August 30, 2013

Settlement Round-Up

Two recent settlements of note:

(1) Diamond Foods, Inc. (NASDAQ: DMND), a packaged foods provider, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case originally was filed in 2012 and relates to a scandal that involved the improper accounting of payments to walnut farmers. The 10b-5 Daily recently posted about the class certification decision in the case.

The settlement is valued at $96 million, including $11 million in cash (largely from the company's insurers) and 4.45 million shares of common stock. The company has the option "to privately place, or conduct a public offering of, the shares with the consent of the lead plaintiff and its counsel, prior to distribution of the Settlement Fund" and contribute the proceeds to the settlement in lieu of the shares.

(2) The Blackstone Group, L.P. (NYSE: BX), an investment banking company, has entered into a preliminary settlement of the securities class action pending against the company in the S.D. of New York. The case originally was filed in 2008 and relates to the company's alleged failure to properly disclose the value of certain investments as part of its initial public offering. In 2011, The 10b-5 Daily posted about the Second Circuit's reversal of the dismissal of the case.

The settlement is for $85 million. According to press reports, the case was scheduled to go to trial next month.

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August 2, 2013

The Thirteenth Stroke of a Clock

A court in the S.D.N.Y. has approved the settlement of a securities class action brought against Citigroup, but not without a fair amount of drama over the award of attorneys' fees. In the case, the plaintiffs alleged that Citigroup misled investors, from 2007 to 2008, by understating the risks associated with assets backed by subprime mortgages and overstating the value of those assets. The case settled for $590 million and lead counsel submitted an attorneys' fees request of $97.5 million or 16.5% of the common fund.

Both the Federal Rules of Civil Procedure and the PSLRA provide that plaintiffs' counsel in a securities class action may be awarded a "reasonable" fee as determined by the court. Courts generally find that it is appropriate to cross-check a proposed percentage fee award using the lodestar method (i.e., by multiplying the reasonable hours expended by counsel by a reasonable hourly rate, and then adjusting that number with a multiplier to compensate for the risks the law firm assumed), but there is no uniformity as to the appropriate hours, rates, and multiplier to be used. In the Citigroup case, the lodestar used by lead counsel - $51.4 million (resulting in a multiplier of 1.9 to reach the $97.5 million request) - drew a strong objection from the Center for Class Action Fairness. The court largely agreed that the lodestar was improperly inflated.

In particular, the court made the following reductions:

(1) Lead plaintiff/lead counsel contest - Following the appointment of lead counsel, the firm decided to join forces with one of the firms who had unsuccessfully applied for the position. As part of the fees application, however, that second firm included the hours it spent attempting to become lead counsel as compensable time. The court disagreed and struck $4 million worth of time that the second firm claimed for pre‐complaint investigation, drafting its complaint, and participating in the lead counsel contest.

(2) Post-settlement discovery work - The court was sharply critical of lead counsel's decision to engage in thousands of hours discovery-related tasks after the parties reached a settlement in principle of the case. The court concluded that that "a reasonable paying client would not have authorized or paid for these hours" and cut $7.5 million from the lodestar.

(3) Hourly rate for contract attorneys - The objector and lead counsel strongly disagreed over the proper way to account for contract attorneys. The objector argued that the market rate for contract attorneys was no more than $100 per hour and, in any event, contract attorneys are an expense that should not be included in the lodestar, while lead counsel submitted a blended rate of $462 per hour (which the court noted was higher than the blended associate rate). The court found that it was appropriate to include the contract attorneys in the fee request, but a more appropriate blended rate for those attorneys was $200 per hour, for a savings of $12 million.

(4) Waste and inefficiency - The court's review revealed a number of instances of questionable billing, including hundreds of hours spent on reviewing depositions. The court decided to cut 10% ($2.8 million off the remaining $27.9 million) for waste and inefficiency.

In total, the court cut the lodestar in half, from $51.4 million to $25.1 million. However, the court also found that given the complexity and risks associated with the case (in addition to several other factors) a fairly large multiplier of 2.9 was appropriate. In the end, lead counsel was awarded attorneys' fees of $70.8 million (down from $97.5 million) or 12% of the common fund.

Quote of note: "In a case of this magnitude, it is inevitable that attorneys will spend more hours than turn out to be necessary on some projects. But it is, or ought to be, far from inevitable that attorneys will attempt to charge those hours to their client. And some instances of waste and inefficiency are so egregious that their inclusion in a motion for fees casts a shadow over all of the hours submitted to the Court—just as the thirteenth stroke of a clock calls into doubt whether any previous stroke was accurate."

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February 15, 2013

Merck Settles

Merck & Co., a New Jersey-based pharmaceutical manufacturer, has announced the preliminary settlement of the securities class action pending against the company in the D. of New Jersey. The case is actually two cases - against Merck and Schering-Plough Corp. - based on the companies' failure to disclose the bad results of a clinical trial of the anti-cholesterol drug Vytorin (which the companies jointly sold). Merck and Schering-Plough merged in 2009. The cases were scheduled to go to trial next month.

The settlement is for $688 million, with the company paying $215 million to resolve the securities class action against the Merck defendants and $473 million to resolve the securities class action against the Schering-Plough defendants. (Note that this case is different than the Vioxx-related securities class action against Merck that led to a 2010 U.S. Supreme Court decision. The Vioxx-related case is still pending and class certification was granted last month.)

There is extensive press coverage of the settlement, including in the New York Times, Reuters, and Bloomberg.

Posted by Lyle Roberts at 5:05 PM | TrackBack

August 31, 2012

Citigroup Settles

Citigroup Inc. (NYSE: C), a leading global bank, has agreed to settle a securities class action pending against the company in the S.D.N.Y. The case, which was originally filed in 2008, alleges that Citibank misrepresented its exposure to collaterialized debt obligations. The court preliminarily approved the settlement on August 29, 2012, and has scheduled a hearing for final approval on January 13, 2013.

The settlement is for $590 million, which the company says will be covered by existing legal reserves. It is the third-largest settlement of a credit crisis case, trailing only Wachovia ($627 million) and Countrywide ($624 million). Bloomberg and Reuters have articles on the settlement.

Posted by Lyle Roberts at 7:42 PM | TrackBack

June 8, 2012

Bear Stearns Settles (Former Executives)

Former executives of Bear Stearns Cos. (now owned by J.P. Morgan Chase) have agreed to a preliminary settlement of the securities class action pending against them in the S.D.N.Y. The case, originally filed in 2008, accuses the executives of misleading investors about the firm's business and financial well-being in the run-up to the credit crisis. The settlement comes after the denial of the defendants' motion to dismiss, but before class certification.

The settlement is for $275 million, making it one of the top 40 largest securities class action settlements since 1995 (as stated in the court filing). According to the Wall Street Journal (subscrip. req'd), however, the executives will not have to make any personal payments. Instead, the settlement amount will come from a $9 billion fund created by J.P. Morgan Chase to cover Bear Stearns-related litigation and other expenses.

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April 20, 2012

Medtronic Settles

Medtronic, Inc. (NYSE: MDT), a Minneapolis-based medical technology company, has announced the preliminary settlement of the securities class action pending against the company in the D. of Minnesota. The case, originally filed in 2008, stems from allegations that the company and certain of its officers made materially false statements regarding the extent to which revenue from one of its products, the Infuse bone graft, depended on applications not approved by the FDA (i.e., "off-label" uses).

The settlement is for $85 million. Reuters has an article. The 10b-5 Daily previously has posted about the court's decision to certify the proposed class over the defendants' objection that the plaintiffs could not adequately represent the class "because of alleged misrepresentations counsel made in the Amended Complaint regarding the testimony of the confidential witnesses."

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March 16, 2012

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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December 9, 2011

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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August 12, 2011

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.

Posted by Lyle Roberts at 8:48 PM | TrackBack

July 1, 2011

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.

Posted by Lyle Roberts at 8:43 PM | TrackBack

April 15, 2011

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.

Posted by Lyle Roberts at 11:33 PM | TrackBack

February 11, 2011

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.

Posted by Lyle Roberts at 8:29 PM | TrackBack

October 22, 2010

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.

Posted by Lyle Roberts at 9:15 PM | TrackBack

August 6, 2010

New Century Financial Settles

Thirteen former officers and directors of New Century Financial Corp., an Irvine, California-based mortgage finance company that collapsed in 2007, have agreed to the preliminary settlement of the securities class action pending against them in the C.D. of California. The case, originally filed in February 2007, was one of the first subprime cases and stems from disclosures relating to the companys loan-repurchase losses.

The settlement is for $65 million, which will be funded by the individuals' insurers. In addition, KPMG will pay $45 million and the underwriter defendants will pay $15 million to settle the related claims against those entities.

Posted by Lyle Roberts at 11:35 PM | TrackBack

August 5, 2010

PMI Settles

The PMI Group, Inc. (NYSE: PMI), a Walnut Creek-based holding company that though its subsidiaries provides residential mortgage insurance and credit enhancement products, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case, originally filed in March 2008, stems from allegations that PMI and certain of its officers and directors made materially misleading statements regarding the companys business, including its investment in Financial Guaranty Insurance Company, Inc., and that the company materially overstated its financial results.

The settlement is for $31 million and will be paid by the company's insurers. Interestingly, PMI also disclosed the terms of the "blow" provision in the settlement agreement: "Defendants will have the option to terminate the settlement if 4% or more of the class members or shares opt out of the settlement class."

Posted by Lyle Roberts at 6:09 PM | TrackBack

May 7, 2010

Maxim Integrated Products Settles

Maxim Integrated Products, Inc. (NASDAQ:MXIM), a Sunnyvale-based company that designs, develops, manufactures, and markets analog integrated circuits, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case, originally filed in 2008, stems from allegations that Maxim and certain of its former officers engaged in improper stock option backdating practices, resulting in the issuance of materially misleading financial statements. The company ultimately restated its financials to account for $773.5 million in additional stock-based compensation expense.

The settlement is for $173 million. The 10b-5 Daily has previously posted about the loss causation issues in the case. RiskMetrics Group has added the settlement to its tracking list of options backdating cases.

Posted by Lyle Roberts at 9:36 PM | TrackBack

April 21, 2010

Settlement Week

It was settlement week in the world of securities class actions. No sooner did RiskMetrics release its SCAS 50 for 2009, which ranks plaintiffs firms by their total settlement amounts, when many of the contenders started making bids to be on next year's list.

The SCAS 50 "lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2009 in which the law firm served as lead or co-lead counsel." At the top of the list is Coughlin Stoia Geller Rudman & Robbins, which brought in $1,580,599,000 on 34 settlements.

Perhaps inspired by the SCAS 50, the rest of the week saw a number of significant settlements in cases both old and (relatively) new.

(1) Tyco International Ltd. and its TyCom subsidiary entered into a preliminary settlement of a securities class action pending in the D. of N.J. The case, originally filed in 2003, stems from a July 2000, $2.2 billion IPO by Tyco of TyComs common stock, and is based on allegations that the registration statement and prospectus relating to the offering contained misstatements and omissions regarding TyComs undersea-cable business. The settlement is for $79 million.

(2) In the HealthSouth securities litigation, the UBS defendants settled with shareholders and bondholders for $217 million and E&Y settled with bondholders for $33.5 million (after settling with shareholders for $109 million last year). The case, originally filed in June 2003, stems from allegations that the defendants materially misrepresented the company's earnings by failing to disclose the impact of certain changes in Medicare reimbursement on the company's profits. According to a Bloomberg article, these are the final settlements in the litigation and bring the total for shareholders to $601 million and for bondholders to $228.5 million.

(3) Charles Schwab Corporation announced the preliminary settlement of the securities class action pending in the N.D. of Cal. The case, originally filed in 2008, relates to Schwab's marketing and sale of a bond fund and was scheduled to go to trial in May. The settlement is for $200 million.

Posted by Lyle Roberts at 10:29 PM | TrackBack

February 26, 2010

MoneyGram International Settles

MoneyGram International, Inc. (NYSE: MGI), a Minneapolis-based payment services company, has announced the preliminary settlement of the securities class action (and related derivative action) pending against the company in the D. of Minn. The case, originally filed in 2008, stems from subprime-related investment losses and is based on allegations that the company made false statements regarding its investment portfolio.

The settlement is for $80 million, with $60 million to be covered by insurance. Reuters has an article on the settlement.

Posted by Lyle Roberts at 6:30 PM | TrackBack

December 18, 2009

That Time Of Year

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.

Posted by Lyle Roberts at 10:35 PM | TrackBack

December 11, 2009

Timing Is Everything

(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."

Posted by Lyle Roberts at 7:44 PM | TrackBack

November 13, 2009

Marsh & McLennan Settles

Marsh & McLennan Companies, Inc. (NYSE: MMC), a global professional services firm, 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 2004 and is based on alleged false financial statements related to an insurance brokerage industry practice of charging and collecting contingent commissions."

The settlement is for $400 million, with $205 million to be covered by insurance. According to a press release issued by one of the lead plaintiffs, the average recovery will be $.77 a share. Bloomberg has an article on the settlement and Reuters follows-up with a profile of the Ohio Attorney General and his involvement in the case.

The 10b-5 Daily has previously posted about the Marsh case in relation to the court's decisions on collective scienter and confidential witnesses.

Posted by Lyle Roberts at 11:26 PM | TrackBack

September 18, 2009

You'll Get Nothing And Like It

When it comes to sharp talk from the bench, Judge James Rosenbaum and the UnitedHealth securities class action is the gift that keeps on giving. The court's latest decision - In re UnitedHealth Group Inc. PSLRA Litig., 2009 WL 2868399 (D. Minn. Sept. 4, 2009) - addresses whether counsel for the attorneys' fees objectors should be paid for their efforts. The court, as part of approving the settlement of the case, reduced the requested attorneys' fees from $110 million to $65 million. However, Judge Rosenbaum was upset (to say the least) at the idea that the objectors should receive the credit.

The court noted that the objectors' filing was late, short, and "presented no facts, offered no law, and raised no argument upon which the Court relied in its deliberation or ruling." The court therefore held that the objectors' counsel, which it described as "remoras" (i.e., suckerfish), were "entitled to an award equal to their contribution . . . nothing."

Holding: Motion for award of fees denied.

Quote of note: "If the Court may be permitted an egregious paraphrase of Winston S. Churchill: Seldom in the field of securities litigation was so little owed by so many to so few."

Posted by Lyle Roberts at 8:14 PM | TrackBack

June 11, 2009

Marvell Technology Settles

Marvell Technology Group Ltd. (NASDAQ: MRVL), a Santa Clara-based developer of of storage, communications and consumer silicon solutions, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case was filed in 2007 and relates to Marvells historic stock option granting practices.

The settlement is for $72 million. According to the helpful Securities Class Action Services tracking chart, it is the fourth-largest settlement of an options backdating class action (the top three, in order, are UnitedHealth Group, Brocade, and Mercury Interactive).

Posted by Lyle Roberts at 6:50 PM | TrackBack

May 6, 2009

Beazer Homes Settles

Beazer Homes USA, Inc. (NYSE: BZH), a Georgia-based homebuilder, has announced the preliminary settlement of the securities class action pending against the company in the N.D. Ga. The case, originally filed in March 2007, was one of the first subprime cases and stems from disclosures related to the company's loan origination practices.

The settlement is for $30.5 million and is being funded by the company's insurers. The D&O Diary has a comprehensive post on the settlement, including links to many of the key court documents.

Posted by Lyle Roberts at 5:24 PM | TrackBack

March 26, 2009

Ernst & Young Settles HealthSouth-Related Claims

Ernst & Young LLP ("E&Y") has entered into a stipulation of settlement in the HealthSouth securities class action in the N.D. of Ala. The case, originally filed in June 2003, stems from allegations that the defendants materially misrepresented the company's earnings by failing to disclose the impact of certain changes in Medicare reimbursement on the company's profits.

The E&Y settlement is for $109 million. HealthSouth settled the claims against the company for $445 million back in 2006. The American Lawyer reports that the E&Y settlement comes just before a court hearing on class certification. E&Y remains a defendant in a separate class action brought by HealthSouth's bondholders.

Posted by Lyle Roberts at 6:41 PM | TrackBack

March 3, 2009

General Re Settles AIG-Related Claims

General Re Corp., a subsidiary of Berkshire Hathaway Inc. and a global reinsurance company, has agreed to a tentative settlement in the AIG securities class action pending in the S.D.N.Y. The case was originally filed in October 2004. The claims against General Re relate to its alleged participation in a fraudulent $500 million reinsurance transaction with AIG that allowed AIG to improperly inflate its loss reserves.

The General Re settlement is for $72 million. Last October, PwC settled the claims against it in the case for $97.5 million. CFO.com has an article on the settlements.

Posted by Lyle Roberts at 11:31 PM | TrackBack

November 7, 2008

Accredo Health Settles

Accredo Health, Inc., a wholly-owned subsidiary of Medco Health Solutions, Inc. (NYSE: MHS), has reached a preliminary settlement of the securities class action pending against it in the W.D. of Tennessee. The case, originally filed in April 2003, stems from allegations that loss reserves relating to a business Accredo acquired were materially understated. The settlement is for $33 million.

Posted by Lyle Roberts at 6:21 PM | TrackBack

October 10, 2008

Bridgestone Settles

Bridgestone Corp. (PINKSHEETS: BRDCF), a Japanese tire manufacturer, has reached a settlement in the securities class action pending against it in the M.D. of Tennessee. The case, originally filed in January 2001, stems from allegations that Bridgestone disseminated false and misleading statements to conceal the existence of defects in a model of tires manufactured by the company. The court granted preliminary approval of the settlement on September 30, 2008.

