Options Backdating - More Updates to the Scorecard
Once again, it is time to update the numbers.
Of the 38 options backdating cases that have been filed as securities class actions, 23 have now reached a resolution. Of the resolved cases, 10 of those cases have been dismissed and 13 have settled.
The thirteen settlements total $1.32 billion, for an average of $101 million.
However, removing the newest (and largest) kid on the options backdating settlement block (UnitedHealth Group) lowers the average back to $35.48 million.
As kindly pointed out by representatives from Coughlin Stoia, lead counsel in the UnitedHealth case, that settlement is:
- more than double the previous total recoveries
- more than 20 times the average recovery in other settled cases
- more than 5 times the previous largest settlement
As we noted earlier, the options backdating cases have settled much more quickly on average, than other cases. The thirteen cases have settled in an average of 567 days. Removing the two outliers, Mercury Interactive, and Brocade, which were filed earlier and added the options backdating allegations in a later amended complaint, drops the average time from filing of initial complaint to tentative settlement for the remaining 11 cases to 498 days.
And the ratio of settlements to dismissals is somewhat out of line with historical averages as well. Most studies (and a quick check of our database) indicate that the percentage of new securities class actions that are dismissed is between 33-40 percent.
With this group of cases, we can look at the data two ways. Dismissals as a percentage of total cases or dismissals as a percentage of cases that have reached a final, or quasi-final resolution.
Under the former analysis, just over 26% of these cases have been dismissed. That number is artificially low, as not all of the cases have yet had a ruling on the motion to dismiss.
Under the latter method, 47.6% of these cases have been dismissed. This number is artificially high, as a number of these cases have already survived a motion to dismiss.
Our complete analysis can be accessed in this presentation.
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Thursday, May 15, 2008 |
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What A Difference A Few Months Makes
Back in February, we took a quick look at the scorecard in the options backdating litigation, tallying up the settlements and dismissals, among other things.
In our earlier review, of the 36 options backdating cases that have been filed as securities class actions, 7 had settled and 3 had been dismissed.
Run the clock for a few months, and 9 of those cases have now been dismissed and 9 have now settled.
The nine settlements total $255.58 million, for an average of $28.4 million.
As noted earlier, these cases have settled much more quickly on average, than other cases. The nine cases have settled in an average of just 440 days. Removing the outlier, Mercury Interactive, which was filed earlier and added the options backdating allegations in a later amended complaint, drops the average time from filing of initial complaint to tentative settlement for the remaining 8 cases to 397 days.
And the ratio of settlements to dismissals is somewhat out of line with historical averages as well. Most studies (and a quick check of our database) indicate that the percentage of new securities class actions that are dismissed is between 33-40 percent.
With this group of cases, we can look at the data two ways. Dismissals as a percentage of total cases or dismissals as a percentage of cases that have reached a final, or quasi-final resolution.
Under the former analysis, exactly 25% of these cases have been dismissed. That number is artificially low, as not all of the cases have yet had a ruling on the motion to dismiss.
Under the latter method, 50% of these cases have been dismissed. This number is artificially high, as a number of these cases have already survived a motion to dismiss.
In any event, things remain interesting in the sometimes long-forgotten world of options backdating.
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Thursday, May 1, 2008 |
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First Filed Tyco Opt-out Case Partially Settles
According to press reports (here), the seven New Jersey public pension funds that filed the first Tyco opt-out case have settled their claims against Tyco International Ltd., Tyco chief legal officer Mark Belnick and directors Richard Bodman, John Fort III, James Pasman Jr. and Wendy Lane for $73 million.
The settlement does not include claims alleged against former CEO L. Dennis Kozlowski and former CFO Mark Swartz, former director Frank Walsh Jr. and Tyco's outside accounting firm PricewaterhouseCoopers LLP and its Bermuda affiliate, PricewaterhouseCoopers.
The New Jersey public funds were represented by Shalov Stone Bonner & Rocco LLP and Riker Danzig Scherer Hyland & Perretti LLP.
