settlement.

(3) Satyam Computer Services Ltd. (NYSE: SAY), an India-based global business and information technology services company, now doing business as Mahindra Satyam, agreed to settle the securities class action pending against the company in the S.D. of New York. The case, originally filed in January 2009, stems from allegations that Satyam and its two top executives issued materially false financial statements by, among other things, inflating the company’s revenue and understating its debt.

The settlement, which is for $125 million, resolves only the claims against Satyam and does not include claims against other defendants in the suit. Satyam also agreed to pay class members 25% of any net recovery that the company may in the future obtain based on claims against PricewaterhouseCoopers LLP or its subsidiaries. Bloomberg has an article on the settlement.

MF Global Holdings Ltd. (NYSE: MF), a New York-based broker-dealer, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of New York. The case, originally filed in March 2008, stems from allegations that the registration statement and prospectus issued by MF in connection with its July 2007 initial public offering were materially false and misleading because, among other things, it misrepresented the company’s risk-management policies, procedures and systems.

The settlement is for $90 million, of which $2.5 million will be paid by MF and $32.5 mllion will be paid by MF’s former parent company, Man Group PLC. MF’s claim for insurance coverage against the loss remains pending. Bloomberg has an article.

Earlier this month, Apple entered into a settlement of the securities class action pending against it in the N.D. of Cal. The case was originally filed in 2006 and relates to alleged options backdating at the company.

According to a press release from the New York City Employees’ Retirement System (the lead plaintiff in the case), the settlement is valued at over $20 million and consists of a $14 million settlement fund, the payment of about $4 million in expenses and legal fees, and a $2.5 million contribution to corporate governance programs at a dozen universities around the country. The court granted preliminary approval of the settlement on October 7 and the universities have not been shy about announcing their pending good fortune.

But have they jumped the gun? Securities class action settlements rarely draw a lot of attention from the blogosphere, but this one is an exception. Ira Stoll, formerly of the New York Sun and a blogger at Future of Capitalism, wrote a scathing assessment of the merits of the case and settlement. Meanwhile, Ted Frank at the Center for Class Action Fairness believes that the contribution to corporate governance programs violates Ninth Circuit law and plans to file an objection on behalf of class members. (See also this post from CNBC’s business blog.) Stay tuned.

Thirteen former officers and directors of New Century Financial Corp., an Irvine, California-based mortgage finance company that collapsed in 2007, have agreed to the preliminary settlement of the securities class action pending against them in the C.D. of California. The case, originally filed in February 2007, was one of the first subprime cases and stems from disclosures relating to the company’s loan-repurchase losses.

The settlement is for $65 million, which will be funded by the individuals’ insurers. In addition, KPMG will pay $45 million and the underwriter defendants will pay $15 million to settle the related claims against those entities.

Thirteen former officers and directors of New Century Financial Corp., an Irvine, California-based mortgage finance company that collapsed in 2007, have agreed to the preliminary settlement of the securities class action pending against them in the C.D. of California. The case, originally filed in February 2007, was one of the first subprime cases and stems from disclosures relating to the company’s loan-repurchase losses.

The settlement is for $65 million, which will be funded by the individuals’ insurers. In addition, KPMG will pay $45 million and the underwriter defendants will pay $15 million to settle the related claims against those entities.

Maxim Integrated Products, Inc. (NASDAQ:MXIM), a Sunnyvale-based company that designs, develops, manufactures, and markets analog integrated circuits, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case, originally filed in 2008, stems from allegations that Maxim and certain of its former officers engaged in improper stock option backdating practices, resulting in the issuance of materially misleading financial statements. The company ultimately restated its financials to account for $773.5 million in additional stock-based compensation expense.

The settlement is for $173 million. The 10b-5 Daily has previously posted about the loss causation issues in the case. RiskMetrics Group has added the settlement to its tracking list of options backdating cases.

It was settlement week in the world of securities class actions. No sooner did RiskMetrics release its SCAS 50 for 2009, which ranks plaintiffs firms by their total settlement amounts, when many of the contenders started making bids to be on next year’s list.
The SCAS 50 “lists the top 50 plaintiffs’ law firms ranked by the total dollar amount of final securities class action settlements occurring in 2009 in which the law firm served as lead or co-lead counsel.” At the top of the list is Coughlin Stoia Geller Rudman & Robbins, which brought in $1,580,599,000 on 34 settlements.
Perhaps inspired by the SCAS 50, the rest of the week saw a number of significant settlements in cases both old and (relatively) new.
(1) Tyco International Ltd. and its TyCom subsidiary entered into a preliminary settlement of a securities class action pending in the D. of N.J. The case, originally filed in 2003, stems from a July 2000, $2.2 billion IPO by Tyco of TyCom�s common stock, and is based on allegations that the registration statement and prospectus relating to the offering contained misstatements and omissions regarding TyCom�s undersea-cable business. The settlement is for $79 million.
(2) In the HealthSouth securities litigation, the UBS defendants settled with shareholders and bondholders for $217 million and E&Y settled with bondholders for $33.5 million (after settling with shareholders for $109 million last year). The case, originally filed in June 2003, stems from allegations that the defendants materially misrepresented the company’s earnings by failing to disclose the impact of certain changes in Medicare reimbursement on the company’s profits. According to a Bloomberg article, these are the final settlements in the litigation and bring the total for shareholders to $601 million and for bondholders to $228.5 million.
(3) Charles Schwab Corporation announced the preliminary settlement of the securities class action pending in the N.D. of Cal. The case, originally filed in 2008, relates to Schwab’s marketing and sale of a bond fund and was scheduled to go to trial in May. The settlement is for $200 million.

MoneyGram International, Inc. (NYSE: MGI), a Minneapolis-based payment services company, has announced the preliminary settlement of the securities class action (and related derivative action) pending against the company in the D. of Minn. The case, originally filed in 2008, stems from subprime-related investment losses and is based on allegations that the company made false statements regarding its investment portfolio.
The settlement is for $80 million, with $60 million to be covered by insurance. Reuters has an article on the settlement.

There were two significant settlements this week.

(1) Comverse Technology, Inc. (Pink Sheets: CMVT) has entered into a preliminary settlement of the securities class action pending against the company in the E.D. of New York. The case was originally filed in 2006 and is based on alleged options backdating. The 10b-5 Daily has previously posted about the court’s lead plaintiff decision.

The settlement is for $225 million, making it the second largest options backdating settlement (behind UnitedHealth). The American Lawyer reports that Comverse will pay $165 million, to be financed by the sale of auction rate securities back to UBS, while the company’s former CEO will pay $60 million.

(2) Flowserve Corporation (NYSE: FLS) has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Texas. The case was filed in 2003 and alleges financial misstatements.

The settlement is for $55 million, with the company contributing $13.5 million and its insurance carriers contributing $40 million (the balance of $1.5 million will be paid by “another defendant”). Although the district court had denied class certification on loss causation grounds, that decision was overturned by the Fifth Circuit earlier this year.