The settlement is for $30 million. The 10b-5 Daily has previously posted about collective scienter issues in the case.

Posted by Lyle Roberts at 5:02 PM | TrackBack

August 8, 2008

General Motors Settles

General Motors, Corp. (NYSE: GM), a Michigan-based automaker, has announced the preliminary settlement of the securities class action pending against the company in the E.D. of Michigan. The case, originally filed in September 2005, stems from allegations that General Motors issued a series of false and misleading statements regarding the company's financial status.

The settlement is for $303 million, of which Deloitte & Touche, General Motor's outside auditor, will pay $26 million. Reuters has an article on the settlement and a press release issued by plaintiffs' counsel can be found here.

Posted by Lyle Roberts at 5:46 PM | TrackBack

August 1, 2008

Monster Worldwide Settles

Monster Worldwide, Inc. (NASDAQ: MNST), a New York-based online employment solutions company, has announced the preliminary settlement of the securities class action pending against it in the S.D.N.Y. The case, originally filed in March 2007, stems from allegations that Monster Worldwide and certain of its former executives failed to adhere to the company's stated options granting practices, resulting in the issuance of false and misleading financial statements.

The settlement is for $47.5 million, including a $550,000 payment from Monster's former Chief Executive Officer. The National Law Journal has an article on the settlement, which notes the recent decision in the case rejecting one of the proposed class representatives. Additional coverage can be found at Securities Litigation Watch, including a useful presentation tracking all of the options backdating class actions.

Posted by Lyle Roberts at 10:32 PM | TrackBack

July 10, 2008

Coca-Cola Settles

Coca-Cola Co. (NYSE: KO), the worlds largest manufacturer, distributor, and marketer of nonalcoholic beverages and syrups, has agreed to the preliminary settlement of the securities class action pending against it in the N.D. of Georgia. The long-running case, originally filed in October 2000, stems from allegations that company executives artificially boosted Coca-Colas revenues by forcing some of the companys key bottlers to accept hundreds of millions of dollars of excessive beverage concentrate, and that the company falsely represented that the improved financial condition of its key bottlers would lead to substantial revenue growth. The settlement is for $137.5 million.

Earlier this year, The 10b-5 Daily reported that the plaintiffs motion for class certification had been assigned to a special master, who recommended that the court deny class certification because of concerns that plaintiffs lead counsel had engaged in improper conduct when it paid a former Coca-Cola employee to provide the plaintiffs with stolen company documents. The court appears to have rejected the special masters recommendation in conjunction with its preliminary approval of the settlement.

Posted by Lyle Roberts at 11:49 PM | TrackBack

July 3, 2008

UnitedHealth Settles

UnitedHealth Group, Inc. (NYSE: UNH), a Minnesota-based diversified health and well-being company, has announced the preliminary settlement of the securities class action pending against it in the D. of Minn. The case, originally filed in 2006, stems from allegations that UnitedHealth misrepresented and omitted material facts regarding its stock options backdating practices.

The settlement is for $895 million and will fully resolve all claims against the company and its current officers and directors. The WSJ Law Blog has a post on the settlement and notes that it is by far the largest options backdating class action settlement to date.

Posted by Lyle Roberts at 1:54 PM | TrackBack

June 2, 2008

Brocade Settles

Brocade Communications Systems, Inc. (NASDAQ: BRCD), a California-based data center networking and services company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case, originally filed in May 2005, stems from allegations that Brocade failed to correctly account for its stock-based compensation.

The settlement is for $160 million. The WSJ Law Blog has extensive coverage of the settlement, including relevant links.

Posted by Lyle Roberts at 9:59 PM | TrackBack

May 29, 2008

Opportunistic Objectors

The Cardinal Health securities class action is the case that keeps on giving, at least as far as this blog is concerned. Having previously posted about the lead plaintiff, discovery stay, motion to dismiss, settlement, and attorneys' fees decisions in the case, it seems appropriate to note the latest offering from the court.

In In re Cardinal Health, Inc. Sec. Litig., 2008 WL 1934162 (S.D. Ohio May 5, 2008), the court considered whether two of the several fees objectors should be paid for their efforts. Although lead counsel had requested 24% of the settlement (or $145 million), the court awarded only 18% of the settlement (or $108 million). Based on this $37 million savings, the two objectors requested that they, in turn, be paid between $3.7 million and $6.6 million. The court was not amused, finding that the objectors were making "outlandish fee requests in return for doing virtually nothing."

Holding: Motions for attorneys' fees denied.

Quote of note: "[C]lass actions also attract those in the legal profession who subsist primarily off of the skill and labor of, to say nothing of the risk borne by, more capable attorneys. These are the opportunistic objectors. Although they contribute nothing to the class, they object to the settlement, thereby obstructing payment to lead counsel or the class in the hope that lead plaintiff will pay them to go away. Unfortunately, the class-action kingdom has seen a Malthusian explosion of these opportunistic objectors, which now seem to accompany every major securities litigation. Such is the case here."

Posted by Lyle Roberts at 11:48 PM | TrackBack

May 9, 2008

Converium Settles

Converium Holding AG, a Zurich-based international reinsurer acquired by SCOR in August 2007, has announced the preliminary settlement of the securities class action pending against the company in the Southern District of New York (S.D.N.Y.). The case, originally filed in October 2004, stems from allegations that executives at Converium artificially inflated the price of Converiums stock by failing to disclose to the public certain deficiencies in the companys loss reserves. The case in the S.D.N.Y. is limited to U.S. invesotrs. Converium has agreed to settle those claims, as well any claims by non-U.S. investors, for an aggregate amount of $114.5 million (74 million EUR). The claims by non-U.S. investors will be settled in a court proceeding in the Netherlands, apparently following in the footsteps of a similar settlement entered into by Royal Dutch Shell last year.

Posted by Lyle Roberts at 10:25 PM | TrackBack

May 8, 2008

Parmalat Settles

Parmalat S.p.A., a producer and distributor of dairy products and fruit-based beverages based in Milan, Italy, 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 2004, stems from allegations that Parmalat and its bankers, lawyers, and auditors engaged in a massive and complex scheme to overstate Parmalat's assets and profits for more than a decade. Under the terms of the settlement, Parmalat will issue to class members 10.5 million shares of stock, valued at approximately $37 million at the current market price.

The 10b-5 Daily has frequently posted about the Parmalat case, especially on the issue of scheme liability. But it all started with a post in 2004 entitled "You're No Martha."

Posted by Lyle Roberts at 10:01 PM | TrackBack

April 24, 2008

Biovail Extends Settlement To Canada

Biovail Corporation (NYSE: BVF and TSX: BVF), an Ontario-based specialty pharmaceutical company, has announced the tentative settlement of the securities class action pending against the company in Ontario Superior Court. The case, originally filed in September 2005, relies on the same factual basis as an earlier class action brought by U.S. plaintiffs and stems from allegations that Biovail made false financial projections.

The settlement agreement provides for the plaintiffs in the Canadian suit to share in the $138 million settlement already agreed upon in the U.S. securities class action. The 10b-5 Daily has posted previously on the settlement of the U.S. case and the company's attempt to sue short sellers of its stock. Press coverage of the Canadian settlement can be found in the The Globe and Mail.

Posted by Lyle Roberts at 9:40 PM | TrackBack

April 1, 2008

Xerox Settles

Xerox Corp. (NYSE: XRX), a Connecticut-based provider of document management technology and services, has announced the preliminary settlement of the securities class action pending against it in the D. of Conn. The case, originally filed in August 2000, stems from allegations that Xerox improperly accounted for its leasing of copiers and other equipment to customers. Xerox eventually engaged in a significant financial restatement.

The settlement is for $750 million, of which Xerox will pay $670 million and KMPG, who audited the company's financial statements, will pay $80 million. Xerox expects to pay its portion of the settlement in five installments over the course of this year. The New York Times and The Wall Street Journal had articles about the settlement in their Friday editions.

Posted by Lyle Roberts at 10:00 PM | TrackBack

March 13, 2008

United Rentals Settles

United Rentals, Inc. (NYSE: URI), a Connecticut-based equipment rental company, has announced the preliminary settlement of the securities class action pending against it in the D. of Conn. The case, originally filed following the August 2004 disclosure of a SEC inquiry, stems from allegations that the company manipulated the company's publicly-released financial data through improper accounting practices. The settlement is for $27.5 million and is contingent upon United Rentals and its insurers finalizing agreements on the portion of the settlement to be funded by the insurers.

Posted by Lyle Roberts at 7:08 PM | TrackBack

March 6, 2008

Royal Dutch Shell Settles With U.S. Investors

Royal Dutch Shell p.l.c. (NYSE: RDS/A) has taken another step toward resolving the investor claims related to the company's 2004 recategorization of certain proved oil and gas reserves. After reaching a proposed settlement with non-U.S. shareholders last year for approximately $350 million, the company announced today that it has entered into an agreement in principle with U.S. shareholders. The U.S. class would receive a base settlement amount of approximately $83 million (based on proportions previously established in the proposed non-U.S. settlement), with an additional payment of $35 million to be divided proportionally between the U.S. class and the participants in the proposed non-U.S. settlement.

Posted by Lyle Roberts at 5:53 PM | TrackBack

R&G Financial Settles

R&G Financial Corp. (PINKSHEETS: RGFC), a financial holding company based in San Juan, Puerto Rico that provides banking, mortgage banking, and insurance services, has announced the preliminary settlement of the securities class action (and a related derivative suit) pending against the company in the S.D. of New York. The case, originally filed in April 2005, stems from allegations that R&G Financial failed to disclose and misrepresented adverse facts in its financial statements, lacked adequate internal controls, and engaged in financial accounting practices that caused its net income and financial results to be materially overstated. The settlement is for $39 million, with R&G Financial contributing approximately $29 million, and the companys insurers and certain individual defendants contributing approximately $11 million.

Posted by Lyle Roberts at 5:33 PM | TrackBack

February 28, 2008

Transkaryotic Settles

Transkaryotic Therapies, Inc. (TKT), a Massachusetts-based biopharmaceutical company acquired by Shire plc in 2005, has announced the preliminary settlement of the securities class action pending against the company in the D. of Mass. (The settlement was agreed to in Oct. 2007.)

The case, originally filed in January 2003, alleges that executives at TKT failed to disclose material adverse information regarding the prospects for FDA approval of Replagal, TKTs drug for the treatment of Farbry disease. The settlement is for $50 million, with Shire contributing $27 million and the remaining $23 million paid by its insurers.

Posted by Lyle Roberts at 6:50 PM | TrackBack

January 30, 2008

KLA-Tencor Settles

KLA-Tencor Corp. (NASDAQ: KLAC), a California-based provider of process controls and yield management solutions for the semiconductor and microelectronics industries, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The case, originally filed in June 2006, stems from allegations that KLA-Tencor failed to properly account for the stock options it granted its employees.

The settlement is for $65 million. For coverage of the earlier options-related settlement between KLA-Tencor and the SEC, see this New York Times article.

Posted by Lyle Roberts at 5:08 PM | TrackBack

January 4, 2008

Deloitte & Touche Settles Delphi-Related Claims

Deloitte & Touche LLP, an auditing firm, has announced the preliminary settlement of the claims brought against it in the Delphi securities class action (E.D. Mich.). The case, originally filed in 2005, stems from Delphi's financial restatement and subsequent bankruptcy.

Deloitte's settlement is for $38.25 million. The settlement follows on the heels of Delphi's related $342 million settlement announced last September. Reuters has an article.

Posted by Lyle Roberts at 4:33 PM | TrackBack

December 20, 2007

Big Fees and Big Checks

A couple of settlement items:

(1) The Tyco settlement has been approved. Not every class member will be happy, however, as the court rejected the fee objections raised by three institutional investors. As requested, the plaintiffs' attorneys will receive $464 million, believed to be the largest fees payout ever by a single company defendant in a securities class action. Reuters and the Associated Press have articles.

(2) Court approval, however, is not the final step in a settlement. The funds have to be distributed, which has turned out to be problematic in the Computer Associates case. The Wall Street Journal has a report discussing the accidental overpayments to some claimants. The settlement administrator is trying to get the money back, but many of the checks have been cashed.

Posted by Lyle Roberts at 8:14 PM | TrackBack

December 11, 2007

Biovail Settles

Biovail Corporation (NYSE: BVF) (TSX: BVF), an Ontario-based specialty pharmaceutical company, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of New York. Originally filed in 2003, the case stems from allegations that the company made false financial projections.

The settlement is for $138 million, of which Biovail estimates it will pay $85 million after settling all insurance claims. The 10b-5 Daily has previously posted on the tumult surrounding the Biovail securities litigation, including the company's attempts to sue short-sellers of its stock.

Posted by Lyle Roberts at 7:17 PM | TrackBack

November 9, 2007

Sonus Networks Settles

Sonus Networks, Inc. (NASDAQ: SONS), a Massachusetts-based provider of voice infrastructure equipment and software for wireline and wireless service providers, has announced the preliminary settlement of one of two securities class actions pending against the company in the D. of Massachusetts. The settled case, originally filed in 2004, stems from allegations related to a large revenues restatement.

The settlement is for $40 million, and the company has yet to determine the portion, if any, of its $15.3 million in available insurance coverage that will be allocated to the settlement. The 10b-5 Daily has previously posted about the motion to dismiss decision in the case.

Posted by Lyle Roberts at 5:48 PM | TrackBack

October 30, 2007

American Italian Pasta Company Settles

American Italian Pasta Company (PINKSHEETS: AIPC), a Missouri-based producer of dry pasta, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Missouri. The case, originally filed in August 2005, stems from allegations that AIPC failed to disclose materially adverse facts in its financial statements.

The settlement covers the securities class action claims against AIPC (but not related derivative claims) and has a total value of $25 million. Of that total value, the company's insurers will pay $11 million in cash and the company will issue $14 million in common shares.

Posted by Lyle Roberts at 4:53 PM | TrackBack

October 19, 2007

Mercury Interactive Settles

Mercury Interactive Corp., a California-based software company acquired by Hewlett-Packard Co. in 2006, agreed earlier this week to the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case was originally filed in 2005 and alleges that executives at the company backdated stock options and made false or misleading statements concerning Mercury Interactive's financial results.

The settlement is for $117.5 million and is the largest to date involving stock options backdating. Press coverage can be found in the Wall Street Journal (subscrip. req'd) and the New York Times.

Posted by Lyle Roberts at 3:58 PM | TrackBack

September 5, 2007

Delphi Settles

Delphi Corp. (PINKSHEETS: DPHIQ), a Michigan-based automotive parts manufacturer, has announced the preliminary settlement of the securities class action pending against the company in the E.D. of Michigan. The case, originally filed in 2005, stems from Delphi's financial restatement and subsequent bankruptcy.

The global settlement covers both ERISA and securities class action claims and has a total potential value of $342 million. The securities class action portion is as follows: "the class of purchasers of Delphi's debt securities will receive an allowed claim and the class of purchasers of Delphi's equity securities will receive an allowed interest in the combined amount of $204 million in Delphi's Chapter 11 case as well as approximately $90 million in cash from other defendants and insurance carriers." For the allowed interest in the Chapter 11 case, the investors will receive the "same treatment as Delphi's general unsecured creditors." Bloomberg has an article on the settlement.

Posted by Lyle Roberts at 10:12 AM | TrackBack

May 16, 2007

Tyco Settles

The recent string of notable settlements (see here and here) reached its crescendo yesterday. Tyco International Ltd. (NYSE: TYC), a diversified global company, has announced the preliminary settlement of the securities class action pending against the company in the D. of N.H. The case was filed in 2003 and alleges an enormous accounting fraud scheme (which has led to related criminal law convictions for individual Tyco officers).

The settlement is for $2.975 billion and is being heralded as the largest payout ever by a single corporate defendant in a securities fraud lawsuit. As part of the settlement, Tyco has agreed to assign its related claims against PricewaterhouseCoopers, its former auditor, to the plaintiffs. Press coverage can be found in the Associated Press, the New York Times, and Business Week.

Posted by Lyle Roberts at 7:36 PM | TrackBack

May 11, 2007

Cardinal Health Settles

Cardinal Health, Inc. (NYSE: CAH), an Ohio-based healthcare company, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of Ohio. The case was filed in 2004 and alleges that the company made false or misleading statements concerning its financial results.

The settlement is for $600 million, but is still subject to approval by the lead plaintiffs. MarketWatch has an article on the settlement. (The 10b-5 Daily has previously posted about the lead plaintiff, discovery stay, and motion to dismiss decisions in the case.)

Posted by Lyle Roberts at 4:30 PM | TrackBack

May 8, 2007

Priceline Settles

Priceline.com, Inc. (Nasdaq: PCLN), a Connecticut-based online travel service, has announced the preliminary settlement of the securities class action pending against the company in the D. of Conn. The case was originally filed in 2000 and alleges that the company misrepresented its financial condition. Discovery in the case was scheduled to have been completed by the end of this year. The settlement is for $80 million, with $30 million being paid by the company's insurance carriers.

Posted by Lyle Roberts at 6:42 PM | TrackBack

May 1, 2007

Doral Financial Settles

Doral Financial Corp. (NYSE: DRL), a Puerto Rico-based financial services company, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case was filed in 2005 and alleges that Doral improperly accounted for its derivative portfolio of interest-only strips.

The settlement is for $130 million, consisting of payments from Doral ($95 million), its insurers ($34 million), and one or more individual defendants ($1 million). Doral also agreed to certain corporate governance changes. Because of Doral's precarious financial situation, the settlement is contingent on the company's ability to obtain outside funding for its business. The Associated Press has an article.