A copy of the 348 page, 1343 paragraph second amended complaint filed by the NJ public funds can be found here.
And of course, an updated scorecard of the Tyco opt-out cases can be found here.
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Thursday, April 10, 2008 |
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Bootstrapping Chutzpah and the Missing Checkbook
So an aggrieved shareholder comes to you and wants to file a securities class action.
You file a complaint and then an amended complaint.
The case proceeds in a somewhat normal course of action and at some later date the parties reach a settlement.
The settlement is outlined in a carefully crafted 34 page document.
The parties notify the court that the case has settled and ask for preliminary approval, so notice can be sent to the class.
The court grants the motion to preliminarily approve the settlement, and sets a date for a final approval hearing.
So far, everything is going fine.
And then the defendants forget to pay the amount that they agreed to pay to settle the case.
I don't mean they got out the checkbook and couldn't remember if it was $425,000 (which it was) or $427,000.
I mean the defendants decide to simply not pay.
So, the plaintiffs ask nicely.
And the defendants still don't pay.
So the plaintiffs file a "Motion to Enforce the Class Action Settlement Agreement."
And then, in a great display of bootstrapping chutzpah (one of the better unused names for a rock band), the defendants suggest:
that, by virtue of their nonpayment of the Settlement Amount, the Stipulation has terminated in accordance with its express terms.
and that:
As Lead Plaintiffs note, Defendants essentially argue that they “can cancel the Settlement by breaching their obligation to pay.”Reply at p. 9. Put quite simply, Defendants' interpretation of the Stipulation did not obligate them to do anything: under their reading, Defendants could decide, on a whim, not to pay the Settlement Amount.
Fortunately, the Court decided that:
Such a reading is not tenable, as it would render the Stipulation to be nothing more than an illusory contract.
So, the defendants get another shot at ponying up. Indeed, the judge orders them to pay up within 10 days.
At this point, what do you think the defendants chose to do?
You guessed it, checkbook went missing again, so the Court entered judgment yesterday against the defendants for the full amount, plus interest.
The case is Huttenstine v. Mast, et al., No. 4:05-CV-0015 -F(3) (E.D.N.C.), and we will keep you posted on the efforts to collect the money.
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Tuesday, March 11, 2008 |
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The SCAS 50 for 2007
Today we released our fifth annual "SCAS 50" report.
Based on data from the SCAS database, the SCAS 50 lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2007 in which the law firm served as lead or co-lead counsel.
We look at the data in three main ways for each firm - total settlement dollars, total number of settlements, and average value per settlement. I have listed the top five firms in each category below.
The full report is available here.
2007's Top 5 - Total settlement value:
1. Milberg Weiss
2. Grant & Eisenhofer
3. Schiffrin Barroway Topaz & Kessler
4. Coughlin Stoia Geller Rudman & Robbins
5. Bernstein Litowitz Berger & Grossmann
2007's Top 5 - Average settlement value:
1. Grant & Eisenhofer
2. Milberg Weiss
3. Labaton Sucharow
4. Schiffrin Barroway Topaz & Kessler
5. Bernstein Litowitz Berger & Grossmann
2007's Top 5 - Number of settlements:
1. Coughlin Stoia Geller Rudman & Robbins
2. Schiffrin Barroway Topaz & Kessler
3. Milberg Weiss
4. Bernstein Litowitz Berger & Grossmann
5. Weiss & Lurie
5. Cohen Milstein Hausfeld & Toll
A few observations.
1. Comparing the 2007 numbers to last year's rankings, we see that settlement values do indeed seem to be rising. The cutoff for the Top 20 last year - $94.1 million; For this year - $148.5 million. The increase cascades all the way to the end of the list, where last year $8.5 million would get you on the list, but this year, the price of admission is $17.5 million.
