(1) There were 65 settlements in 2011, involving $1.4 billion in total settlement funds. These numbers represent a significant decline as compared to 2010 (86 settlements; $3.2 billion in funds) and are the lowest number of approved settlements and total settlement dollars in more than 10 years.
(2) The average reported settlement amount decreased from $36.3 million in 2010 to $21 million in 2011, substantially below the average of $55.2 million for all post-PSLRA settlements. Among the factors identified by Cornerstone as possibly responsible for the decrease are: (a) the overall drop in filings of traditional securities class actions that began in 2006; (b) a decline in very large settlements (only three over $100 million); (c) a lower average estimated damages in the settled cases; and (d) fewer cases involving accounting allegations or accompanied by SEC actions/derivative actions.
(3) Robbins Geller was the most active firm in 2011, having been involved in 35% of the settled cases.
Quote of Note: "[C]onsidering that the $725 million partial settlement approved in February 2012 in the American International Group, Inc., Securities Litigation matter exceeds 50 percent of the total value of 2011 settlements and that other tentative mega-settlements have settlement approval dates in 2012, it appears likely that the total dollar amount for settlements will return to more typical levels in 2012."
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.
Two items on the relationship between investors and their counsel.
(1) The battle over the attorneys' fees award in the Tyco securities litigation continues. At the heart of the dispute is whether lead counsel was bound by its contractual fee arrangement with the lead plaintiff, which provided for a much lower fee award, or could seek whatever level of fees the court would approve. Forbes has a column on the latest filings in the case.
(2) Judge Jed Rakoff is no stranger to securities litigation and is not known for holding back on his opinions. In City of Pontiac General Employees' Retirement System v. Lockheed Martin Corp., 2012 WL 546475 (S.D.N.Y. Feb. 21, 2012), the judge took on the common practice of plaintiffs' firms entering into "monitoring" agreements with institutional investors. Under these agreements, the plaintiffs' firm (without charge) monitors the investments made by the institution to see if any securities class actions should be brought. If the plaintiffs' firm recommends that a case be brought and the institution agrees, the plaintiffs' firm will be the institution's presumptive choice as counsel. Judge Rakoff noted that the practice "creates a clear incentive for the monitoring firm to discover 'fraud' in the investments it monitors," which would appear to undermine the PSLRA's goal of discouraging lawyer-driven litigation. Nevertheless, the court approved the proposed lead plaintiff and lead counsel, finding that it appeared that the institution had "the ability to properly exercise [its] role as lead plaintiff" and had affirmed at a hearing on the matter that it would play an active part in the litigation going forward.
In its Morrison decision, the Supreme Court limited the scope of Section 10(b) claims to "transactions in securities listed on our domestic exchanges, and domestic transactions in other securities." While determining whether a security is listed on a domestic exchange is a relatively straightforward question (although some plaintiffs have unsuccessfully attempted to complicate it), the Court offered little guidance on what constitutes a "domestic transaction."
The Second Circuit has tried to provide some clarity. In Absolute Activist Value Master Fund Ltd. v. Ficeto, 2012 WL 661771 (2d Cir. March 1, 2012), the court evaluated "whether foreign funds' purchases and sales of securities issued by U.S. companies brokered through a U.S. broker-dealer constitute 'domestic transactions.'" The court concluded that there are two related tests for determining domesticity.
As a threshold matter, the court noted that the purchase or sale of a security normally takes place when the parties become bound to effectuate the transaction. The court held that the same test can be used to determine the locus of the purchase or sale. Based on this reasoning, "it is sufficient for a plaintiff to allege facts leading to the plausible inference that the parties incurred irrevocable liability within the United States: that is, that the purchaser incurred irrevocable liability within the United States to take and pay for a security, or that the seller incurred irrevocable liability within the United States to deliver a security." Alternatively, a "sale" is defined as a transfer of title and it also is sufficient for a plaintiff to adequately allege that title was transferred within the United States.
In the instant case, the plaintiffs merely had alleged that the transactions took place within the United States. The court found that more factual allegations related to irrevocable liability and/or transfer of title were necessary and could include "facts concerning the formation of the contracts, the placement of purchase orders, the passing of title, or the exchange of money." Because the complaint had been filed pre-Morrison, and based on the plaintiffs' representations that they could provide such factual allegations if required, the court granted them leave to amend.
Holding: Dismissal affirmed in part and reversed in part.
Quote of note: "[R]ather than looking to the identity of the parties, the type of security at issue, or whether each individual defendant engaged in conduct within the United States, we hold that a securities transaction is domestic when the parties incur irrevocable liability to carry out the transaction within the United States or when title is passed within the United States."