Posted by Lyle Roberts at 7:14 PM | TrackBack

April 19, 2007

Motorola Settles

Motorola, Inc. (NYSE: MOT), an Illinois-based wireless and broadband communications company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Ill. The case was filed in 2002 and alleges that Motorola failed to disclose vendor financing to a Turkish wireless telephone company in connection with the sale of telecommunications equipment. The Turkish company eventually defaulted on its loans owed to Motorola. The trial had been scheduled to begin this week.

The settlement is for $190 million, with $75 million coming from insurance proceeds. The Newark Star-Ledger has an article on the settlement. (The 10b-5 Daily has previously posted about the lead plaintiff and motion to dismiss decisions in the case.)

Posted by Lyle Roberts at 7:15 PM | TrackBack

April 12, 2007

Royal Dutch Shell Settles With Non-U.S. Investors

Royal Dutch Shell p.l.c. (NYSE: RDS/A) has announced a landmark settlement with non-U.S. shareholders resolving claims related to the company's recategorizations of certain proved oil and gas reserves. Under the settlement, which was executed pursuant to a new Dutch statute allowing the Amsterdam Court of Appeals to declare binding a collective resolution of a commercial dispute, Shell will pay $352.6 million plus administrative costs to shareholders who bought on non-U.S. exchanges and were resident or domiciled outside the U.S. from April 1999 to March 2004. The parties have also requested that the $120 million Shell paid to the SEC in a related settlement be distributed in a non-discriminatory manner among certain U.S. and non-U.S. shareholders.

Shell also announced that it plans to extend the same proportional settlement offer to shareholders who bought in the U.S. or were resident or domiciled in the U.S. during the same period. According to the press, it is the second-largest settlement of a securities fraud dispute by a European-based company, behind Royal Ahold's $1.1 billion settlement in late 2005. Media coverage can be found in the Wall Street Journal (subscrip. req'd), Bloomberg, and the New York Times.

Posted by Lyle Roberts at 7:03 PM | TrackBack

March 2, 2007

Time Warner Settles With Opt-Outs

Time Warner, Inc. (NYSE: TWX) has settled the claims of five large institutional shareholders who opted-out of a 2005 settlement of the the securities class action against the company over accounting fraud at AOL. Under the opt-out settlement, Time Warner will pay $400 million, $246 million of which will go to the University of California, with other smaller amounts being paid to the California Public Employees Retirement System, Amalgamated Bank, and two pension funds for Los Angeles County employees. The University of California claims that it will receive "between 16 and 24 times what we would have gotten through the class." (For an earlier post on the Time Warner opt-out cases, see here). The Wall Street Journal Law Blog and the New York Sun have reports on the settlement. Best In Class thinks it may be the largest opt-out settlement ever.

Posted by Lyle Roberts at 11:47 PM | TrackBack

January 9, 2007

CMS Energy Settles

CMS Energy, a Michigan-based energy provider, has announced the preliminary settlement of the securities class action pending against the company in the E.D. of Michigan. The case, which was originally filed in May 2002, alleges that CMS Energy made various false and misleading statements by including the results of certain "round-trip" energy trades entered into by one of its Texas-based subsidiaries as part of its revenues and expenses. The proposed settlement is for $200 million, of which CMS Energy will pay $123.5 million and its insurers will pay $76.5 million.

Posted by Lyle Roberts at 9:18 PM | TrackBack

December 18, 2006

CIGNA Settles

CIGNA Corp. (NYSE: CI), a Philadelphia-based employee benefits provider, last week announced the preliminary settlement of the securities class action pending against the company in the E.D. of Pa. The case, which was filed in 2002 and scheduled for trial in March 2007, alleges that CIGNA made various false and misleading statements by providing unrealistically high income guidance to the market and failing to disclose that it had been under-reserving for certain reinsurance obligations. The 10b-5 Daily has posted on a decision in the case related to the disclosure of confidential sources. The proposed settlement is for $93 million.

Posted by Lyle Roberts at 9:42 PM | TrackBack

November 29, 2006

Two Banks Settle Parmalat-Related Claims

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 (for the latest post see here).

Posted by Lyle Roberts at 6:11 PM | TrackBack

November 9, 2006

Martha Stewart Living Settles

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 most recent of which can be found here.) 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.

Posted by Lyle Roberts at 5:57 PM | TrackBack

November 2, 2006

Krispy Kreme Settles

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."

Posted by Lyle Roberts at 6:08 PM | TrackBack

October 16, 2006

BISYS Settles

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).

Posted by Lyle Roberts at 4:45 PM | TrackBack

October 3, 2006

BellSouth Settles

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.

Posted by Lyle Roberts at 7:15 PM | TrackBack

September 20, 2006

McLeodUSA Settles

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.

Posted by Lyle Roberts at 8:33 PM | TrackBack

August 18, 2006

Cisco Settles

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."

Posted by Lyle Roberts at 4:28 PM | TrackBack

August 8, 2006

King Pharmaceuticals Settles

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 Companys 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.

Posted by Lyle Roberts at 7:20 PM | TrackBack

August 2, 2006

El Paso Settles

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 (see here, here, here and here).

Posted by Lyle Roberts at 7:36 PM | TrackBack

July 14, 2006

DHB Settles

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."

Newsday has an article on the settlement.

Posted by Lyle Roberts at 7:48 PM | TrackBack

June 14, 2006

Williams Settles

Williams Companies, Inc. (NYSE:WMB), a Tulsa-based provider of natural gas, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Oklahoma. The case was originally filed in 2002 and alleges that Williams engaged in financial fraud related to its energy trading operation and a former telecommunications subsidiary.

The settlement is for $290 million. The company expects to pay between $145 million and $220 million, with the rest of the funds coming from its insurers. According to a press release from the lead plaintiff, the settlement comes on the eve of trial and after a discovery effort that included "more than 180 depositions and reviews of more than 18 million pages of documents."

Lies, Damn Lies, & Forward-Looking Statements has a number of posts sorting out all of the details on the settlement, including noting that Williams' outside auditors, Ernst & Young, have apparently also settled for $21 million.

Posted by Lyle Roberts at 10:04 PM | TrackBack

May 18, 2006

Sears Settles

Sears, Roebuck and Co., a wholly owned subsidiary of Sears Holdings Corporation (Nasdaq: SHLD), has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Illinois. The case was originally filed in 2002 and alleges that Sears made misrepresentations concerning its credit card business. The settlement is for $215 million. The company is paying $85 million and expects the rest of the funds to come from insurance proceeds. For an analysis of the motion to dismiss decision in the case, see this post.

Posted by Lyle Roberts at 11:38 PM | TrackBack

April 25, 2006

Tip Of The Iceberg?

Over the weekend, the Wall Street Journal had an article (via wsj.com - subscrip. req'd) on the IPO allocation cases. The article discusses the potential impact of the proposed JPMorgan settlement on the overall recovery for investors.

Quote of note: "After J.P. Morgan Chase & Co. agreed in recent days to pay $425 million to settle its part of the civil charges, estimates of the potential amounts that investors could get back have jumped and could reach several billions of dollars, plaintiffs' lawyers say. That could make the case among the biggest brought against major Wall Street firms related to a series of scandals earlier this decade, including the collapse of companies such as Enron and WorldCom. Some plaintiffs' lawyers say they now expect a higher recovery for investors partly because the amount that J.P. Morgan -- the first of the banks to settle the case -- agreed to pay is surprisingly large, given that the IPOs the company led accounted for less than 10% of the total damages calculated by the plaintiffs."

Posted by Lyle Roberts at 7:19 PM | TrackBack

April 21, 2006

Freddie Mac Settles

Over $400 million was the right way to bet on this week's settlements.

Freddie Mac (NYSE: FRE) has announced the preliminary settlement of the securities class action and related derivative suits pending against the company in the S.D.N.Y. The cases relate to Freddie Mac's restatment of financial results for the years 2000 through 2002. The settlement is for $410 million and includes corporate governance reforms.

Posted by Lyle Roberts at 7:24 PM | TrackBack

JPMorgan Settles IPO Allocation Claims

JPMorgan Chase & Co. (NYSE: JPM) has entered into a settlement of the claims against the company in the IPO allocation cases. The settlement is for $425 million. JPMorgan is the first underwriter defendant to settle.

Two notes:

(a) There is already plenty of speculation that JPMorgan's decision to settle early is the result of the fact that it was forced to pay a significant premium when it was the last major bank to settle in the WorldCom case.

(b) Based on the size of this settlement and the fact that there are still 54 underwriter defendants, it appears unlikely that the issuer defendants (who entered into a conditional settlement nearly three years ago) will have to make any payments.

Posted by Lyle Roberts at 6:55 PM | TrackBack

March 29, 2006

Terayon Settles

Terayon Communications Systems, Inc. (Nasdaq: TERN), a Santa Clara-based provider of digital video networking applications, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The case originally was filed in 2000 and is based on allegedly misleading statements concerning the company's ability to obtain certification for its technology.

The settlement is for $15 million, with Terayon paying $2.3 million and the rest covered by insurance. Prior to this settlement, the case had been a lightening rod for criticism over the relationship between short sellers and the securities plaintiffs' bar. For posts from The 10b-5 Daily on the case, see here, here, and here.

Posted by Lyle Roberts at 6:05 PM | TrackBack

March 27, 2006

Challenging The Qwest Settlement

The proposed $400 million settlement of the Qwest securities class action is getting hit from all sides. Not only has there been an objection to the attorneys' fees, but two former executives of the company are alleging that they were improperly excluded from the settlement talks. The court will review the settlement in May. Reuters has an article.

Quote of note: "But in their filing the former executives said shareholders and their lawyers 'irresponsibly failed to explore' the possibility of including Nacchio and Woodruff in the settlement talks, while letting Qwest's founder, billionaire financier Philip Anschutz '...get released from all liability without paying a penny.'"

Posted by Lyle Roberts at 6:38 PM | TrackBack

February 27, 2006

HealthSouth Settles

HealthSouth Corp. (OTC Pink Sheet: HLSH), the largest provider of physical rehabilitation services in the U.S., announced last week the preliminary settlement of the securities class action pending against the company in the N.D. of Alabama. The settlement also covers related derivative suits. The cases stem from the massive accounting improprieties at the company revealed in 2003.

The settlement is for $445 million, including a cash payment from HealthSouth's insurance carriers of $230 million and HealthSouth common stock and warrants valued at $215 million. Interestingly, "the federal securities class action plaintiffs will receive 25% of any net recoveries from future judgments obtained by or on behalf of HealthSouth with respect to claims against Richard Scrushy, the company's former chief executive officer, Ernst & Young, the company's former auditors, and UBS, the company's former primary investment bank, each of which remains a defendant in the derivative actions as well as the federal securities class actions." Bloomberg has this report.

Posted by Lyle Roberts at 10:01 PM | TrackBack

February 20, 2006

Merrill Lynch Settles Analyst Cases

Merrill Lynch has announced the preliminary settlement of 23 securities class actions related to its research coverage of Internet stocks. The cases allege that Merrill Lynch disseminated overly optimistic research and investment recommendations to garner investment banking business. The settlement is for $164 million.

As discussed in this Los Angeles Times article, the settlements surprised some experts because of Merrill Lynch's apparently strong legal position. Many of the cases had already been dismissed, although appeals were pending. (The dismissals are discussed here and in a number of other posts.)

As a result of these settlements and prior actions, only 2 of 41 class actions related to Merrill Lynch's research coverage remain pending. Notably, one of those suits is the Dabit case currently before the U.S. Supreme Court.

Posted by Lyle Roberts at 11:02 PM | TrackBack

February 8, 2006

Nortel Settles

Nortel Networks Corp. (NYSE: NT), the largest North American telephone equipment maker, has announced the preliminary settlement of the securities class actions pending against the company in the S.D.N.Y. The cases are related to Nortel's announcement of revised financial guidance during 2001 and its revision of its 2003 financial results and restatement of other prior periods.

The proposed settlement is for $2.4 billion in cash and stock. In particular, Nortel has agreed to pay $575 million in cash and issue stock equivalent to 14.5 percent of the company. Nortel also will contribute one-half of any recovery from its existing litigation against certain former officers who were terminated for cause. The agreement is conditioned on payments from existing insurance - an issue that has not yet been resolved.

Bloomberg reports that the proposed settlement is the fifth-largest securities class action settlement in U.S. history.

Posted by Lyle Roberts at 6:32 PM | TrackBack

February 7, 2006

Cornerstone Releases Report On Settlements

Cornerstone Research has released an updated report on post-PSLRA settlements of securities class actions through December 2005. The findings include:

(1) Excluding the Enron and WorldCom settlements, the value of securities class action settlements was $3.5 billion in 2005, up from $2.9 billion in 2004.

(2) The settlement value increase is attributable to a 10% increase in the number of settlements (124 in 2005 vs. 113 in 2004), a $2.1 million increase in average settlement value ($28.5 million in 2005 vs. $26.4 million in 2004), and an increase in the number of settlements over $100 million (9 in 2005 vs. 7 in 2004).

(3) The median value of settlements increased 19% to $7.5 million in 2005.

The press release announcing the report can be found here.

Quote of Note (press release): "[W]hile the Cornerstone study finds a significant increase in settlement amounts in 2005, a report recently issued by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research found decreases in 2005 in both the number of case filings, as well as the amount of investor losses associated with case filings. Since there is a delay between case filings and case resolutions, these results suggest - along with the effects of the Dura decision - potential lower settlement values in the future."

Posted by Lyle Roberts at 11:34 PM | TrackBack

January 26, 2006

Bristol-Myers Settles (Again)

Bristol-Myers Squibb Co. (NYSE - BMY), a global pharmaceutical company headquartered in New York, has announced a preliminary agreement to settle the securities class action pending against the company in the D.N.J. The background of the case, which was set to go to trial, is discussed in this post from last August.

The settlement is for $185 million. The plaintiffs announced that it is the "largest recovery ever obtained against a pharmaceutical company in a securities fraud case involving the development of a new drug" and that Bristol-Myers has agreed to publicly disclose the clinical study design and the results of clinical trials for every drug it markets. The company, however, was less committal about the non-financial aspects of the settlement, telling the Associated Press that it "already had two Web sites where it discloses clinical trial results."

In 2004, Bristol-Myers paid $300 million to settle a different securities class action relating to alleged financial misstatements.

Posted by Lyle Roberts at 8:23 PM | TrackBack

January 13, 2006

Tenet Healthcare Settles

Tenet Healthcare Corp., the second-largest U.S. hospital chain, has announced the preliminary settlement of the securities class action pending against the company in the C.D. of Cal. The case was originally filed in 2002 and alleges that Tenet made false or misleading statements about Medicare payments and other issues.

The settlement is for $215 million, including $1.5 million in personal payments from two former officers. Tenet's insurers will contribute $75 million. A related state court derivative case is also being resolved. Bloomberg has an article on the settlement.

Posted by Lyle Roberts at 4:30 PM | TrackBack

November 28, 2005

Royal Ahold Settles

Royal Ahold NV (NYSE: AHO), the Dutch owner of the Giant and Stop & Shop supermarket chains, has announced the preliminary settlement of the securities class action pending against the company in the D. of Md. The case was originally filed in 2003 after Royal Ahold announced a large financial restatement.

The settlement is for $1.1 billion and is the largest U.S. securities class action settlement ever entered into by a European company. Bloomberg has this report.

Posted by Lyle Roberts at 7:06 PM | TrackBack

November 8, 2005

Opting Out Of WorldCom

Compliance Week has an article on the battle between counsel for the WorldCom class action plaintiffs and counsel for the WorldCom opt-out plaintiffs over who obtained a better settlement for their clients. The competing press releases can be found here (class action plaintiffs) and here (opt-out plaintiffs). Thanks to Securities Litigation Watch for the link.

Addition: An interesting sidenote to the $651 million settlement with the opt-out plaintiffs - Citigroup and J.P. Morgan agreed to join the plaintiffs in petitioning the SEC to toughen its disclosure rules for securities offerings.

Posted by Lyle Roberts at 8:00 PM | TrackBack

November 7, 2005

KPMG Settlement Challenged

The controversy over the "reverse auction" in the KPMG tax shelter class action continues (see this post). The New Jersey Law Journal reports (via law.com - free regist. req'd) that a trio of plaintiffs' firms plan to challenge the preliminary approval of a $225 million settlement.

Posted by Lyle Roberts at 9:26 PM | TrackBack

November 1, 2005

Qwest Settles

Qwest Communications International Inc. (NYSE:Q), a Denver-based provider of Internet, data, video, and voice services, has announced the preliminary settlement of the securities class action pending against the company in the D. of Colo. The case was originally filed in 2001 and alleges that Qwest engaged in sham transactions for fiber-optic network capacity to hide declining demand.

The settlement is for $400 million, with an additional $10 million to be paid by co-defendant Arthur Andersen. Qwest's former CEO and CFO are also co-defendants in the case, but are not part of the settlement. According to the announcement, the settlement can be terminated under certain circumstances, "including in the event that the SEC elects not to distribute to the putative class members the $250 million penalty that Qwest has already committed to pay to the SEC." Bloomberg has this report.

Posted by Lyle Roberts at 7:51 PM | TrackBack

October 17, 2005

Throwing In A Little Corporate Governance VI

In a special Sarbanes-Oxley section, today's Wall Street Journal has an article (subscrip. req'd) on the recent trend of requiring corporate governance reforms as part of the settlement of shareholder litigation. Although the article is generally positive about this trend, it has been the subject of some debate.