2. It is somewhat surprising to see Bernstein Litowitz in the top 5 for the number of settlements (as opposed to dollar value or average) as the firm is known to be very selective in choosing cases, and thus is potentially involved in fewer cases at any given time.
3. This is the first time that both Cohen Milstein and Weiss & Lurie have been ranked in the top 5 for one of our categories. One might ordinarily say that it is nice to see some fresh faces at the top, but both firms (or their predecessor firms) are old stalwarts in the plaintiffs bar. We have yet to see any of the truly new faces in securities litigation (Motley Rice, Kahn Gauthier, etc.) high up on these rankings.
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Tuesday, February 12, 2008 |
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Holder-Seller Conflicts and Exploding Class Periods
For some time now, a small, but vocal group of judges have written about the theoretical conflict inherent in many securities class actions - namely that when a case settles, current shareholders are paying damages to a class that includes former shareholders. See e.g. In re Seagate II Technology Sec. Litig., 843 F.Supp. 1341, 1362-64 (N.D.Cal.1994); In re Party City Sec. Litig., 189 F.R.D. 91, 108-10 (D.N.J.1999).
We will leave the legitimacy of the holder-seller conflict theory aside for now.
The $20.1 million tentative settlement in the Lumenis Ltd. securities class action announced yesterday has the ability to test whether investors care about this theoretical conflict, particularly when, as noted in the press release announcing the settlement, "the major portion would be paid on behalf of the defendants by the Company's insurers."
As noted in the press release, the company:
has scheduled a special general meeting of shareholders to seek approval and authorization, in accordance with the Israeli Companies Law, of a proposed settlement of the securities class action litigation that has been pending against the Company in the federal court in New York since 2002.
Though I am not licensed to practice law in Israel, and I did not stay at a Holiday Inn Express last night, it appears that the Israeli Companies Law requires shareholder approval of the settlement as it is considered an "extraordinary transaction."
A quick perusal of the 6-K filed by the company this week breaks the settlement down to a more granular level:
The Company has entered into separate confidential settlement agreements with its primary D&O Insurer, Genesis Insurance Company (“Genesis”), and the two excess D&O Insurers whose policies are immediately above the Genesis policy, Zurich American Insurance Company (“Zurich”) and Lumbermens Mutual Casualty Company (“Lumbermens”), as a result of which it is expected that Lumenis itself will directly contribute $2,736,000 toward the settlement of the Securities Class Action and the above-named D&O Insurers will collectively contribute the remaining $17,364,000, for a total of $20,100,000.
Thus the company will contribute about 13% of the total settlement.
Another interesting provision of the settlement, as detailed in the 6-K is the following:
After the filing of the Stipulation of Settlement, Lead Plaintiffs will file a Third Amended and Consolidated Class Action Complaint (“TAC”) naming the same defendants as are named in the SAC and which will incorporate additional allegations and claims based on those alleged in the SEC Civil Action. The TAC will amend and enlarge the class definition to include persons who purchased Lumenis securities at any time between October 2, 2000 and March 7, 2006 (the “Settlement Class Period”). Lumenis and the other defendants will not be required to respond to the TAC, by answer or by motion, unless and until the Court fails to give final approval to the settlement or it is otherwise terminated, and the Company and the individual defendants retain all of their defenses with respect to the TAC.
Thus, the class has grown quite a bit, having started at a mere seven weeks in the initial complaints, morphed to eight months or so in the amended complaints and now stretching nearly five and a half years, beyond even what the extended statute of limitations found in Sarbanes-Oxley would allow.
This poses an interesting philosophical question - is it reasonable to allow a settlement to extinguish claims that have yet to become time-barred - as the end of the enlarged class period is less than two years old. We'll save that one for another day as well.
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Thursday, March 8, 2007 |
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The "Mother" of all Search Engines
Mamma.com Inc. (NASDAQ: MAMA), the company behind the self-proclaimed "Mother of All Search Engines®" announced today that the settlement of the securities class action lawsuit pending against the company and certain officers and directors has received tentative approval.
