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.
NERA Economic Consulting has released a study entitled Recent Trends In Shareholder Class Action Litigation: 2009 Year-End Update. The study reaches the following notable conclusions:
(1) NERA predicts that there will be 235 filings by year end (down from 253 filings in 2008). Cases related to the credit crisis have fallen to around 30% of all filings, but the finance industry continues to hard hit with 53% of all filings naming a finance sector defendant.
(2) Only 5% of all filings contained insider trading allegations, which is down significantly from the pre-credit crisis period (e.g., 20% of all filings in 2005 and 2006 contained insider trading allegations).
(3) Excluding the IPO allocation cases, the average settlement value was $42 million. Although this is a signficiant increase over the $31 million average settlement value in 2008, the median settlement value stayed relatively flat at $9 million.
The press release accompanying the study can be found here.
(1) Given that the PSLRA has been in effect since 1995, federal courts of appeals have been spending a surprising amount of time lately addressing writs of mandamus on how to interpret the statute's lead plaintiff provisions. Just last month, a Ninth Circuit panel held that a district court cannot reject the lead plaintiff's proposed lead counsel and substitute lead counsel of the court's own choosing. In In re Bard Associates, Inc., 2009 WL 4350780, (10th Cir. Dec. 2, 2009), the Tenth Circuit was asked to consider whether an investment advisor who applied to act as lead plaintiff, but did not obtain assignments of its clients' claims until after its motion was filed, made a valid application. The panel found that the district court did not abuse its discretion when it rejected the investment advisor's application on the grounds that the investment advisor had failed to establish its standing to sue as of the lead plaintiff application deadline.
(2) Settling a securities class action for $40 million is not that unusual. Settling a securities class action for $40 million after obtaining the dismissal of the case (and before any appellate ruling) is quite unusual. The D&O Diary and The American Lawyer have full coverage of Dell's interesting settlement announced last week. It certainly seems hard to argue with lead counsel's conclusion that it was "a very, very good result for the class . . . [p]articularly given the procedural posture of the case."