In settling a case, timing is important. Citigroup's settlement of the WorldCom litigation for $2.65 billion was the subject of a handshake agreement as of Thursday, May 6. According to press reports, Citigroup told analysts that the timing was influenced by the Second Circuit argument in the case scheduled for the following Monday.
At issue in that appeal was whether the district court had properly granted class certification for the claims against Citigroup based on analyst statements about WorldCom's securities. The district court had applied the fraud-on-the-market doctrine (i.e., reliance by investors on an alleged misrepresentation is presumed if the company's shares were traded on an efficient market) to help establish that common issues predominated over individual ones for the class members. Citigroup argued on appeal that the fraud-on-the-market doctrine could not be applied to claims based on analyst statements. Meanwhile, the SEC submitted an amicus brief to the court opposing Citigroup's position. Citigroup, in discussing its decision to settle the case before the appeal was heard, stated "to have the SEC come out against that obviously worsened the odds against us." But, with the benefit of hindsight, were the odds better than they appeared?
Although the Second Circuit had agreed to hear Citigroup's appeal, as of May 6 (the date of the handshake agreement) it had not issued an opinion explaining its ruling. That would come the next day, May 7, and the opinion certainly suggested that Citigroup's arguments would be considered carefully.
In Hevesi v. Citigroup Inc., 2004 WL 1008439 (2d Cir. May 7, 2004), the court explained that it had agreed to hear the appeal because the certification order "implicates a legal question about which there is a compelling need