The Mamma.com class action is pending in the United States District Court for the Southern District of New York before Judge Harold Baer, Jr.
The settlement is valued at $3.15 million, $2.5 million of which will be paid by the company's insurance carrier and $650,000 from the company.
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Tuesday, March 6, 2007 |
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The SCAS 50 for 2006
For the fourth year, my company (ISS' Securities Class Action Services) has issued its "SCAS 50" report.
Based on data from the SCAS database, the SCAS 50 lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2006 in which the law firm served as lead or co-lead counsel.
The full report is available here.
2006's Top 10:
| RANK | LAW FIRM | SETTLEMENT TOTAL | # OF SETTLEMENTS | AVERAGE |
| 1 | Lerach Coughlin Stoia Geller Rudman & Robbins | $7,307,050,000 |
30 |
$243,568,333 |
| 2 | Bernstein Litowitz Berger & Grossmann | $2,634,765,298 |
9 |
$292,751,700 |
| 3 | Heins Mills & Olson | $2,500,000,000 |
1 |
$2,500,000,000 |
| 4 | Milberg Weiss & Bershad | $1,604,608,808 |
22 |
$72,936,764 |
| 5 | Entwistle & Cappucci | $1,100,000,000 |
1 |
$1,100,000,000 |
| 6 | Barrack, Rodos & Bacine | $960,000,000 |
1 |
$960,000,000 |
| 7 | Kirby McInerney & Squire | $650,900,000 |
5 |
$130,180,000 |
| 8 | Abbey Spanier Rodd Abrams & Paradis | $590,295,000 |
8 |
$73,865,625 |
| 9 | Barrett & Weber | $410,000,000 |
1 |
$410,000,000 |
| 9 | Waite, Schneider, Bayless & Chesley | $410,000,000 |
1 |
$410,000,000 |
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Monday, March 5, 2007 |
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First BanCorp Settles Securities Class Action
Today, First BanCorp (NYSE: FBP) announced that it had reached an agreement in principle to settle the securities class action pending against the company and certain officers and directors in the United States District Court for the District of Puerto Rico for $74,250,000.
The Plumbers & Pipefitters Local 51 Pension Fund and two individuals are lead plaintiffs and Lerach Coughlin Stoia Geller Rudman & Robbins LLP and Zwerling Schachter & Zwerling are co-lead counsel in the First BanCorp securities class action.
A quick search of the SCAS database reveals that this is the largest securities class action settlement ever in the District of Puerto Rico.
It also appears that the the First BanCorp litigation is one of only two securities class actions filed in the District of Puerto Rico since the PSLRA was enacted. The other case, on behalf of shareholders in Pepsi-Cola Puerto Rico Bottling Co. (n/k/a PepsiAmericas, Inc. (NYSE: PAS)) was settled in 1997.
The District of Puerto Rico can now be added back to the list of Federal courts without an active securities class action.
Thanks to Werner Kranenburg (With Vigour and Zeal) for the tip.
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Wednesday, July 19, 2006 |
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Hatfields and McCoys Announce Proposed Settlement
OK, it's not exactly the Hatfields and McCoys (the Hatfield clan is shown here, circa 1897), but in this press release dated June 29, 2006, Milberg Weiss and Lerach Coughlin announced a proposed settlement of the securities class action against Imperial Chemical Industries, PLC. In an odd twist, the now-divided Milberg Weiss and Lerach Coughlin law firms somehow ended up as co-lead counsel in this case. According to the SCAS database, however, these firms serving as co-lead counsel is not as rare as one might assume: our database shows that this has occurred in 10 cases (8 settled, 1 dismissed, 1 still active).
The amount of the proposed settlement in the Imperial Chemical case?
[Drum roll...]
$3.8 million, less 1/3 for attorneys' fees and $100,000 in expenses.