Quote of note: "There can be immediate advantages, too, such as helping to avoid a protracted fight inside a courtroom, and, more important, possibly reducing payouts. . . . [I]n a handful of cases tracked by NERA since Sarbanes-Oxley was enacted in 2002, evidence suggests that the plaintiffs in a majority of those cases agreed to reduced cash payouts in return for governance reforms. Of the eight settlement agreements tracked that included cash and governance reforms, five included financial payments that were at least 40% lower than NERA's model had predicted, and only two turned out to be higher."

Posted by Lyle Roberts at 5:32 PM | TrackBack

September 21, 2005

WorldCom Settlements Approved

MarketWatch reports that U.S. District Judge Denise Cote (S.D.N.Y.) has given final approval to a series of settlements in the WorldCom case. The settlements were preliminarily agreed to earlier this year and total $3.6 billion.

Quote of note: "'Out of some 4 million potential class members, more than 830,000 of whom submitted proofs of claim, only seven filed timely formal objections to the 2005 settlements,' Judge Cote said in her opinion. 'The very low number of objections evidences the fairness of those settlements.'"

Addition: A New York Law Journal article (via law.com - free regist. req'd) discusses the related attorneys' fees award. In total (including earlier settlements), the two lead plaintiffs' firms will receive $335 million.

Posted by Lyle Roberts at 8:14 PM | TrackBack

September 15, 2005

PSS World Medical Settles

PSS World Medical, Inc. (Nasdaq: PSSI), a Florida-based distributor of medical products, has announced the preliminary settlement of the securities class action pending against the company in the M.D. of Fla. The case was orginally filed in 1998 and arose out of PSS World's acquisition of Gulf South Medical Suppply. Trial was set to begin this November.

The settlement is for $16.5 million, with $13.2 million to be paid for by the company's insurers. PSS World also stated that "it expects to pursue all available legal remedies from Ernst & Young LLP, the auditor of Gulf South prior to the Company's acquisition of the entity, for damages associated with their audits of the Gulf South financial statements and public filings."

Posted by Lyle Roberts at 7:53 PM | TrackBack

August 26, 2005

PwC Settles With Telxon

As reported in The 10b-5 Daily back in November 2003, Telxon agreed to settle the securities class action pending against it in the N.D. of Ohio for $37 million. The company had also brought a separate, but related, suit against PricewaterhouseCoopers (its former auditors) alleging that it had been improperly audited. Telxon had agreed to pay to the shareholder class, under certain circumstances, up to $3 million of the proceeds of that suit.

The other shoe has finally fallen. Telxon announced yesterday that PwC will pay $18 million to settle the separate suit. As promised, $3 million of the proceeds will go to the shareholder class.

Posted by Lyle Roberts at 9:55 PM | TrackBack

August 11, 2005

Summer Of Settlements

The Economist (August 11 edition) has an article discussing the rise in the value of securities class action settlements.

Quote of note: "America's new Class Action Fairness Act seeks to curb frivolous class-action lawsuits against companies in areas such as product liability and labour law, mainly by redirecting more of them to federal courts and so denying lawyers scope to forum-shop among biddable state courts. But before companies declare victory, they should reflect that the law of unintended consequences can sometimes be stronger than the law itself. The Private Securities Litigation Reform Act of 1995 was meant to curb frivolous class-action suits within the field of securities law. But in forcing class-action lawyers to raise their game, it has contributed to a new era of big lawsuits and even bigger settlements."

Posted by Lyle Roberts at 11:27 PM | TrackBack

August 3, 2005

Time Warner Settles

Time Warner Inc. (NYSE: TWX), the world's largest media company, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The suit alleges that AOL inflated its revenue between January 1999 and August 2002 as part of a scheme to gain approval for its merger with Time Warner. Reuters reports that the settlement is for $2.4 billion.

Addition: Co-defendant Ernst & Young has agreed to settle the claims against it for $100 million.

Posted by Lyle Roberts at 7:57 PM | TrackBack

August 2, 2005

CIBC Settles Enron-Related Claims

Canadian Imperial Bank of Commmerce ("CIBC") (TSX: CM, NYSE: BCM) has agreed to a preliminary settlement of the claims brought against it as part of the Enron securities class action pending in the S.D. of Texas. The suit alleges that CIBC helped Enron inflate its revenues by hiding debt.

Bloomberg reports that the settlement is for $2.4 billion, which is more than the Enron-related settlements entered into by JPMorgan Chase or Citigroup and equivalent to 22% of CIBC's book value. The settlements in the Enron case have reached a total of approximately $7 billion.

Posted by Lyle Roberts at 6:03 PM | TrackBack

August 1, 2005

Reliant Settles

Reliant Energy, Inc. (NYSE: RRI), a Houston-based energy provider, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of Tex. The case alleges that from 1999 to 2001 the company engaged in "round trip" energy deals to inflate its revenues and trading volume. The settlement is for $68 million, of which $61.5 million will be paid for by Reliant's insurance carriers. In addition, co-defendant Deloitte & Touche will make a settlement payment of $7 million.

Posted by Lyle Roberts at 7:36 PM | TrackBack

June 30, 2005

Ebbers Adds To WorldCom Settlement

The former CEO of WorldCom is forfeiting most of his assets in settlement of the securities class action claims against him. The Associated Press reports that Bernard Ebbers, who was convicted in March of criminal fraud, "will pay $5 million up front and place the rest of his assets in a trust that will be sold off for an estimated $25 million to $40 million." These sums will be added to the more than $6 billion paid by former WorldCom investment banks in settlement of the suit.

Posted by Lyle Roberts at 11:11 PM | TrackBack

June 27, 2005

Broadcom Settles

Broadcom Corp. (Nasdaq: BRCM), a California-based fabless semiconductor company, has announced the preliminary settlement of the securities class action pending against the company in the C.D. of Cal. The case was originally filed in 2001 and alleges that Broadcom improperly accounted for warrants given to customers who bought certain amounts of the company's products. The settlement is for $150 million. Broadcom "expects that approximately $40 million of that amount will be paid by its insurance carriers."

Posted by Lyle Roberts at 11:47 PM | TrackBack

June 20, 2005

CVS Settles

In the wake of the billion dollar settlements in the Enron and WorldCom cases, it is easy to forget that a hundred million dollar settlement used to be considered very significant. CVS Corp. (NYSE: CVS), the country's largest pharmacy chain, recently announced the preliminary settlement of the securities class action pending against the company in the D. of Mass. The case, originally filed in 2001, was scheduled to go to trial last month. The plaintiffs alleged that CVS failed to properly account for marked down items.

The settlement is for $110 million and will be paid "primarily" by the company's insurance carriers. The Boston Globe had this report.

Posted by Lyle Roberts at 11:39 PM | TrackBack

June 15, 2005

J.P. Morgan Settles Enron-Related Claims

The dominos are beginning to fall. On the heels of Citibank's settlement, JPMorgan Chase & Co.(NYSE: JPM) has announced a preliminary settlement of the claims brought against it as part of the Enron securities class action pending in the S.D. of Texas. The settlement is for $2.2 billion, bringing the total settlements in the case to $4.7 billion and counting. The Washington Post has this article.

Posted by Lyle Roberts at 10:45 PM | TrackBack

June 10, 2005

Citigroup Settles Enron-Related Claims

In another early settlement, Citigroup, Inc. (NYSE: C) has announced a preliminary settlement of the claims brought against it as part of the Enron securities class action pending in the S.D. of Texas. The settlement is for $2 billion and will be covered by the company's existing litigation reserves. Bloomberg has this report.

Posted by Lyle Roberts at 11:45 AM | TrackBack

May 12, 2005

Interstate Bakeries Settles

Interstate Bakeries Corp. (OTC: IBCIQ.PK), the Kansas City-based manufacturer of Wonder Bread and Twinkies, has obtained preliminary court approval for a settlement of the securities class action pending against the company in the W.D. of Mo. The case was originally filed in 2003 and alleges that the company mislead investors about the market for its goods.

The settlement was agreed to last year, prior to Interstate declaring bankruptcy, and has been on hold waiting for the bankruptcy court to allow it to go forward. The settlement is for $18 million, with $15 million to be paid by insurers.

Addition: In related news, Twinkies have turned 75 years old.

Posted by Lyle Roberts at 11:35 PM | TrackBack

May 5, 2005

Fee Objectors

Fee objectors are becoming a more common feature in securities class action settlements and, in some cases, are getting results. The Elan securities litigation was settled last year for $75 million. Plaintiffs requested that their counsel be awarded attorneys' fees of 20% of the settlement or $15 million. There were fifteen objectors to the proposed award, with two of the objectors presenting substantive grounds for their opposition.

In its decision (In re Elan Sec. Litig., 2005 WL 911444 (S.D.N.Y. April 20, 2005)), the court reduced the fee award to 12% of the settlement or $9 million. Notably, the court agreed with the fee objectors that the plaintiffs faced only a modest risk of dismissal at the outset of the case and that the plaintiffs' attempt to use the hours worked by non-lead counsel to justify the size of the fee award should be rejected.

Quote of note: "Virtually all of Unappointed Counsel's hours fall into two categories: (1) 'Investigation, Initial Pleadings, Consolidated Complaint,' and (2) 'PSLRA Notice, Lead Plaintiff Motion.' But Unappointed Counsel failed to segregate the hours devoted to investigation and/or preparation of the Consolidated Complaint and do not establish why they should be compensated for, among other things, seeking but failing to be appointed lead counsel."

Posted by Lyle Roberts at 8:12 PM | TrackBack

April 25, 2005

Arthur Andersen Settles WorldCom-Related Claims

Arthur Andersen LLP, the last remaining defendant in the WorldCom securities class action, has agreed to settle the case. The settlement ends the the ongoing trial in the S.D.N.Y. According to a New York Times article, the settlement is for $65 million plus "20 percent of any amount [Arthur Andersen] paid to distribute its remaining capital to its present and former partners." The settlement also reportedly includes a "most favored nation clause" that guarantees the plaintiffs "the difference between the $65 million and any larger settlement in any other lawsuit [Arthur Andersen] may settle in the future."

Posted by Lyle Roberts at 8:58 PM | TrackBack

April 18, 2005

Dynegy Settles

Dynegy, Inc. (NYSE: DYN), a Houston-based energy provider, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of Texas. The case, originally filed in 2002, alleges fraud related to the accounting treatment and disclosures associated with a structured natural gas transaction know as "Project Alpha."

The settlement is for $468 million (including $150 million from the company's insurers, a $250 million cash payment, and the issuance of $68 million in common stock). Dynegy also agreed to the election of two new directors to its Board of Directors from a list of candidates supplied by the lead plaintiff in the case.

Posted by Lyle Roberts at 3:55 PM | TrackBack

April 15, 2005

Westar Energy Settles

Westar Energy, Inc. (NYSE: WR), a Topeka-based electric utility, has announced the preliminary settlement of the securities class action (and a related derivative suit) pending against the company in the D. of Kansas. The case, originally filed in 2002, alleges that Westar misled investors concerning a proposed separation of its electric utility operations from its unregulated businesses. The settlement is for $32.5 million, with all but $1.25 million being paid by insurance.

Posted by Lyle Roberts at 7:45 PM | TrackBack

March 28, 2005

OM Group Settles

OM Group, Inc. (NYSE: OMG), a Cleveland-based maker of metal-based chemicals, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Ohio. The suit was originally filed in 2002 following a dissapointing earnings announcement. The company subsequently engaged in a financial restatement. The settlement is for $84.5 million ($76 million in cash and $8.5 million in common stock).

Posted by Lyle Roberts at 9:24 PM | TrackBack

March 22, 2005

Ex-WorldCom Directors Settle

As of today, all of the former directors sued in the WorldCom securities class action pending in the S.D.N.Y. have agreed to settle the case. The twelve board members will pay $60.75 million ($24.75 million in personal payments and $36 million from their insurers), bringing the total settlements in the case to slightly over $6 billion. The last remaining defendant is Arthur Anderson. The Associated Press has a report.

Posted by Lyle Roberts at 6:27 PM | TrackBack

March 16, 2005

Make That $6 Billion And Counting

JPMorgan Chase & Co. (NYSE: JPM) has announced the preliminary settlement of the claims brought against it as part of the WorldCom securities class action pending in the S.D.N.Y. JPMorgan is accused of failing to engage in proper due diligence while acting as an underwriter for WorldCom bond offerings and is the last of the defendant banks in the case to settle. The settlement is for $2 billion.

Bloomberg reports that JPMorgan will pay a significant premium (more than 17.5%) over the formula used to establish Citigroup's related settlement. Taken together, the WorldCom securities class action settlements now total approximately $6 billion.

Posted by Lyle Roberts at 4:32 PM | TrackBack

March 14, 2005

Amazon Settles '34 Act Claims

Amazon.com, Inc. (Nasdaq: AMZN), a Seattle-based Internet retailer, has announced the partial settlement of the securities litigation pending against the company in the W.D. of Wash. The plaintiffs brought '33 Act and '34 Act claims based on alleged false statements about the company's financial condition. The settlement is for $27.5 million and only covers the '34 Act claims. The Seattle Times has a report.

Posted by Lyle Roberts at 8:54 PM | TrackBack

March 11, 2005

$4 Billion And Counting

Three more banks have agreed to a preliminary settlement of the claims brought against them as part of the WorldCom securities class action pending in the S.D.N.Y. Deutsche Bank AG, WestLB AG, and Caboto Holding SIM Spa will pay a total of $437.5 million based on their roles as underwriters for WorldCom bond offerings.

Bloomberg reports that the premium over the formula used to establish Citigroup's settlement continues to rise as the case gets closer to trial. The current group of settling banks are paying a 13%-17.5% premium.

Taken together, the WorldCom securities class action settlements now total just under $4 billion.

Posted by Lyle Roberts at 7:00 PM | TrackBack

March 9, 2005

Four More WorldCom Banks Settle

Four more banks have agreed to a preliminary settlement of the claims brought against them as part of the WorldCom securities class action pending in the S.D.N.Y. ABN Amro, Mitsubishi Securities International, BNP Paribas Securities, and Mizuho International, who are accused of failing to engage in proper due diligence while acting as underwriters for WorldCom bond offerings, will pay a total of $428.4 million.

These are the latest in a string of settlements by defendant banks just prior to trial. While the earlier settlements were all calculated using a formula pioneered by Citigroup's settlement, Bloomberg reports that this group of banks is paying a 5%-13% premium.

Posted by Lyle Roberts at 8:13 PM | TrackBack

March 4, 2005

Bank Of America Settles WorldCom-Related Claims

On the eve of trial (set to begin on March 17), Bank of America (NYSE: BAC) has announced the preliminary settlement of the claims brought against it as part of the WorldCom securities class action pending in the S.D.N.Y. Bank of America is accused of failing to engage in proper due diligence while acting as an underwriter for WorldCom bond offerings. The settlement is for $460.5 million and was calculated, according to press reports, using the same formula applied by Citigroup in reaching its earlier settlement in the case.

The settlement has received wide-spread media attention, including articles in today's New York Times and Washington Post.

Quote of note (New York Times): "A lawyer involved in the case said that a half-dozen smaller banks had expressed an interest in settling with the New York fund [which acts as lead plaintiff in the case]. This person said that the fund was likely to insist that at least some of the remaining banks pay a premium over the formula used by Citigroup and Bank of America in their settlements. J. P. Morgan Chase is perhaps the most vulnerable of the remaining defendants because it sold a large portion of the bonds offered by WorldCom in 2000 and 2001."

Addition: The settlements by defendant banks in the WorldCom case are now coming fast and furious. Today it was announced that Lehman Brothers Holdings, Inc., UBS AG, Goldman Sachs Group, Inc., and Credit Suisse Group have agreed to pay a combined $100.3 million to settle the claims against them. These settlements are also based on the Citigroup formula. Bloomberg has a report.

Posted by Lyle Roberts at 4:31 PM | TrackBack

March 2, 2005

Citigroup Settles Global Crossing-Related Claims

Continuing to fulfill its pledge to "put the entire era behind us," Citigroup, Inc. (NYSE: C) has announced a preliminary settlement of the claims brought against it as part of the Global Crossing securities class action pending in the S.D.N.Y. According to a Reuters report, the company acted as one of Global Crossing's bankers and was accused "of issuing inflated research reports and failing to disclose conflicts of interest." The settlement is for $75 million (pre-tax), with two-thirds of the settlement scheduled to go to investors in underwritten public offerings of Global Crossing securities and one-third to other Global Crossing investors.

Posted by Lyle Roberts at 6:57 PM | TrackBack

February 28, 2005

Low Risk Equals Low Fees

Can a securities class action be too easy to settle? The answer may be "yes," if you are plaintiffs' counsel and plan to request a significant fees award.

The Bristol-Myers securities class action filed in the S.D.N.Y. alleged violations of federal securities laws in connection with the companys investment in and relationship with ImClone Systems and issues related to wholesaler inventory and sales incentives, the establishment of reserves, and accounting for certain asset and other sales. The case was settled in July 2004 for $300 million, even though the district court had previously dismissed the claims with prejudice (the decision was under appeal). A few days after the class action settlement, the company also settled a case brought by the SEC.

Plaintiffs' counsel in the securities class action sought $22 million in legal fees (about 7.5% of the funds) as part of the settlement. Last week, however, Judge Preska cut that amount nearly in half, awarding plaintiffs' counsel $12 million. According to a New York Law Journal article (via law.com - free regist. req'd) on the decision, the judge described the case as relatively low risk for plaintiffs' counsel and noted that the "simultaneous settlement of the SEC action suggests that it was the Company's desire, prompted by the SEC, to put its house in order that caused the settlement, not any action on the part of Lead Counsel." This is the second case in the last six months where a court has significantly reduced a proposed fee award based on a determination that the case was low risk (see this post on the earlier decision).

