Category Archives: Settlement

CIT Settles

CIT Group, Inc. (NYSE: CIT), a New York-based bank holding company that provides commercial financing and leasing products and other services to small and middle market businesses, has agreed to settle the securities class action pending against the company in the S.D. of New York. The case, originally filed in 2008, stems from allegations that CIT and certain of its directors and officers made materially false statements and omissions regarding CIT’s subprime home loans and certain non-guaranteed, private student loans. The settlement is for $75 million. Reuters has an article.

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Settlement Round-Up

As the 2011 fiscal year comes to a close, there have been a series of settlement announcements. Some of the more significant are:

(1) Arthrocare Corp. (NADAQ: ARTC), an Austin-based corporation that develops and manufactures surgical devices, instruments and implants, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Texas. The case, originally filed in 2008, stems from allegations that Arthrocare and certain of its officers and directors issued materially false financial statements. The settlement is for $74 million. Reuters has an article on the settlement.

(2) Wachovia Corporation, a financial services company now wholly owned by Wells Fargo & Co. (NYSE: WFC), has agreed to settle the securities class action pending against the company in the S.D. of New York. The case, originally filed in 2008, stems from allegations that Wachovia misled its equity investors about its underwriting practices and the quality of its mortgage portfolio. Interestingly, the district court had dismissed the settled claims, although the case was on appeal. The settlement is for $75 million. Reuters has an article on the settlement.

(3) Apollo Group, Inc. (NASDAQ: APOL), a Phoenix-based provider of private education, has agreed to settle the securities class action pending against the company in the D. of Arizona. The case, originally filed in 2004, stems from allegations that Apollo and certain of its officers failed to disclose that the company’s financial results were materially inflated by the improper practice of tying recruiter’s compensation directly to enrollments. The settlement is for $145 million. The case has a long history, including a jury verdict for the plaintiffs, a post-trial reversal, the reinstatement of the jury verdict on appeal, and the denial of defendants’ cert petition.

(4) Over forty underwriters have agreed to settle the securities class action pending against them and against Lehman Brothers Holding, Inc., a now-defunct financial services firm, in the S.D. of New York. The case, originally filed in 2008, stems from allegations that, prior to Lehman’s June 9, 2008 disclosure of a $2.8 billion second quarter loss, the company misled investors about its financial health. The complaint alleged that the underwriters contributed to the fraud by failing to investigate the truth of statements made by Lehman in financial statements and securities offerings. The settlement with the underwriters is for $417 million. Lehman’s former directors had previously settled for $90 million, bringing the total settlement amount to $507 million. Reuters has an article on the settlement.

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Subprime Settlements

There were two major settlements of subprime-related cases this week.

(1) Wachovia Corp. (NYSE:WB), a Charlotte-based financial services company now owned by Wells Fargo & Co., 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 January 2009 in a California state court, stems from allegations that Wachovia and certain of its officers and directors made materially false statements in registration statements and prospectuses regarding the quality of the company’s loan portfolios. The settlement is for $627 million, of which Wachovia will pay $590 million and KMPG, who audited the company’s financial statements, will pay $37 million. Reuters has an article on the settlement.

(2) National City Corp. (NYSE:NCC), a Cleveland-based financial holding company now owned by PNC Financial Services Group Inc., has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Ohio. The case, originally filed in January 2008, stems from allegations that National City and certain of its officers and directors made materially false statements about the company’s mortgage-related exposure. The settlement is for $168 million.

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WaMu Settles

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.

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Settlement Round-Up

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.

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MF Global Settles

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.

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The Controversial Apple Settlement

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.

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