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Wednesday, March 1, 2006 |
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Enron Settlement Recovery Update: $7.89/Share and Counting
On February 22, a federal judge in Texas gave preliminary approval to a partial settlement of the Enron securities class action with three investment banks (Citigroup, JPMorgan Chase and CIBC) that will pay a combined $6.6 billion (see AP article here).
An article in the February 27 Texas Lawyer reports that this partial settlement alone will result in some sizeable recoveries for investors. According to the article, a class notice filed with the court states that the partial settlement, before fees and expenses, will provide about $7.89 for each common share of Enron stock. With banks such as Merrill Lynch & Co., Barclays PLC, Toronto-Dominion Bank, Royal Bank of Canada, Deutsche Bank AG and the Royal Bank of Scotland Group PLC still remaining as defendants in the case, this per share recovery figures to keep rising.
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Thursday, February 9, 2006 |
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Interesting Twist to Nortel Settlement
As widely discussed in articles such as this one, Nortel has agreed to pay $2.4 billion to settle securities class action lawsuits concerning accounting irregularities. According to the SCAS database, the settlement will be the 5th largest ever, behind only Enron ($7.14B), WorldCom ($6.15B), Cendant ($3.18B) and AOL Time Warner ($2.65B).
According to Nortel's press release on the settlement and published reports, the settlement will also include an interesting (especially if you work at ISS) corporate governance-related term. In its press release, Nortel states that
The proposed settlement is also conditioned on Nortel and the lead plaintiffs reaching agreement on corporate governance related matters and the resolution of insurance related issues.
Nortel is committed to benchmarking its corporate governance practices to those of companies ranked in the top quartile by Institutional Shareholder Services. "The Board of Directors strongly believes that sound and responsible corporate governance is integral to Nortel's future," said Harry Pearce.
While it is not completely clear from the quote above that the benchmarking to ISS' ranking is a term of the settlement, articles such as this one in the E-Commerce Times suggest that this is the case:
In addition to the payments, the agreement will likely include some requirements that Nortel adhere to certain corporate governance standards going forward....
***
Nortel said while details were still being hammered out on the corporate governance terms of the agreement, it was comfortable being compared to the top-ranked publicly traded companies in terms of corporate governance as measured by Institutional Shareholder Services.
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Thursday, February 2, 2006 |
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"Clearing Up Class-Action Settlements"
Chris Kentouris of Securities Industry News has this article entitled "Clearing Up Class-Action Settlements" that discusses my company (ISS' Securities Class Action Services) and the work we do for institutional investors to help them recover settlement funds. As discussed in the article,
With ISS's outsourced service, investment advisers and custodian banks just have to provide a list of their clients' positions in an affected security; ISS will take care of all the paperwork necessary to retrieve funds--no small task considering the dozens of pages that must be filled out and sent to claims administrators. Multiply that by the several dozen lawsuits that a large fund or custodian bank needs to keep track of each year, and one could end up buried in a mountain of paper. And funds are not recovered automatically. It can take two to five years to retrieve funds, if at all. "Some firms do the work through corporate actions departments, others have specialized units and yet others cobble together staff from different departments each time they need to process proof-of-claim paperwork," says Bruce Carton, vice president at ISS. "That work doesn't even take into account the need to maintain a database on pending settlements." Carton estimates that outsourcing to a firm such as ISS often saves the annual salaries of at least two full-time operations executives. Mellon Bank has a dedicated staff of 12 working within a specialized securities class-action lawsuit unit.
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Tuesday, November 29, 2005 |
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Ahold: At Least We're Not #1, 2, 3 or 4!
As discussed here, Ahold's agreement to settle the securities class action against for $1.1 billion is the 5th largest settlement in history. The company seems to be taking great comfort from the fact that these four other larger settlements exist. As discussed in this article from the Daily Telegraph, Ahold Executive board member Peter Wakkie
said yesterday the settlement was fair to US investors and other shareholders and to the company itself: "It is a substantial compensation for shareholders of between $1 and $1.30 per share. This is not so high that it will bring Ahold into problems.