Quote of note: "'[I]t is not thirty times more difficult to settle a thirty million dollar case as it is to settle a one million dollar case,' Southern District Judge Lorretta A. Preska wrote."

Posted by Lyle Roberts at 12:10 AM | TrackBack

February 25, 2005

Novell Settles

Novell, Inc. (NASDAQ: NOVL), a Massachusetts-based information solutions provider, has obtained preliminary court approval for a settlement of the securities class action pending against the company in the D. of Utah. The case was filed nearly five years ago and alleges that Novell engaged in accounting fraud. Although the case was initially dismissed, the U.S. Court of Appeals for the 10th Circuit partially overturned the decision in 2003 (see this post). The settlement is for $13.9 million.

Posted by Lyle Roberts at 7:17 PM | TrackBack

February 3, 2005

Ex-WorldCom Directors' Settlement Fails

Less than a month after it was announced, the settlement by ten former WorldCom outside directors of the securities class action claims against them has collapsed. The settlement was for $54 million, but it was the fact that $18 million of that sum was to be paid personally by the directors that led to extensive media commentary. According to an article (subscrip. req'd) in the Wall Street Journal, District Judge Cote (S.D.N.Y.) "rejected a provision that relates to how much the remaining defendants in the suit might have to pay if they lose the case." Without that provision, the plaintiffs have chosen to withdraw from the settlement.

Posted by Lyle Roberts at 3:33 PM | TrackBack

February 2, 2005

ConAgra Settles

ConAgra Foods, Inc. (NYSE: CAG) has announced the preliminary settlement of the securities class action pending against the company in the D. of Neb. The complaint, originally filed in 2001, alleged that the company had engaged in fraud by permitting its United Agri Products subsidiary to prematurely recognize revenue from sales where the delivery of the goods had not yet taken place. The case is perhaps best known for generating a notable appellate decision on loss causation and materiality. The settlement is for $14 million and is "largely covered by insurance."

Posted by Lyle Roberts at 9:43 PM | TrackBack

January 27, 2005

TXU Settles

TXU Corp. (NYSE: TXU), a Dallas-based energy company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Tex. The case was originally filed in Oct. 2002 and alleges that the company misled investors about its financial performance. The settlement is for $150 million, with at least $66 million to be paid by TXU's insurers, and also includes certain corporate governance reforms.

Posted by Lyle Roberts at 7:51 PM | TrackBack

January 24, 2005

ImClone Settles

ImClone Systems, Inc. (NASDAQ: IMCL), a New York-based biopharmaceutical 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 the company made false or misleading statements regarding the prospects for FDA approval of its Erbitux cancer drug. The events surrounding the case are probably best known for leading to Martha Stewart's conviction for lying to federal investigators about her sale of ImClone shares. The settlement is for $75 million.

Posted by Lyle Roberts at 8:07 PM | TrackBack

January 18, 2005

Cabletron Settles

One of the longest-running securities class actions has settled. The case against Cabletron Systems, Inc. was originally filed in the D. of N.H. in 1997. The plaintiffs alleged that the company hid problems with its main products and engaged in accounting fraud.

In a remarkable series of events, the case was dismissed in 1998 with leave to amend, reassigned several times after the original judge passed away, dismissed again in 2001, reinstated by the U.S. Court of Appeals for the First Circuit in 2002 (in a well-known opinion), and has since been bogged down in discovery and procedural disagreements. In the interim, Cabletron has been replaced with a successor company, Enterasys Networks, which is settling the suit.

According to Enterasys' announcement, the preliminary settlement is for $10.5 million. All but $500,000 of that amount is expected to come from the proceeds of certain insurance policies. This is the second securities class action Enterasys has settled in the last fifteen months.

Posted by Lyle Roberts at 8:36 PM | TrackBack

January 13, 2005

McKesson Settles

McKesson Corp. (NYSE: MCK), a San Francisco health services company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The case was based on the discovery of accounting improprieties at HBO & Co., an Atlanta-based health-care software business that had been acquired by McKesson in January 1999. The settlement is for $960 million. According to Securities Litigation Watch, this will be the fifth largest settlement of a securities class action ever.

The Recorder has an article (via law.com - free regist. req'd) on the settlement. The McKesson securities litigation has a long history, with a number of interesting court decisions. A couple of years ago, The 10b-5 Daily posted about McKesson's attempt to file a counterclaim against former HBOC shareholders for unjust enrichment.

Posted by Lyle Roberts at 7:01 PM | TrackBack

December 22, 2004

PNC Settles

PNC Financial Services Group (NYSE: PNC), a Pittsburgh-based diversified financial services organization, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Pa. The case arises out of transactions between PNC and AIG Financial Products in 2001 that allegedly helped PNC hide losses through the transfer of underperforming loans. The settlement is for $30 million, to be paid by PNC's insurers. AIG Financial Products will contribute an additional $4 million to settle any potential claims brought against it by the plaintiffs.

Posted by Lyle Roberts at 7:41 PM | TrackBack

December 9, 2004

Crossroads Settles

Crossroads Systems, Inc. (Nasdaq: CRDS), an Austin-based provider of storage networking solutions, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Tex. The suit was originally filed in 2001 and alleges that the company made misstatements about the capabilities of its router products and financial results. In a decision earlier this year, the U.S. Court of Appeals for the Fifth Circuit partially reversed a grant of summary judgment for the defendants. The settlement is for $4.35 million, with $3.35 million to be paid by Crossroads' insurance carriers.

Posted by Lyle Roberts at 7:02 PM | TrackBack

October 29, 2004

Lehman Settles Enron Claims

In a week filled with large settlements, Lehman Brothers Holdings, Inc. (NYSE: LEH) has announced the preliminary settlement of the '33 Act claims (misrepresentations in a registration statement) brought against it as part of the Enron securities class action in the S.D. of Tex. The settlement is for $222.5 million and follows on the heels of a similar, albeit smaller, settlement by Bank of America.

Posted by Lyle Roberts at 8:09 PM | TrackBack

October 28, 2004

Elan Settles

Elan Corp. (NYSE: ELN), an Ireland-based pharmaceutical company, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case, originally filed in 2002, alleges that Elan engaged in accounting violations. The settlement is for $75 million, with $35 million to be paid by the company and $40 million by its insurance carrier.

Addition: An interesting sidenote - Elan is the parent company of Dura Pharmaceuticals, the defendant in the loss causation case currently before the U.S. Supreme Court.

Posted by Lyle Roberts at 8:39 PM | TrackBack

October 26, 2004

AT&T Settles

The AT&T securities class action went to trial, but there will be no jury verdict. AT&T (NYSE: T), a N.J.-based telecommunications company, announced today that after three weeks of trial proceedings it is settling the case for $100 million, or about 4% of the damages being sought by the plaintiffs. The company also said that "it intends to seek reimbursement from its insurers for the amounts to be paid."

Posted by Lyle Roberts at 10:48 PM | TrackBack

October 15, 2004

Halliburton Settlement Recap

The 10b-5 Daily has been closely following the interesting events surrounding the Halliburton settlement (the most recent post can be found here). In the October 2004 edition of the SCAS Alert, Bruce Carton has a good summary of the court's recent decision to reject the proposed $6 million settlement in that case.

Posted by Lyle Roberts at 4:49 PM | TrackBack

October 8, 2004

KPMG Settles Lernout Claims

The U.S. and Belgian affiliates of KPMG, Int'l have agreed to a preliminary settlement of the claims brought against them as part of the Lernout & Hauspie securities class action pending in the D. of Mass. (The 10b-5 Daily has previously posted about discovery issues in the case.) KPMG acted as the company's auditor.

The settlement is for $115 million. The New York Times reports the settlement "would be the second-largest ever paid by KPMG, after the $125 million resolution reached last year in connection with its role as auditor of Rite-Aid."

Posted by Lyle Roberts at 6:10 PM | TrackBack

September 13, 2004

Halliburton Settlement Rejected

After a year-long battle among the lead plaintiffs in the Halliburton securities class action (and the recusal of the original judge), the N.D. of Tex. has rejected a proposed $6 million settlement in the case. The court found that it was "not satisfied that the settlement proposed is fair, reasonable and adequate" and expressed concerns "about the manner in which settlement was reached." The New York Times has an article on the decision.

Quote of note: "The judge noted in her opinion that the $6 million payment proposed by the settlement would have been reduced by administrative costs of $1.5 million, lawyers' fees of $1.5 million and expenses of $117,239. Therefore, more than 800,000 potential claimants would share a settlement of less than $3 million. If all the potential class members submitted claims, the court calculated that an investor with 100 shares would recover about 62 cents."

Posted by Lyle Roberts at 12:08 AM | TrackBack

August 10, 2004

Halliburton Settlement Dispute

As reported in The 10b-5 Daily last year, there is a dispute among the lead plaintiffs in the Halliburton securities class action over a proposed $6 million settlement. Scott + Scott (which represents one of the four lead plaintiffs) refused to sign onto the settlement and continues to challenge the appropriateness of the proposed payment. On June 7, 2004, Judge Godbey of the N.D. of Tex. gave his preliminary approval of the settlement. Since then, however, there have been two notable developments.

First, Scott + Scott moved the court to file a new class action complaint against Halliburton. The proposed complaint included allegations from anonymous former employees and got widespread publicity (in a number of newspapers under the erroneous headline "Ex-Employees Sue Halliburton For Fraud"). Second, Judge Godbey discovered this week that he may have sold Halliburton stock during the class period and recused himself from the case. CBSMarketwatch.com has thorough coverage of the story - see here and here. Scott+Scott has stated that it will renew its motions before the new judge.

Posted by Lyle Roberts at 5:59 PM | TrackBack

August 6, 2004

Charter Settles

Charter Communications, Inc. (Nasdaq: CHTR), a cable television provider headquartered in St. Louis, has announced the preliminary settlement of the securities class action (as well as related federal and state derivative actions) pending against the company in the E.D. of Missouri. The case was originally filed in 2002 and alleges that Charter utilized misleading accounting practices and issued false and misleading financial statements and press releases concerning its operations and prospects.

The settlement is for $144 million in cash and equity. Charter's insurance carriers will pay $64 million in cash and the "balance will be paid in shares of Charter Class A common stock having an aggregate value of $40 million and ten year warrants to purchase shares of Class A common stock having an aggregate value of $40 million." The St. Louis Business Journal has an article on the settlement.

Posted by Lyle Roberts at 4:07 PM | TrackBack

August 4, 2004

Bausch & Lomb Settles

Bausch & Lomb (NYSE: BOL), an eye health company based in Rochester, N.Y., has announced the preliminary settlement of the securities class action pending against the company in the W.D.N.Y. The suit was originally filed in December 2001 and claims that the value of Bausch's stock "was artificially inflated by alleged false and misleading statements about expected financial results for the fiscal year 2000."

The settlement is for $12.5 million and will be paid by Bausch's insurance carrier. The Rochester Democrat & Chronicle has a story on the settlement.

Posted by Lyle Roberts at 5:30 PM | TrackBack

July 30, 2004

Bristol-Myers Settles

Bristol-Myers Squibb Co. (NYSE - BMY), a global pharmaceutical company headquartered in New York, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case, originally filed in 2002, alleges violations of federal securities laws in connection with the Companys investment in and relationship with ImClone Systems, Inc. and issues related to wholesaler inventory and sales incentives, the establishment of reserves, and accounting for certain asset and other sales.

Although the district court dismissed the case with prejudice last March, plaintiffs were pursuing an appeal. The settlement is for $300 million and will be charged against Bristol-Myers' litigation reserves. There has been significant media coverage of the settlement, including this Associated Press article.

Addition: The Wall Street Journal has an article (subscrip. req'd) discussing the settlement and the current securities litigation environment. The article notes that "it's not often a defendant agrees to pay nine figures to resolve a case that had been thrown out of court."

Posted by Lyle Roberts at 10:33 PM | TrackBack

July 29, 2004

FirstEnergy Settles

FirstEnergy Corp. (NYSE - FE), a public utility holding company headquartered in Akron, Ohio, has announced the preliminary settlement of the securities class action (and related state and federal derivative suits) pending against the company in the N.D. of Ohio. The suits "alleged violations of federal securities laws and related state laws in connection with events related to FirstEnergy, including the extended outage at the Davis-Besse Nuclear Power Station; the August 14, 2003, regional power outage; and financial restatements related to changed accounting treatments for transition assets being recovered in Ohio."

The settlement is for $89.9 million and is subject to court approval. FirstEnergy's insurance carriers will pay $71.92 million "based on a contractual pre-allocation."

Posted by Lyle Roberts at 11:34 PM | TrackBack

July 6, 2004

Bank Of America Settles Enron-Related Claims

Bank of America Corporation (NYSE:BAC) announced on Friday the preliminary settlement of the claims brought against the company as part of the Enron securities class action pending in the S.D. of Texas. Bank of America has agreed to pay $69 million. It is the second settlement in the Enron case, following the July 2002 settlement by Arthur Andersen's international entities.

Bank of America was sued under the Securities Act based on its role as an underwriter for certain Enron and Enron-related debt offerings. According to a press release from the University of California, the lead plaintiff in the case, Bank of America's payment will be more than 50% of its potential damage exposure.

News coverage of the settlement includes articles from the Associated Press, Bloomberg, and Reuters.

Posted by Lyle Roberts at 7:21 PM | TrackBack

June 30, 2004

Cryo-Cell Settles

CRYO-CELL Int'l, Inc. (OTC Bulletin Board: CCEL), a Florida-based stem cell banking firm, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of Fla. The case, originally filed in 2003, alleges that there was improper recognition of revenue in the Company's consolidated financial statements. The settlement is for $7 million, including a payment of $4 million by CRYO-CELL's former auditors. CRYO-CELL states that the entire amount is covered, minus the applicable deductibles, by insurance.

Posted by Lyle Roberts at 7:50 PM | TrackBack

June 8, 2004

Providian Settles

Providian Financial Corp. (NYSE: PVN), a San Francisco-based provider of consumer credit cards, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The suit, originally filed in 2001 and about to go to trial, alleges that the company made misrepresentations concerning its operations and prospects. The settlement is for $65 million, to be paid by Providian's insurance carriers.

Posted by Lyle Roberts at 11:30 AM | TrackBack

June 7, 2004

Honeywell and Symbol Technologies Settle

Two large settlements from the end of last week:

Honeywell Int'l, Inc. (NYSE: HON), a New Jersey-based diversified manufacturer, has announced the preliminary settlement of the securities class action pending against the company in the D. of N.J. The suit, originally filed in 2002 and currently in discovery, alleges that Honeywell made false and misleading statements relating to the 1999 AlliedSignal/Honeywell merger and its financial performance. Under the terms of the settlement, Honeywell has agreed to pay $100 million into an escrow fund, with $85 million coming from its insurers.

Symbol Technologies, Inc. (NYSE: SBL), a New York-based manufacturer of bar scanner-integrated mobile and wireless information management systems, has announced the preliminary settlement of the securities class action pending against the company in the E.D.N.Y. (as well as settlements with the DOJ and SEC). The suit, originally filed in 2002, alleges that the company made false and misleading statements relating to accounting issues. The settlement is valued at $139 million, including $96.25 million in common stock, $5.75 million in cash (from the company and its ex-CEO), and $37 million in cash from the company as part of a joint compensation fund created in the DOJ settlement. Lead counsel for the class has also issued a press release.

Posted by Lyle Roberts at 6:35 PM | TrackBack

May 26, 2004

PWC Settles Raytheon Suit

In the wake of Raytheon's settlement of the securities class action pending against the company in the D. of Mass. for $410 million in cash and securities, its co-defendant and former auditor, PricewaterhouseCoopers LLP, also has decided to avoid a trial. The Boston Globe has a lengthy article on PwC's agreement to pay $50 million to settle its portion of the suit, which alleged that the auditor helped Raytheon hide cost overruns. Taken together, the Raytheon settlements are the fifth-largest ever in a securities class action.

Quote of note: "The settlement allows Raytheon and PwC to put the dark days of 1999 behind them. But the biggest winners in the case may be the jurors who faced the prospect of sifting through complex and highly technical evidence for six weeks or longer. Instead, just after the jury was led in yesterday morning, Judge Saris disclosed the settlement before lightheartedly admonishing the jurors: 'Don't look so happy!'"

Posted by Lyle Roberts at 9:22 PM | TrackBack

May 21, 2004

Monday Morning Settling (Another Look At Citigroup)

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 for immediate resolution." The question was "whether a district court may certify a class in a suit against a research analyst and his employer, based on the fraud-on-the-market doctrine, without a finding that the analyst's opinions affected the market prices of the relevant securities." In discussing its decision to address that question, the court expressed skepticism about the lower court's ruling. Among other indications that it might be favorably disposed to Citigroup's position, the court: (1) discussed a Seventh Circuit case in which the court had declined to apply the fraud-on-the-market doctrine on class certification; (2) noted that "the application of the fraud-on-the-market doctrine to opinions expressed by research analysts would extend the potentially coercive effect of securities class actions to a new group of corporate and individual defendants - namely, to research analysts and their employers;" and (3) cited a prominent Columbia Law School professor on the point that analyst opinions should be treated differently from issuer statements.

If that were not enough, just five days later the Fourth Circuit issued an opinion establishing that a district court must make a factual finding that the fraud-on-the-market doctrine is applicable before it can be used to support class certification. In Gariety v. Grant Thornton, LLP, 2004 WL 1066331 (4th Cir. May 12, 2004), the court addressed whether a district court could accept "at face value the plaintiffs' allegations that the reliance element of their fraud claims could be presumed under a 'fraud-on-the-market' theory." At issue was whether the relevant securities had been traded on an efficient market (one of the requirements for the application of the theory). The court concluded that because "the district court concededly failed to look beyond the pleadings and conduct a rigorous analysis of whether Keystone's shares traded in an efficient market, we must remand the case to permit the district court to conduct the analysis and make the findings required by Rule 23(b)(3)."

