Category Archives: Settlement

Credit Suisse Group and Banca Nazionale del Lavoro SpA are the first two defendants to settle in the ongoing Parmalat securities litigation in the S.D.N.Y. It was announced last week that the two banks agreed to pay $50 million (evenly divided) and make corporate governance changes. The case alleges a massive scheme by Parmalat and its bankers, lawyers, and auditors to overstate assets and profits for more than a decade. The 10b-5 Daily has posted frequently about the scheme liability decision in the case.

Martha Stewart Living Omnimedia, Inc. (NYSE: MSO), a New York-based media 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 founder Martha Stewart and other company officers made false and misleading statements about Stewart’s sale of ImClone shares in December 2001, which resulted in an inflated stock price. (The 10b-5 Daily has commented on this case in a series of posts entitled “The Martha Stewart Watch.”) The proposed settlement is for $30 million, of which $15 million will be paid by the company, $10 million will be paid by the company’s insurers, and $5 million will be paid by Stewart herself.

Krispy Kreme Doughnuts, Inc. (NYSE: KKD), a North Carolina-based retailer and wholesaler of doughnuts (including the famous Hot Original Glazed doughnut), has announced the preliminary settlement of the securities class action (and related derivative cases) pending against the company in the M.D. of North Carolina. The case was originally filed in 2004 and alleges various accounting misrepresentations.

The proposed class action settlement is for $75 million, of which $34,967,000 will be paid by the company’s insurers, $4,000,000 will be paid by the company’s auditor, and $35,853,000 will be derived from common stock and warrants to purchase common stock to be issued by the company. Two of Krispy Kreme’s former officers will contribute $100,000 each. The parties apparently were unable to come to an agreement, however, with a third former officer – the company’s fomer Chairman and CEO – and the settlement expressly preserves any claims against him that “may be asserted by the Company in the derivative action for contribution to the securities class action settlement or otherwise under applicable law.”

The BISYS Group, Inc. (NYSE:BSG), a New Jersey-based provider of outsourcing solutions for financial services providers, has announced the preliminary settlement of the two related securities class actions pending against the company in the S.D.N.Y. The cases involve alleged fraud in connection with a series of financial restatements made by the company over the past few years. The settlement is for $66.5 million, of which no more than $25 million will be covered by insurance.

For those readers interested in the collective scienter theory (see this post), the denial of the motion to dismiss in one of the BISYS cases is an example of the application of that theory. The citation for the opinion is In re BISYS Sec. Lit., 397 F.Supp.2d 430 (S.D.N.Y. 2005).

BellSouth Corp. (NYSE: BLS), an Atlanta-based telecommunications service provider, has announced the preliminary settlement of the securities class action pending against it in the N.D. of Georgia. The case was originally filed in August 2002 and alleges various accounting improprieties, including that BellSouth failed to properly write down goodwill associated with its Latin American operations. The proposed settlement is for $35 million.

McLeodUSA, Inc., an Iowa-based integrated voice and data services company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Iowa. The case was originally filed in January 2002 and alleges that the company issued a series of materially false and misleading statements about its ability to fund and build a national network, as well as other business initiatives. The settlement is for $30 million.

Cisco Systems, Inc. (NASDAQ: CSCO), a San Jose-based Internet networking company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The case was originally filed in 2001.

The settlement is for $91.75 million, which will be paid by Cisco’s insurers. Unusually, the press release contains a statement from plaintiffs’ counsel describing the settlement as “fair” given the “litigation risks,” including “a lack of insider trading, and Cisco was not required to make a financial restatement.”

King Pharmaceuticals, Inc. (NYSE: KG) has announced the preliminary settlement of the securities class action pending against the company in the E.D. of Tenn. The case was originally filed in 2003 and alleges securities violations in connection with the Company’s underpayment of rebates owed to Medicaid and other governmental pricing programs.

The settlement is for $38 million. Long-time readers of The 10b-5 Daily may remember the King Pharmaceuticals case as the source for one of the more amusing descriptions of the lead plaintiff selection process ever put forward by a court.

El Paso Corp. (NYSE: EP), a Houston-based energy company, has announced the preliminary settlement of the securities class action (and a related derivative case) pending against the company in the S.D. of Tex. The case was originally filed in 2002 and alleges securities law violations in connection with alleged wash trades, mark-to-market accounting, off-balance sheet debt, the overstatement of natural gas and oil reserves, and manipulation of the California energy market. The settlement is for $273 million, with El Paso contributing $48 million and the balance being paid by its insurers.

The El Paso securities class action has an interesting history and has been the subject of a number of posts on The 10b-5 Daily over the years.

DHB Industries, Inc. (OTC Pink Sheets – DHBT), a Florida-based manufacturer of body armour, has announced the preliminary settlement of the securities class action (and related derivative suit) pending against the company in the E.D.N.Y. The case was originally filed in September 2005 and alleges that the company failed to disclose that its body armor products were defective and did not meet the standards of its customers.

The settlement is for $34.9 million in cash, plus 3,184,713 shares of DHB common stock. The company’s insurers will pay $12.9 million. In an unusual settlement provision, DHB stated that its CEO (who apparently is being forced out) “will help fund the payments to be made by the Company by exercising 3 million warrants held by him at an elevated exercise price.” Moreover, the company apparently “has the option to put to [its CEO], approximately 3 million shares of common stock to finance the remaining portion of the cash settlement.”