"Other lawsuits have been settled for well over $2 billion so we are happy we are having to pay an amount that's south of that."
So the new standard has been set for defendants--if any other company has settled any other, unrelated lawsuit for more than you are agreeing to settle for... you should be happy! Plaintiffs' lawyers, I think this should work out just fine for you.
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Monday, November 28, 2005 |
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Ahold: No. 5
According to news reports, Ahold has agreed to settle the securities class action filed against it for $1.1 billion. The SCAS database shows that when it becomes final, this will be the 5th largest settlement in history behind only Enron ($7,144,500,000), WorldCom ($6,156,100,670 ), Cendant ($3,186,500,000) and AOL Time Warner ($2,650,000,000). Indeed, the total settlement amount in this case may still rise further, as the plaintiffs reportedly intend to pursue their claims against Ahold's former accountants, Deloitte & Touche, in the case.
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Thursday, August 4, 2005 |
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Enron Settlements Starting to Line Up, Part II
Following CIBC's $2.4 billion settlement in the Enron case (discussed here), Bill Lerach continues to turn up the heat on the remaining defendants in the case (reported to include Barclays PLC, Credit Suisse First Boston, Merrill Lynch & Co., Toronto Dominion Bank, Royal Bank of Canada, Deutsche Bank AG and the Royal Bank of Scotland Group). In this interview with MarketWatch, Lerach laid down the gauntlet for the remaining defendants:
Q. CIBC was considered a smaller player in this matter. What message does its settlement send to companies that allegedly had larger roles?
Part of the enormous significance of the CIBC settlement is that it came from a bank that's 1/20 the size of Citibank and J.P. Morgan. It is the smallest of all the defendant banks. So while we cannot and will not predict the future, the pattern of escalating settlements is clearly established and is something that we will pursue.
The banks are in a tough spot. Every settlement that occurs puts more pressure on the non-settling banks because they have less banks to share the remaining liability with. So the litigation dynamic and pressure is very negative for the banks.
Q. Still, can you see a defendant going to trial rather than settle?
I don't think any of them will. The case is too dangerous, too large, too risky. And especially the prospect of standing trial along with confessed or convicted felons in Houston in the Enron scandal is a most unappetizing dish for any of these banks to consume.
Lerach is correct that it will take some serious "bet the company" guts for any of the remaining defendants to stay in this case to the end--which is unlikely. So look for a flurry of big settlements soon....
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Enron Settlements Starting to Line Up, Part II
Following CIBC's $2.4 billion settlement in the Enron case (discussed here), Bill Lerach continues to turn up the heat on the remaining defendants in the case (reported to include Barclays PLC, Credit Suisse First Boston, Merrill Lynch & Co., Toronto Dominion Bank, Royal Bank of Canada, Deutsche Bank AG and the Royal Bank of Scotland Group). In this interview with MarketWatch, Lerach laid down the gauntlet for the remaining defendants:
Q. CIBC was considered a smaller player in this matter. What message does its settlement send to companies that allegedly had larger roles?
Part of the enormous significance of the CIBC settlement is that it came from a bank that's 1/20 the size of Citibank and J.P. Morgan. It is the smallest of all the defendant banks. So while we cannot and will not predict the future, the pattern of escalating settlements is clearly established and is something that we will pursue.
The banks are in a tough spot. Every settlement that occurs puts more pressure on the non-settling banks because they have less banks to share the remaining liability with. So the litigation dynamic and pressure is very negative for the banks.
Q. Still, can you see a defendant going to trial rather than settle?
I don't think any of them will. The case is too dangerous, too large, too risky. And especially the prospect of standing trial along with confessed or convicted felons in Houston in the Enron scandal is a most unappetizing dish for any of these banks to consume.
Lerach is correct that it will take some serious "bet the company" guts for any of the remaining defendants to stay in this case to the end--which is unlikely. So look for a series of big settlements soon....
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