While there are undoubtedly many other factors that go into a settlement (especially one of this magnitude), would the Citigroup settlement have looked different just a week later based on these judicial developments? Maybe not, but it's interesting to speculate.

Posted by Lyle Roberts at 8:42 PM | TrackBack

May 17, 2004

Settlement Roundup (i2 And Raytheon)

The Citigroup settlement may have gotten all of the headlines, but last week was bookended by two other significant settlements.

i2 Technologies, Inc. (OTC: ITWO), a Dallas-based provider of closed-loop supply chain management solutions, announced on Monday the preliminary settlement of the securities class actions (and related derivative lawsuits) pending against the company in the N.D. of Tex. The original suit, first filed in March 2001, alleges that the company made false and misleading statements concerning the characteristics and implementation of certain software products. A second set of class actions were filed starting in April 2003 relating to the company's 2003 financial restatement.

The settlement is for $84.85 million ($43 million from the company's insurance carriers and $41.85 million from the company). Interestingly, i2 also announced that to help fund its portion of the settlement, "the company has entered into definitive agreements providing for the issuance and sale by i2 of $22 million of common stock to certain individual defendants in the lawsuits."

Raytheon Company (NYSE: RTN), a Massachusetts-based leading defense contractor, announced on Thursday the preliminary settlement of the securities class action pending against the company in the D. of Mass. The suit, originally filed in 1999 and about to go to trial, alleges that Raytheon made false and misleading statements concerning its financial performance.

The settlement is valued at $410 million (a cash payment of $210 million and warrants for Raytheon stock with a stipulated value of $200 million). Although Raytheon apparently has yet to reach an agreement with its insurance carriers, the company stated that it "expects to receive insurance proceeds of $75 million in connection with the settlement."

Posted by Lyle Roberts at 6:47 PM | TrackBack

May 12, 2004

Cornerstone Releases Report On Settlements

Cornerstone Research has released an updated report on post-Reform Act settlements of securities class actions through 2003. The findings include:

(1) Of the 96 settlements in 2003, almost 85% were for less than $20 million. Five cases settled for more than $100 million.

(2) 20% of post-Reform Act settlements have involved Section 11 or 12(a)(2) claims and median settlements as a percentage of "estimated damages" are significantly higher for these cases.

(3) Approximately 30% of post-Reform Act settlements have involved institutions serving as lead plaintiffs (as compared to approximately 15% before the Reform Act). After controlling for various factors, the report finds that settlement amounts are higher in these cases.

(4) Less than 15% of post-Reform Act cases have been accompanied by the filing of a derivative action.

Cornerstone's press release can be found here. The company also announced that its report on securities class action filings for 2003 (done jointly with Stanford Law School's Securities Class Action Clearinghouse) will be released shortly.

Addition: The New York Law Journal (via law.com - regist. req'd) has an article on the report.

Posted by Lyle Roberts at 7:24 AM | TrackBack

May 11, 2004

More On The Citigroup Settlement

There is extensive press coverage today of Citigroup's $2.65 billion settlement in the WorldCom case. Some highlights:

Additional Settlements - The Wall Street Journal (subscrip. req'd) reports that the lead plaintiff has given the other defendant banks in the WorldCom litigation 45 days to settle under the same formula used by Citigroup. If the banks agree, they would pay about $2.8 billion to bond investors.

Allocation - The Associated Press reports that, according to the lead plaintiff in the case, Citibank's payment will be allocated with $1.45 billion to bondholders and $1.2 billion to shareholders.

Attorneys' Fees - The Wall Street Journal (subscrip. req'd) and the London Evening Standard report that the complex attorneys' fees arrangement in the case may result in fees of around $140 million for the plaintiffs' firms handling the litigation.

Posted by Lyle Roberts at 12:33 PM | TrackBack

May 10, 2004

"We Want To Put The Entire Era Behind Us"

Citigroup Inc. (NYSE: C) has announced a settlement of the claims against the company in the WorldCom litigation. Citigroup will make a payment of $2.65 billion, or $1.64 billion after tax, to be allocated between class period purchasers of WorldCom stock and WorldCom bonds. According to the press release, the path to settlement became easier last Thursday when New York State Comptroller Alan Hevesi, who oversees the lead plaintiff in the case, agreed to face-to-face discussions. Citigroup also announced that after settling the WorldCom claims it will have a "litigation reserve" of $6.7 billion on a pre-tax basis to address other legal matters, including the Enron securities class action.

News coverage can be found in Bloomberg, Reuters, and the New York Times.

Quote of note (Bloomberg): "Chief Executive Officer Charles Prince said Citigroup faced claims seeking $54 billion in the WorldCom lawsuit. 'We made a $1.64 billion insurance policy to avoid a roll of the dice in front of a jury,' Prince said on a conference call with investors. 'We want to put the entire era behind us.'"

Quote of note II (Bloomberg): "Saudi Prince Alwaleed bin Talal, Citigroup's largest individual shareholder, said Prince and Citigroup Chairman Sanford Weill called him this morning and he told them 'I'm backing them all the way. If this was to go to court it would be so big, God help us,' Alwaleed said. 'The trend in the U.S. and New York is against corrupt practices. Look at Martha Stewart.'"

Posted by Lyle Roberts at 12:12 PM | TrackBack

May 6, 2004

TALX Settles

TALX, Corp. (Nasdaq: TALX), a St. Louis-based business process outsourcer of payroll data-centric services, has announced the preliminary settlement of the securities class action pending against the company in the E.D. of Mo. The case, originally filed in December 2001, alleges that TALX made misleading statements that did not properly account for certain software and inventory, did not reflect certain write-offs, and did not accurately disclose certain business prospects. The settlement is for $5.75 million and will be paid by TALX's insurance carriers.

Posted by Lyle Roberts at 7:31 PM | TrackBack

May 4, 2004

The Top 50

ISS's Securities Class Action Services ("SCAS") has issued a list of the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2003 in which the law firms served as lead or co-lead counsel.

The full report can be found here. Securities Litigation Watch, the blog authored by Bruce Carton of SCAS, also has a post summarizing the results.

Posted by Lyle Roberts at 12:17 PM | TrackBack

April 23, 2004

ESI Settles

Electro Scientific Industries, Inc. (Nasdaq: ESIO), a Portland-based manufacturing equipment supplier, has announced the settlement of the securities class action (and a related derivative suit) pending against the company in the D. of Oregon. The suit, originally filed in March 2003, is based on misrepresentations related to the company's restatment of its financials for the 2002 fiscal year and two subsequent quarters. The settlement is for $9.25 million, of which approximately $3.8 million will be paid by ESI and approximately $5.45 million will be paid by its insurance carrier.

Posted by Lyle Roberts at 2:24 PM | TrackBack

April 21, 2004

The Goldilocks Problem

How can a court determine what amount of attorneys' fees is "just right"? DPL, Inc. and their former accountants, PricewaterhouseCooopers, settled the securities class action against them in the S.D. of Ohio (as well as related state court derivative actions) for $145.5 million. (See this post on the announcement of the preliminary settlement.) The class action portion of the settlement was $110 million and plaintiffs' counsel requested that the court award them 35%, or $38.5 million, in attorney's fees and costs.

In a decision issued last month (but only recently appearing online), the court rejected this fees request after members of the class objected. See In re DPL, Inc. Sec. Litig., 2004 WL 473472 (S.D. Ohio March 8, 2004). The court found that plaintiffs' counsel had achieved an "outstanding" result in the case. According to an affidavit of an economist submitted by plaintiffs' counsel, $110 million represented "between about 62% and 145% of the losses suffered by the members of the class." The court also noted that "a review of the Defendants' motions seeking dismissal of the litigation, motions which were not ruled upon due to the settlement, reveals that it is by no means certain that the claims of the Plaintiffs and the class they represent would have survived rulings on such." Under these circumstances, the court found that the percentage of fund method for calculating the attorneys' fees, with its emphasis on rewarding good results, was more appropriate than the lodestar method (which is based on the number of hours reasonably expended, at a reasonable hourly rate, adjusted by a multiplier).

When it came to the actual percentage to award, however, the court balked at 35%. The court determined that plaintiffs' counsel had done relatively little work to obtain the settlement (primarily briefing the motion to dismiss) and that "an attorney compensated at the hourly rate of $350, an overly generous rate for this part of the world, would have to work 110,000 hours to generate such a fee." The court then concluded that a reasonable award was 20% of the common fund, or $22 million. Notably, the court offered no rationale for selecting 20% as the right amount, as compared to 19%, 21%, or any other percentage below what was requested.

Holding: Sustaining in part and overruling in part the application for attorneys' fees.

Posted by Lyle Roberts at 7:21 PM | TrackBack

Service Corp. Int'l Settles

Service Corp. Int'l (NYSE: SRV), a Houston-based funeral and cemetary company, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of Tex. The suit, originally filed in January 1999, alleges that the company made misrepresentations concerning its prearranged funeral business and other financial matters. The settlement is for $65 million, with $30 million of the payment being provided by the company's insurance carriers.

Posted by Lyle Roberts at 4:27 PM | TrackBack

April 19, 2004

Infonet Settles

Infonet Services Corp. (NYSE: IN), a California-based provider of managed network communications services, has announced the preliminary settlement of the securities class action pending against the company in the C.D. of Cal. The case, originally filed in December 2001, alleges that the company made misrepresentations as part of an initial public offering of Class B common stock. The settlement is for $18 million ($13 million from insurance coverage and $5 million from the company).

Posted by Lyle Roberts at 6:47 PM | TrackBack

April 13, 2004

Singing Machine Settles

The Singing Machine Co. (AMEX: SMD), a Florida-based maker of consumer-oriented karaoke machines, has announced the preliminary settlement of the securities class action (and a related derivative suit) pending against the company in the S.D. of Fla. The suit, originally filed in July 2003, is based on alleged misrepresentations related to Singing Machine's restatement of its 2001 and 2002 financials.

The settlement is for a combination of 400,000 shares of common stock and a cash payment of $1.275 million ($800,000 from the company and $475,000 from its former auditor). Singing Machine also is obligated to make certain corporate governance changes, including expanding its board to six members with independent directors comprising at least 2/3 of the total board seats.

Posted by Lyle Roberts at 5:55 PM | TrackBack

March 30, 2004

SkillSoft Settles (Again)

As reported in The 10b-5 Daily, last December SkillSoft PLC (Nasdaq: SKIL) settled a securities class action brought against the company in the N.D. of Cal. for $32 million. But that still left another, more recent securities class action based on alleged misrepresentations relating to a 2002 financial restatement pending in the D. of N.H.

Yesterday, the New Hampshire-based business and IT training software maker announced the preliminary settlement of the D. of N.H. case for $30.5 million. SkillSoft stated that it is in discussions with its insurers over their potential contribution to the settlement amount.

Posted by Lyle Roberts at 9:44 PM | TrackBack

March 26, 2004

Rayovac Settles

Rayovac Corp. (NYSE: ROV), a Madison-based consumer products company, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Wisconsin. The suit, originally filed in May 2002, alleges that the company and certain of its officers made misleading statements regarding the demand for the company's products and the company's future prospects in connection with a secondary offering. The settlement is for $4 million, to be "principally funded" by Rayovac's insurance carriers.

Posted by Lyle Roberts at 5:27 PM | TrackBack

March 23, 2004

Irvine Sensors Settles

Irvine Sensors Corp. (Nasdaq: IRSN), a Costa Mesa, Ca.-based microelectronics developer, has announced the receipt of preliminary court approval for the settlement of the securities class action pending against the company in the C.D. of Cal. The suit, originally filed in February 2002, alleges that the company made false and misleading statements concerning the prospects of its former Silicon Film subsidiary. The settlement is for $3.5 million, to be paid by the company's insurance carrier.

Posted by Lyle Roberts at 3:44 PM | TrackBack

March 22, 2004

Global Crossing Settles

Global Crossing Ltd. (Nasdaq: GLBC), a fiber-optic network operator that emerged from bankruptcy a few months ago, received preliminary court approval on Friday for a settlement of the securities class action pending against the company in the S.D.N.Y. (as well as a related ERISA action). The case alleges that Global Crossing and its executives falsely inflated the company's revenue by entering into sham swap transactions.

According to a Bloomberg report, the settlement is for $325 million ($245 million for the securities case and $85 million for the ERISA case). Although the company's insurers are paying the bulk of the securities class action settlement, former-CEO Gary Winnick ($30 million) and Simpson, Thacher & Bartlett ($19.5 million) are also making significant contributions. Simpson Thacher was not even a named defendant, but has been accused of engaging in a "flawed and incomplete" investigation on behalf of the board committee that examined the swap transactions.

The settlement is not global - the securities class action will continue against Global Crossing's accountants and underwriters, including Arthur Andersen, Salomon Smith Barney, J.P. Morgan, and Goldman Sachs.

Addition: The New York Times had a fairly comprehensive article on the settlement in Saturday's edition.

Posted by Lyle Roberts at 2:41 PM | TrackBack

March 2, 2004

Apropos Technology Settles

Apropos Technology, Inc. (Nasdaq: APRS), an Illinois-based provider of interaction management solutions, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Ill. The suit, originally filed in November 2001, alleges Apropos made misstatements in the registration statement and prospectus for its initial public offering. The settlement is for $4.5 million (to be paid by Apropos' insurer) and is subject to final court approval.

Posted by Lyle Roberts at 5:44 PM | TrackBack

February 18, 2004

InterCept and InfoSpace Settle

Alliterative coincidence? Here are today's announced settlements:

InterCept, Inc. (Nasdaq: ICPT), an Atlanta-based technology provider for financial institutions and merchants, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Ga. The case, originally filed in 2003, alleges that InterCept made misleading statements concerning the significance of the adult entertainment portion of the companys merchant services business and the impact of new Visa regulations. The settlement, which is subject to court approval, is for $5.3 million. InterCept will pay $3.95 million and its insurance carrier will pay $1.35 million.

InfoSpace, Inc. (Nasdaq: INSP), a Bellevue-based Internet services company, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Wash. The case, originally filed in 2001, alleges that InfoSpace made misleading statements concerning its business and prospects. The settlement, which has received preliminary approval from the court but is still subject to final approval, is for $34.3 million. The entire amount will be paid by the company's insurance carriers.

Posted by Lyle Roberts at 11:11 PM | TrackBack

February 13, 2004

Gemstar-TV Guide Settles

Gemstar-TV Guide Int., Inc. (Nasdaq: GMST), a media technology company based in Los Angeles, has announced the preliminary settlement of the securities class action pending against the company in the C.D. of Cal. The suit is based on alleged misrepresentations made in connection with Gemstars accounting for certain transactions that were subsequently restated between November 2002 and March 2003. The settlement does not include the individual defendants in the class action or the related derivative cases that have been brought against the company.

The settlement, which is subject to court approval, is for $67.5 million, which will be paid in cash and stock. Gemstar will pay an aggregate of $42.5 million in cash to the class in a combination of direct payments and, interestingly, payments which may be made through the SEC. In addition, the company will issue 4,105,090 shares of common stock which was valued at $6.09 per share on the date the agreement was reached, or $25 million in the aggregate (this stock issuance is subject to possible adjustments related to share price). Gemstar will also assign to the plaintiffs certain of its claims against its former auditors, KPMG.

Posted by Lyle Roberts at 3:29 PM | TrackBack

February 5, 2004

Settlements In 2003

Securities Litigation Watch has an article from the February 2004 SCAS Alert that takes a look at "the good, the bad and the ugly" settlements from last year. Bruce Carton notes that large settlements, in terms of overall dollars, do not necessarily translate into large recoveries for the investors.

Posted by Lyle Roberts at 11:26 PM | TrackBack

January 26, 2004

NCI Building Systems Settles

NCI Building Systems, Inc. (NYSE: NCI), a Houston-based manufacturer of metal products for the nonresidential building industry, has announced the preliminary settlement of the securities class action pending against the company in the S.D. of Tex. The case was originally filed in April 2001 and is based on alleged misrepresentations related to the company's restatement of its 3Q 1999 to 1Q 2001 financial results. The settlement is for $7 million.

Posted by Lyle Roberts at 2:24 PM | TrackBack

January 19, 2004

Throwing In A Little Corporate Governance III

The Chicago Tribune has a feature article (free regist. req'd) on the recent trend of requiring corporate governance reforms as part of the settlement of shareholder litigation. The article contains a list of prominent examples, including the Hanover Compressor settlement. (The 10b-5 Daily most recently posted about this issue here.)

Quote of note: "Experts said companies' willingness to make governance changes often depends on the situation. Firms dominated by a controlling shareholder or founding family, they said, are more likely to resist what they deem to be interference. Plaintiffs are more likely to succeed, experts said, in the worst cases of inattentive boards and companies that have cooked the books."

Posted by Lyle Roberts at 7:33 PM | TrackBack

January 7, 2004

Tut Systems Settles

Tut Systems, Inc. (Nasdaq: TUTS) has announced the preliminary settlement of the securities class action pending against the company in the N.D. of California (the company is also settling a related derivative case brought in California state court). According to an article on the settlement in the Oakland Tribune, Plaintiffs had alleged that the company's financial results for the second and third quarters of 2000 "were false and misleading because the company failed to report a major recall of one of its products in the summer of 2000 that resulted in improperly recognized revenues on sales of defective products that were returned during the recall."

The settlement of the securities class action, which is still subject to court approval, is for $10 million. The settlement of the derivative case involves Tuts adoption of certain corporate governance measures and the payment of plaintiff's legal fees and expenses. Both payments will be made by Tut's insurance carrier.

Posted by Lyle Roberts at 9:55 PM | TrackBack

December 31, 2003

Gaming Lottery Settles

The securities class action against Gaming Lottery Corp., pending in the S.D.N.Y. since 1996, has been preliminarily settled for $1 million (or about 7 cents per damaged share before the deduction of litigation expenses). Plaintiffs allege that the company engaged in misrepresentations concerning its acquisition and operation of Special Manufacturing Inc. In the spirit of the holiday season, the notice of proposed settlement states that plaintiffs' counsel have declined to apply for any attorneys' fees.

Quote of note: "Plaintiffs' Counsel are NOT applying for any attorneys' fees. Plaintiffs' Counsel do intend to request the Court to approve a payment to Plaintiffs' Counsel of $90,000 for reimbursement of expenses incurred in connection with the prosecution of this Action, which is less than 23% of the over $400,000 of expenses actually incurred."

Posted by Lyle Roberts at 6:19 PM | TrackBack

December 24, 2003

Lucent Fees Dispute

Two weeks ago, the D. of N.J. approved the settlement of the Lucent Technologies, Inc. securities litigation for over $600 million, the third-largest securities settlement ever. The settlement calls for claimants to receive $315 million in stock; $24 million in the stock of Lucent spin-off Avaya Inc.; $148 million in cash from the Lucent's directors-and-officers insurance; and 200 million warrants. Now comes the battle over attorneys fees.

Co-lead counsel for the main securities class action on behalf of Lucent's common shareholders (there are four other cases on behalf of other classes of investors that are also being settled) are asking for 17% of the $517 million those investors will be awarded: about $88 million. They also seek $3.5 million in expenses for the case, which was litigated for almost four years.

The New Jersey Law Journal has a lengthy article (via law.com - free regist. req'd) exploring the arguments for and against this fee award. The objectors suggest that the fees are excessive compared with the payout to investors, which amounts to no more than 15 cents a share. Plaintiffs' counsel, however, notes that the warrants may make the value of the settlement increase dramatically if Lucent's stock price rises (thereby lowering the percentage of the recovery going to attorneys fees). To bolster their fee request, plaintiffs' counsel retained Columbia Law School Professor John Coffee to submit a supporting certification to the court.

Quote of note: "Typical was T. Tucker Hobgood, who bought 100 shares at $74 a week before it dove to the mid-50s, at which point he bought another 50 shares. All told, Lucent dropped from almost $80 in 1999 to 55 cents by the fall of 2002 after disclosures of inflated revenue reports and accounting shenanigans. 'I'll get $15, with the plaintiffs' lawyers making about $4.50 off me and getting reimbursed another $1.50. Not to unduly hammer only one side of the equation. The company I still own part of paid untold sums to its lawyers to grind the plaintiffs under their feet,' Hobgood wrote to [District Judge] Pisano. 'I lost virtually my entire investment of $10,000. There is nothing fair about this process or this settlement to me. It is a complete waste of time to recover less than one-fifth of one percent of a loss,' he continued."

Quote of note: "[Professor Coffee] listed the 22 largest fee awards for class actions, which showed that 17 were above the 17 percent being sought in the Lucent case, with only five falling below that figure. However, most of those cases that garnered more than 17 percent were significantly smaller than the Lucent payout. Five of the class actions produced fees amounting to 30 percent, but those settlements ranged from $104 million to $185 million. The closest settlement in size to Lucent's, the $687 million in the Washington Public Power Supply Systems case in 1990, resulted in a fee award of just 7.3 percent. Moreover, the $457 million settlement in this year's Waste Management Inc. class action generated a fee amounting to only 7.9 percent. Another so-called megafund class action, brought against Bankamerica Corp., led to a $490 million settlement along with a fee of 18 percent for lead counsel."

Posted by Lyle Roberts at 12:29 PM | TrackBack

December 15, 2003

Lucent Settlement Receives Final Court Approval

Reuters reports that Lucent Technologies, Inc. (NYSE: LU) has received final court approval for the roughly $600 million settlement of the securities litigation pending against the company in the D. of N.J. The settlement was originally announced last March and is one of the largest ever.

Posted by Lyle Roberts at 7:18 PM | TrackBack

December 8, 2003

Justifying The DaimlerChrysler Settlement

Securities class actions are often settled for a fraction of the potential damages. As a result, plaintiffs' counsel can find themselves in the strange position of having to argue against the strength of their own case to justify a proposed settlement.

Although the DaimlerChrysler AG settlement is for $300 million, the Associated Press reports that plaintiffs' counsel worked hard to convince the judge at the settlement hearing that plaintiffs' case had "potentially fatal flaws." The suit alleges that Daimler-Benz AG misrepresented the acquisition of Chrysler as a "merger of equals" to avoid paying Chrysler shareholders a takeover premium for their shares.

Quote of note: "'The biggest problem for us was that the Chrysler division post-merger performance was horrific,' the lawyer said. His comments were meant to convince the judge that the settlement was a nice result for a case that carried considerable risk."

Posted by Lyle Roberts at 7:11 PM | TrackBack

December 5, 2003

The Perfect Storm Settles

Interpublic Group (NYSE: IPG), a New York holding company for advertising agencies, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case is the result of a restatement IPG did in August 2002 for the five years from 1997 to 2001, which corrected inter-company charges that had been wrongly declared as income for the European offices of one of IPG's agencies.

The settlement, which still must be approved by the court, is for $115 million in cash and stock ($20 million cash; $95 million stock at $14.50 a share). According to the announcement, the "parties have also agreed that, should the price of Interpublic common stock drop below $8.70 per share prior to final approval of the settlement, Interpublic will issue at its sole discretion either additional stock or cash so that the consideration for the stock portion of the settlement will have a total value of $57 million."

The 10b-5 Daily has previously discussed (in a post entitled "The Perfect Storm"), the court's May 2003 denial of the motion to dismiss and (in a post entitled "The Perfect Storm Moves On" ) the court's recent grant of class certification.

AdAge.Com also has an article on the settlement announcement.

Posted by Lyle Roberts at 4:15 PM | TrackBack

December 3, 2003

SkillSoft Settles

SkillSoft, PLC, (Nasdaq: SKIL) a New Hampshire-based business and IT training software maker, has announced a preliminary settlement of the securities class action pending against the company in the N.D. of Cal. The case was originally filed in 1998 and the plaintiffs allege that SkillSoft misrepresented its financial condition and prospects in connection with its merger with ForeFront. The settlement is for $32 million, with $16 million being covered by insurance.

The Nashua Telegraph has an article on the settlement, which notes that there is another, more recent, securities class action pending against the company in the D. of N.H.

Posted by Lyle Roberts at 9:44 PM | TrackBack

November 21, 2003

DPL Settles

DPL, Inc. (NYSE: DPL), the parent company of Dayton Power and Light Co., and their former accountants, PricewaterhouseCooopers, have obtained preliminary court approval for the settlement of the securities class action pending against them in the S.D. of Ohio (as well as related state court derivative actions). The class action was originally filed in July 2002.

The settlement is for $145.5 million. The announced source of funds is as follows: 1) $70 million from DPL; 2) $70 million from DPL's liability insurers; and 3) $5.5 million from PWC. According to an Associated Press article, plaintiffs' counsel may receive up to $50.9 million in fees. Final arguments on the settlement will be heard December 22.

Posted by Lyle Roberts at 10:31 PM | TrackBack

November 19, 2003

Aon Settles

Aon Corp. (NYSE: AOC), a Chicago-based insurance holding company, has announced a preliminary settlement of the securities class action pending against the company in the N.D. of Ill. (a separate derivative action filed in state court is also included in the settlement). According to a report in the Chicago Tribune, the case was "filed after Aon announced disappointing earnings in the second quarter of 2002" and alleges that Aon had "released inaccurate information about the corporation's performance" prior to that announcement.

The settlement, which is subject to court approval, is for $7.25 million. Aon is also required to enact certain corporate governance reforms.

Quote of note: "Aon paid a relatively small amount to settle the cases and make them go away, said D. Cameron Findlay, Aon executive vice president and general counsel. 'While we thought these lawsuits were absolutely meritless, we settled for a nominal amount that reflects the nuisance value,' he said."

Posted by Lyle Roberts at 7:20 PM | TrackBack

November 14, 2003

Telxon Settles

Symbol Technologies (NYSE: SBL) has announced that its wholly-owned subsidiary, Telxon Corp., has entered into a preliminary settlement of the securities class action pending against the company in the N.D. of Ohio. The case was originally filed in 1998, prior to Symbol's acquisition of Telxon, and alleges that the company and certain former officers engaged in improper revenue recognition practices and hid adverse business and financial conditions. Telxon's motion to dismiss was denied in September 2000.

The settlement, which is subject to court approval, is for $37 million. Telxon's insurers are expected to pay $12 million of this sum. The company has brought a separate, but related, suit against its former auditors and has "agreed to pay to the class, under certain circumstances, up to $3 million of the proceeds of that lawsuit."

Posted by Lyle Roberts at 6:25 AM | TrackBack

November 10, 2003

Threat Of Bankruptcy Lowers Corel Settlement Value

The court has approved the proposed $7 million settlement in the securities class action against Corel Corp., the Candian company that manufactures WordPerfect.

As posted in The 10b-5 Daily last August, plaintiffs offered a number of justifications to the court for the relatively low settlement amount (about 15% of the alleged damages), including Corel's poor financial position and the defendants' threat to seek refuge in Canadian bankruptcy court in the event of a judgment against them. Judge Brody of the E.D. of Pa. appears to have accepted these arguments. (See this article in The Legal Intelligencer (available via law.com - free registration req.)).

Quote of note: "'Throughout this litigation, defendants have maintained that if judgment is entered against them, they will seek the protection of the Canadian bankruptcy court. If this were to occur, there would be a significant question regarding whether or not Corel's insurance policies would still be available to fund a judgment for plaintiffs,' Brody wrote."

Addition: Judge Brody's opinion approving the settlement can be found here. (Thanks to Adam Savett for the link.)

Posted by Lyle Roberts at 5:01 PM | TrackBack

October 21, 2003

Throwing In A Little Corporate Governance II

The October 2003 edition of ISS's Securities Class Actions Services Alert, contains a useful summary of the recent settlements containing corporate governance reforms. The 10b-5 Daily has previously posted about this developing trend.

Posted by Lyle Roberts at 10:40 PM | TrackBack

October 16, 2003

Enterasys Settles

Enterasys Networks, Inc. (NYSE: ETS), a Massachusetts-based business network service provider, has announced a settlement in the securities class action against the company pending in the D. of N.H. The proposed settlement is for $50.4 million ($17.4 million in cash and $33 million in shares) and is subject to approval by the court. The settlement also covers related derivative actions against the company that have been brought in New Hampshire and Delaware state court.

Enterasys has been the subject of two securities class actions in the past five years. The current settlement is for the case brought in 2002, following a financial restatement, alleging that the company improperly recognized revenue in violation of GAAP. An earlier securities class action against the company filed in the D. of N.H. in 1998 was dismissed with prejudice by the district court, but the decision was reversed by the U.S. Court of Appeals for the First Circuit in this opinion. According to Enterasys' most recent quarterly SEC filing, the 1998 case is still pending.

Posted by Lyle Roberts at 10:26 PM | TrackBack

October 15, 2003

THQ Resolves Arbitration Dispute With D&O Insurer

THQ, Inc. (Nasdaq: THQI) has announced the settlement of its arbitration dispute with National Union, the company's directors' and officers' insurance carrier, over the coverage due for the settlement of a class action lawsuit filed against THQ in February 2000. According to the press release, "National Union had previously contributed $5.0 million to the class action settlement, but had disputed its obligation to pay the balance of $5.0 million under THQ's total of $10.0 million in directors' and officers' insurance coverage." As part of the settlement, THQ will receive a $4 million payment and "additional considerations" from National Union.

Posted by Lyle Roberts at 7:45 PM | TrackBack

Paradyne Settles

Paradyne Networks, Inc. (Nasdaq: PDYN), a Florida-based provider of high-speed network access solutions for broadband voice, data and video, has announced the settlement of the securities class action pending against the company in the M.D. of Fla. The proposed settlement is for $3 million, to be funded by Paradyne's insurance, and is subject to approval by the court.

The plaintiffs have alleged that Paradyne and certain of its officers and directors fraudulently inflated the price of the company's stock from September 1999 to September 2000 by making false and misleading representations about the company's practice of managing and reporting its inventory. The court denied the defendants' motion to dismiss in April 2002.

Posted by Lyle Roberts at 7:24 PM | TrackBack

October 6, 2003

Court Approves DiamlerChrysler Settlement

Reuters reports that Judge Farnan of the D. of Del. has granted preliminary approval for the proposed $300 million settlement of the securities class action against DaimlerChrysler AG. The suit alleges that Daimler-Benz AG misrepresented the acquisition of Chrysler as a "merger of equals" to avoid paying Chrysler shareholders a takeover premium for their shares. (The 10b-5 Daily originally posted about the settlement in August.)

Posted by Lyle Roberts at 3:44 PM | TrackBack

October 3, 2003

Twenty Percent of $1 Billion Is Still A Lot

Securities Litigation Watch has a post on a decision by Judge Scheindlin of the S.D.N.Y. to reduce the proposed attorneys' fees in the Independent Energy Holdings case from 25% to 20% of the recovery. The court evidently "suggested that the contingency risk asserted by plaintiffs' counsel as part of the justification for fees is 'often inflated.'"

It is difficult to figure out the best methodology for measuring contingency risk. Judge Scheindlin appears to have cited overall settlement rates for securities class actions, but that statistic does not provide much information about the contingency risk faced by a plaintiffs' firm in the particular case before the court. (Securities Litigation Watch also notes that the overall settlement rates used in the decision appear to be out-of-date.)

In any event, Judge Scheindlin's willingness to reduce the requested attorneys' fees in a securities class action settlement may be a source of concern for the plaintiffs' bar. The judge presides over the IPO allocation cases, where the investors are already guaranteed a recovery of at least $1 billion. (See this post in The 10b-5 Daily.)

Posted by Lyle Roberts at 7:33 PM | TrackBack

September 30, 2003

Network Associates Settles

Network Associates, Inc. (NYSE: NET), a California-based provider of computer security software and services, has announced the settlement of the securities class action filed in the N.D. of Cal. against the company and certain of its former executives. The settlement is for $70 million and is subject to court approval.

According to a Reuters article, the suit was originally brought in 2000 and 2001 and alleges Network Associates "misled investors by recognizing software revenue when it was shipped to distributors rather than when end-user paid for its products, a practice called 'channel stuffing.'" The company still faces Justice Department and SEC probes over its revenue recognition practices.

Posted by Lyle Roberts at 7:14 PM | TrackBack

September 23, 2003

Lucent Settlement Receives Preliminary Approval

According to a Reuters report, the proposed settlement of the securities class action and related suits against Lucent Technologies, Inc. (NYSE: LU.N), a New Jersey-based telecommunications equipment maker, has received preliminary court approval. The $600 million settlement was announced last March. The class action, originally filed in 2000, alleges that Lucent misled investors concerning the demand for optical networking products and engaged in improper accounting.

Posted by Lyle Roberts at 6:49 PM | TrackBack

September 8, 2003

Halliburton Updates

For those readers following the Halliburton securities class action, two quick updates:

1) As noted previously on The 10b-5 Daily, counsel for one of the lead plantiffs, Scott + Scott, has refused to sign onto the proposed $6 million settlement and is attempting to have Schiffrin & Barroway removed as lead counsel. One of the issues raised by Scott + Scott is why Vice President Dick Cheney, the former CEO of Halliburton, was not named as a defendant. According to a post on Classobjector, the court has rejected Scott + Scott's motion to show cause (i.e., the removal of Schiffrin), but did so without prejudice, leaving open the possibility of further motions on this issue.

2) The Associated Press reports that a separate securities fraud suit against Halliburton and Vice President Cheney, filed by three small investors in federal court, has been dismissed. The allegations in that case were reportedly similar to those in the class action. It will be interesting to see what, if any, effect this dismissal will have on the controversy surrounding the class action settlement.

Posted by Lyle Roberts at 11:50 AM | TrackBack

September 5, 2003

"You May Think You See A Lot Of Enrons But You Don't"

According to an article in the Associated Press, Humana Inc. (NYSE: HUM) has agreed to settle a securities class action brought against Physicians Corp. of America in the S.D. of Fla. (Humana purchased Physicians Corp. in 1997.)

The case alleges that Physicians Corp. hid financial losses in 1996 and 1997. The settlement comes after the denial of a motion to dismiss and is for $10.2 million or an estimated 81 cents per share (44 cents per share after expenses).

Quote of note: Lead counsel for the plaintiffs, defending the size of the settlement, stated - "'They're not easy to win. You don't see many Enrons. You may think you see a lot of Enrons but you don't, and Physicians Corporation is not an easy case,' he said. 'I think it could have been won, but it's not a sure thing.'"

Posted by Lyle Roberts at 12:02 AM | TrackBack

September 2, 2003

Throwing In A Little Corporate Governance

Over the holiday weekend, the USA Today had an article discussing the recent trend of including corporate governance reforms as part of the settlement of shareholder litigation. The article focuses on the recent settlements of the Siebel Systems derivative case and the Computer Associates securities class action (posted about in The 10b-5 Daily).

Addition: TheStreet.com has posted a more comprehensive article on the same topic. The author argues that the increased participation of institutional investors as lead plaintiffs in securities class actions is behind the surge in settlements containing corporate governance reforms.

Posted by Lyle Roberts at 10:38 PM | TrackBack

August 28, 2003

Blame Canada

Corel Corp., the Canadian software company that manufactures WordPerfect, has agreed to pay $7 million to settle a securities class action based on allegedly misleading statements it made in 1999 and 2000 concerning its entry into the Linux market. The case is pending in the E.D. of Pa.

According to an article in the Legal Intelligencer (via law.com - free registr. required), the plaintiffs' damages expert had estimated losses of about $46.3 million based on the alleged fraud. The article discusses in some detail the plaintiffs' justifications to the court for accepting a 15% recovery, including Corel's poor financial position, the defendants' argument that the investors had not suffered any damages, and the relatively small amount of D&O insurance that would be available after a trial. Plaintiffs also alleged that the Corel's defense lawyers had threatened to seek the protection of the Canadian bankruptcy court if plaintiffs managed to obtain a judgment.

Posted by Lyle Roberts at 12:03 AM | TrackBack

August 26, 2003

Computer Associates Settles

Computer Associates International Inc. (NYSE: CA) has announced that it will issue up to 5.7 million shares to obtain a global settlement of the securities class actions, ERISA class actions, and derivative litigation pending against the company. (There may be a cash component to the settlement, however, depending on the share price of the stock at the time of distribution.) The cases are based on how Computer Associates, which makes software from corporate mainframe computers, recognized revenue and awarded executive compensation. In anticipation of the settlement, the company plans to take a pre-tax charge of approximately $144 million in the current quarter.

Quote of note: According to an Associated Press article, lead counsel for the plaintiffs stated "that getting stock today, if the company has a good future, has a better upside for our clients than waiting three, four, or five years to resolve the case."

Posted by Lyle Roberts at 7:41 PM | TrackBack

August 22, 2003

DaimlerChrysler Settles Merger Suit

The big news today is the announcement of a proposed $300 million settlement in the securities class action against DaimlerChrysler AG. The suit alleges that Daimler-Benz AG misrepresented the acquisition of Chrysler as a "merger of equals" to avoid paying Chrysler shareholders a takeover premium for their shares. (The 10b-5 Daily has posted a few times about the case - see here and here.)

A separate suit brought by billionaire financier Kirk Kerkorian, who was Chrysler's largest single shareholder at the time of the merger, is unaffected by the settlement because Kerkorian will opt out of the class. Kerkorian's case is set for a December trial in the D. of Del.

Bloomberg appears to have the most comprehensive article on the settlement (at least as of this posting). The State Board of Adminstration of Florida, a teacher's and workers' pension fund that acted as one of the lead plaintiffs in the case, has issued a press release.

Quote of note (Bloomberg): "The offer, before any opt-outs, is worth about 43 cents a share, minus attorneys' fees. With Kerkorian opting out, the remaining shareholders would each receive about 47 cents per share, minus attorneys' fees. If approved, the settlement would be one of the largest ever in a securities fraud case, according to Bloomberg data. The agreement is tied for ninth place among the largest recoveries in shareholder class-action suits in history, the data shows."

Quote of note II (Bloomberg): "Han Tjan, a spokesman for the Stuttgart, Germany-based automaker, said the company has insurance to cover $220 million of the settlement. DaimlerChrysler officials say the class-action claims by investors other than Kerkorian presented the 'major risk' in the case. 'Now we'll concentrate on the suit with Tracinda [Kerkorian's holding company],' company spokesman Hartmut Schick said."

Posted by Lyle Roberts at 4:04 PM | TrackBack

August 19, 2003

Medi-Hut Settles

Medi-Hut Co., Inc., a New Jersey pharmaceutical and medical device maker, has announced the settlement of the securities class action filed against it in the D. of N.J. The suit was based on alleged accounting fraud. If approved by the court, the settlement will pay investors $400,000 in cash and 861,990 shares of stock (currently trading at about 15 cents a share).

Addition: The August 20, 2003 edition of the Newark Star-Ledger has an article on Medi-Hut and the settlement.

Posted by Lyle Roberts at 2:02 PM | TrackBack

August 14, 2003

Homestore Settles

Homestore Inc. has agreed to pay $63.6 million in cash ($13 million) and stock (20 millon shares) to settle the pending securities class action against the company. The Associated Press reports that the settlement terms include corportate governance reforms.

Quote of note: "As part of the settlement, Homestore agreed to adopt corporate governance reforms within 30 days of the final approval. The company agreed to two-year board terms, the appointment of a new shareholder-appointed director and minimum stock ownership requirements for directors. The company also agreed to not use future stock options for director compensation."

Posted by Lyle Roberts at 11:34 PM | TrackBack

August 12, 2003

First Union Settles Just Inside Courthouse

First Union National Bank has agreed to settle the securities class action suit against the company, based on its alleged participation in a securities fraud commited by Cyprus Funds, for $5 million. According to an article in the Sun-Sentinel, the settlement was reached after two days of testimony in a federal jury trial in Fort Lauderdale.

Quote of note: "Legal experts say the case against First Union was unusual because it resulted in a jury trial. While 'third parties' such as banks or law firms sometimes are sued in connection with securities fraud cases, usually such matters are settled out of court or dropped."

Posted by Lyle Roberts at 7:15 PM | TrackBack

August 7, 2003

Halliburton Settlement On Hold

The Financial Times has a story on the dispute between the lead plaintiffs in the Halliburton securities class action. As previously noted in The 10b-5 Daily, Halliburton Company announced at the end of May that it had agreed to a $6 million settlement.

In a remarkable development, however, Scott + Scott (which represents one of the four lead plaintiffs) has refused to sign onto the settlement and is attempting to have Schiffrin & Barroway removed as lead counsel in the case. Scott + Scott claims that Schiffrin "did not convene a single meeting of the lead plaintiffs, refused to give other firms evidence it had investigated the charges, and then settled the case for $6m, even though some have estimated the damages as high as $6.8bn." There is also some controversy over why Vice President Dick Cheney, the CEO of Halliburton during some of the class period, was not named as a defendant.

The court has scheduled a hearing for August 25.

Posted by Lyle Roberts at 9:22 PM | TrackBack

August 5, 2003

FTD Settles

FTD, Inc. (Nasdaq: FTDI) has sent itself a bunch of flowers with the announcement that it is settling the securities class action against the company for $10.7 million in stock. The case was related to the company's 2002 FTD.com merger.

Posted by Lyle Roberts at 12:00 PM | TrackBack

July 29, 2003

Banks' Enron Settlement

J.P. Morgan Chase & Co. and Citigroup, Inc have agreed to pay $305 million in fines to the SEC and the Manhatten district attorney's office to settle charges that they helped Enron hide billions of dollars worth of loans. The Washington Post ran this story on the settlement in yesterday's edition.

Quote of note: "'The shareholders' claim is that the various banks, including these two, were doing exactly what the SEC says they were doing in this action,'" [Professor Henry T.C. Hu, a law professor at the University of Texas] said. "'The banks are not paying this amount of money for charity purposes; it is not chump change. It tends to give credence to the shareholder allegations. . . . This settlement, complete with the SEC's harsh language, will be materially helpful to the massive shareholder lawsuit.'"

Quote of note II: "Under today's settlement with the SEC and the district attorney, $236 million will eventually be distributed to 'victims' of Enron's fraud. Exactly who will be eligible for restitution has not been determined."

Posted by Lyle Roberts at 8:14 PM | TrackBack

July 23, 2003

Green Tree Settles

The Associated Press reports that Green Tree Financial Corp. has settled the securities class action against the company that has been ongoing since 1998. The suit alleged that the company and its officers engaged in fradulent accounting practices to artificially inflate its stock price and increase the CEO's compensation. The preliminary settlement is for $12.5 million, which will be paid by the company's D&O insurer.

Note that this suit led to the 8th Circuit's seminal decision interpreting the scienter pleading requirements of the Reform Act: Florida State Board of Admin. v. Green Tree Financial Corp. (8th Cir. 2001).

Posted by Lyle Roberts at 2:49 PM | TrackBack

July 14, 2003

IPO Settlement Examined

The San Jose Mercury News ran a story yesterday on the proposed settlement by the issuer defendants in the IPO allocation cases. The author states that investors should not expect a quick or large recovery. The 10b-5 Daily has an earlier post on the settlement terms.

Quote of note: "Like many average IPO investors, Gallagher is hazy on exactly what iBeam or its investment bank was alleged to have done wrong. But he feels he deserves a cut of the settlement anyway. 'I feel I deserve it because, well, I'm not certain why,' Gallagher said sheepishly. 'Nobody talked me into it, that's for sure. The opportunity was there, and I decided to go for it.'"

Posted by Lyle Roberts at 7:16 PM | TrackBack

July 8, 2003

WorldCom Settlement Update II

WorldCom's proposed $750 million settlement (a combination of cash and stock) with the SEC has been approved by Judge Rakoff of the S.D.N.Y. The Associated Press report can be found here.

Quote of note: "Rakoff said killing the company 'would unfairly penalize its 50,000 employees, remove a major competitor from a market that involves significant barriers to entry, and set at naught the company's extraordinary efforts to become a model corporate citizen.'"

CorpLawBlog has posted a persuasive critique of the settlement. No word on how the settlement will effect the pending securities class actions.

Posted by Lyle Roberts at 12:19 AM | TrackBack

July 3, 2003

WorldCom Settlement Update

The Washington Post reports that WorldCom has sweetened its settlement with the SEC, offering $500 million in cash and $250 million in company stock. The 10b-5 Daily has commented on the proposed settlement here.

Posted by Lyle Roberts at 7:13 PM | TrackBack

June 26, 2003

Issuers To Settle IPO Allocation Cases

The big news today is the proposed settlement for $1 billion of the more than 300 cases against companies who made initial public offerings of their shares in the high-tech boom years. The cases, known as the "IPO Allocation" cases, were previously consolidated in the S.D.N.Y. Plaintiffs have alleged, as summarized by Reuters, that the issuers and/or their underwriters "manipulated the market with optimistic research; ramped up trading commissions in exchange for access to IPO shares; and that investors allocated IPO shares were required to buy shares in the after-market to help push up the share price."

The key to the settlement, however, is that the companies and their insurers may never have to pay a dime. Indeed, they may even get to recoup their costs for defending against the litigation to date. A Bloomberg article on the proposed settlement explains that the companies are only liable for the difference between $1 billion and what the plaintiffs are able to collect from the underwriter defendants. In other words, if the plaintiffs recover more than $1 billion from the underwriter defendants, the companies will not have to make any payment. If the plaintiffs recover more than $5 billion from the underwriter defendants, the companies will actually be able to recover various expenses associated with the litigation. In return, the companies appear to have assigned any related claims they may have against the underwriters to the plaintiffs.

Posted by Lyle Roberts at 3:35 PM | TrackBack

June 16, 2003

Monday Morning Settling

Nanonphase Technologies Corp. (Nasdaq: NANX) and Cutter & Buck Inc. (Nasdaq: CBUK) have agreed to settle the securities class actions pending against them.

Nanophase will pay $2.5 million to settle claims arising from the Company's public disclosures in 2001 regarding its dealings with Celox, a British customer.

Cutter & Buck will pay $4 million in cash, plus an additional $3 million based on a formula applied to any recovery of funds from its ongoing suit against its D&O insurer (who has evidently sought to rescind its policy). The settlement also covers a separate derivative suit and includes the implementation of certain corporate governance policies.

Posted by Lyle Roberts at 12:30 PM | TrackBack

June 5, 2003

Rite-Aid Case Breaks Into The Top 5

As discussed in The 10b-5 Daily here, KPMG has settled its portion of the Rite-Aid Corp. securities class action. The Legal Intelligencer has an article summarizing the case's history and the final numbers on the settlements. (Thanks to the Securities Law Beacon for the link.)

Quote of note: "With settlements totaling more than $334 million and attorney fees of about $83 million, the class action shareholders' suit filed in the wake of an accounting scandal at Rite Aid Corp. now ranks among the nation's five largest shareholder settlements ever."

Posted by Lyle Roberts at 3:29 PM | TrackBack

June 4, 2003

"It Just Isn't Justice"

The proposed $500 million settlement to be paid by WorldCom to the SEC for distribution to the companys injured shareholders raises questions about the role of private securities litigation in large corporate fraud cases.

The heart of the issue is the interaction between the Fair Funds for Investors provisions in the Sarbanes-Oxley Act of 2002 and securities class actions. Section 308 of Sarbanes-Oxley allows the SEC to combine civil penalties with the disgorgement obtained from a securities law violator into a fund for the benefit of the victims of the violation. Recent legislation proposed by Rep. Richard Baker (R-La.), the Securities Fraud Deterrence and Investor Restitution Act of 2003, would both increase the civil penalties the SEC could obtain and make it easier for the agency to disburse those funds to investors (the Corp Law Blog has an excellent summary of the proposed bill).

In the wake of Enron and other corporate scandals, Congress is clearly attempting to transfer some of the responsibility for the compensation of injured investors from private securities litigation to the SEC. As stated by Rep. Baker in his press release announcing the new legislation:

If you're the victim of a crime, you might get some satisfaction out of knowing that the car thief has been caught and thrown in the slammer and that your stolen property has been recovered. But to watch the sheriff and a bunch of lawyers, after the trial, pile into your car and drive away with it just isnt justice and isnt an outcome youre likely to consider fair.
The problem is that Sarbanes-Oxley and the Securities Fraud Deterrence Act address the sheriff (the SEC) but are silent on what to do about the bunch of lawyers (private securities litigation).

Which leaves the following question: If injured WorldCom investors receive $500 million from the SEC, what effect should this have on the pending securities class action? Thoughts and comments from readers are welcome.

Posted by Lyle Roberts at 8:02 PM | TrackBack

June 2, 2003

Second Largest Accounting Firm Settlement Ever

The Associated Press reported on Friday that KPMG has agreed to a $125 million settlement in a securities class action in the E.D. of Pa. The case is based on KPMG's role in the events leading to Rite-Aid Corp.'s 1999 restatement of earnings. According to one of the plaintiffs' attorneys, it is the second-largest settlement by an accounting firm in a securities class action (after the Cendant case, in which Ernst & Young agreed to pay $335 million). U.S. District Judge Dalzell's ruling on the settlement is expected next week.

Quote of note: An individual investor objected to the request by the plaintiffs' law firms for 25% percent of the settlement in fees (or roughly $31 million). At the Friday hearing, however, Judge Dalzell seemed disinclined to find the proposed fees excessive, noting that it was a difficult case because "(KPMG) had the very obvious defense that they were victims too . . . It's not a sure thing."

Addition: Judge Dalzell approved the settlement.

Posted by Lyle Roberts at 11:17 AM | TrackBack

May 30, 2003

Halliburton Settlement

Halliburton Company (NYSE: HAL), a Houston-based energy services company formerly run by Vice President Cheney, announced this morning that it has reached a memorandum of understanding to settle the pending securities class action and derivative suits against the company. The cases are based on Halliburton's accounting for revenues associated with unapproved claims and change orders on construction projects. Halliburton did not disclose the financial terms of the settlement, but said the amount was insignificant. CBS Marketwatch has an article.

Addition: Reuters is now reporting that the settlement is for $6 million.

Posted by Lyle Roberts at 11:34 AM | TrackBack

May 29, 2003

Commtouch Settles

Commtouch Software, Ltd., an Israeli anti-spam software maker, has announced the settlement of a securities class action against the company. The case was filed in the N .D. of California in 2001. The settlement consists of a payment of $15 million to members of the class, which will be fully funded by the company's directors and officers insurance.

Posted by Lyle Roberts at 2:21 PM | TrackBack

May 22, 2003

Five Years Later

The Newark Star-Ledger reports in yesterday's edition that the court has approved the settlement in the securities class action against Party City Corp. The case was filed in the U.S.D.C. of New Jersey in 1998, dismissed in 2001, scheduled to be heard on appeal to the Third Circuit in 2002, before finally settling prior to the appellate hearing for $3.8 million.

Quote of note: "Attorneys estimated the settlement works out to about 33 cents a share for members of the class, before deducting attorneys' fees."

Posted by Lyle Roberts at 10:44 AM | TrackBack

May 16, 2003

More on the Hanover Settlement

Business Week Online has an analysis of the Hanover Compressor settlement and its possible impact on future securities class action settlements.

Quote of note: "Richard Bennett, a corporate-governance consultant in Portland, Me., agrees. 'Hanover Compressor may not be a household name, but it's completely unprecedented to have a publicly traded company acknowledge that board members ought to be accountable to their shareholders,' he says. 'I think you're definitely going to see more [groundbreaking corporate-governance settlements] because shareholders are demanding it.'"

Posted by Lyle Roberts at 11:51 AM | TrackBack

May 14, 2003

Settling for More Than Money

The big news today is the securities class action settlement by Hanover Compressor Co., a natural gas compression services company based in Houston, Texas. In addition to compensating investors with a combination of cash, stock, and debt (worth around $80 million according to press reports), Hanover agreed to a series of corporate governance reforms above and beyond anything required by Sarbanes-Oxley or other federal securities laws. Notably, Hanover will: (1) change its outside auditing firm every five years; (2) ensure that two-thirds of its board consists of independent directors; and (3) canvass shareholders holding more than 1% of the company's stock for a list of nominees for two new independent director positions on its board.

The settlement still has to be approved by the U.S. District Court for the Southern District of Texas. Milberg Weiss is lead plaintiffs' counsel and has issued a press release. Numerous wire services and newspapers have run articles, including Reuters, USA Today, and the Houston Chronicle.

Posted by Lyle Roberts at 3:36 PM | TrackBack