INSIDE THIS ISSUE
• 2011: Third Highest Year OnRecord For The Median Settlement In Securities Class Action Suits
• Federal Judge NixesSEC-Citigroup $285 Million Settlement
• U.S. Conferences And Educational Seminars
2011:
Third Highest Year On Record For The Median Settlement In Securities Class
Action Suits
On December 14, 2011,
National Economic Research Associates, Inc. (“NERA”) released its year-end 2011
report analyzing securities class actions, entitled “Recent Trends in Securities
Class Action Litigation: 2011 Year-End Review.”
The report, which examines recent securities class action filings,
including complaints and settlements, highlights the crucial role that
securities class actions play in regulating financial markets and describes
several notable trends in securities class actions. Significant developments identified in NERA’s
2011 report included a sharp increase in the number of suits against Chinese
companies, a large number of merger and acquisition objector suits, and an
uptick on the value of settlement in 2011.
In 2011 there were 64
filings against foreign-based companies, which was more than a third of total
filings. By contrast, there were only 24
such filings in 2009 and 27 in 2010.
This increase was largely driven by the surge in filings against
companies based in China. These suits
against Chinese companies have largely been located within the Second and Ninth
Circuits, with only five cases having been filed outside of those
circuits. Over 90% of these suits made
allegations concerning accounting improprieties. Out of all securities class action suits that
alleged accounting violations, over half were suits against Chinese companies.
Also significant was
the high number of merger and acquisition objector suits filed in 2011. These cases generally allege that officers
and directors of target companies in mergers and acquisitions breached their
fiduciary duties by either failing to achieve a suitable purchase price for
their company or by operating under a conflict of interest. Although the number of these suits in 2011
dropped to 61 total suits from 68 such suits in 2010, these objector lawsuits
still comprised the single largest category of non-standard cases tracked by
NERA.
The median settlement
value in 2011 was $8.7 million. This
figure was the third highest median settlement since the Private Securities
Litigation Reform Act was passed in 1995.
Although this figure demonstrates that aggrieved investors have had
success in recouping their losses through securities class action litigation,
investors continue to suffer severe financial losses due to securities law
violations. In fact, the NERA report
demonstrated that median investor losses in 2011 due to securities law
violations were the second highest on record.
Generally, as investor losses grow, so does the
settlement size. The NERA report,
however, demonstrated that this relationship is not linear, as cases with
investor losses of below $20 million on average settle for 38% of investor
losses while cases with investor losses of over $1 billion settle for an
average of 2.3% of investor losses.
As investor losses continue to rise, it is
necessary for investors to take steps to protect their portfolios. One such step is to participate in a portfolio
monitoring system that can electronically identify losses arising from
corporate fraud. For information
regarding Scott+Scott’s portfolio monitoring system, please contact David Scott
at (800) 404-7770 or drscott@scott-scott.com.
Federal Judge
Nixes SEC-Citigroup $285 Million Settlement
A federal judge
rejected a $285 million plan to settle a lawsuit the U.S. Securities and
Exchange Commission (“SEC”) filed against Citigroup for misleading investors
about an investment tied to the deteriorating housing market. The SEC had accused Citigroup—the third
largest U.S. lender—of making misrepresentations in connection with a billion
dollar fund it structured as a vehicle for unloading residential
mortgage-backed securities on investors.
The complaint claims Citigroup knew the assets were backed by
underperforming subprime loans.
Nonetheless, Citigroup touted the investments as attractive and then
took a short position on those very same assets, betting their value would
drop.
Simultaneous with the
filing of its complaint against Citigroup, the SEC sought to have the court
approve a sweetheart settlement for Citigroup.
Although the SEC says investors lost more than $700 million, the SEC
agreed to let Citigroup off for a fraction of the harm it allegedly caused and
with no admission of wrongdoing.
Citigroup agreed to disgorge $160 million in profits, plus $30 million
in interest, and pay a $95 million civil penalty to the SEC, while being
enjoined from engaging in future securities fraud violations and also required
to implement certain internal controls to prevent recurrences.
Accusing the agency
of failing to do its job, the Honorable Judge Jed S. Rakoff of the U.S.
District for the Southern District of New York concluded he had “not been
provided with any proven or admitted facts upon which to exercise even a modest
degree of independent judgment.” In
seeking court approval of the settlement, the SEC had brazenly argued that
public interest was not a consideration in this case—a position Judge Rakoff
flatly rejected, refusing to be “a mere handmaiden to a settlement privately
negotiated on the basis of unknown facts, while the public is deprived of ever
knowing the truth in a matter of obvious importance.” He said that if the charges against Citigroup
are true, the SEC settlement is too weak to hold the bank accountable. Calling Citigroup “a recidivist” securities
fraud offender, he further criticized the SEC’s practice of letting financial
institutions like Citigroup settle without admitting or denying liability:
As
for common experience, a consent judgment that does not involve any admissions
and that results in only very modest penalties is just as frequently viewed,
particularly in the business community, as a cost of doing business imposed by
having to maintain a working relationship with a regulatory agency, rather than
as any indication of where the real truth lies. This, indeed, is Citigroup’s
position in this very case.
Instead of approving
the settlement, the court set the case for trial in July 2012. A trial could establish conclusions that
investors could use against Citigroup, as could a new settlement that includes
admissions by the bank. Citing legal
error, the SEC vowed to appeal this decision to the U.S. Court of Appeals for
the Second Circuit.
The U.S. Department
of Justice’s Antitrust Division (“DOJ”) and the Federal Trade Commission’s
Bureau of Competition (“FTC”) share responsibility for enforcing the nation’s
antitrust laws. The DOJ and FTC share
the core mission of ensuring that consumers and businesses are protected from
violations of the antitrust laws. The
pillars of these bodies’ work are merger enforcement, civil enforcement,
criminal enforcement, and competition advocacy.
Merger Enforcement
In 2011, the DOJ and
FTC reported an increase in merger filings from 2010. The DOJ received 1,450 merger applications in
2011, which was up 25% from the 1,166 merger filings in 2010. The DOJ allowed 98% of the transactions it
reviewed without requesting further information from the parties. The FTC reported challenging 17 mergers. Among these actions was the DOJ’s challenge
of H&R Block’s acquisition of TaxACT.
Both companies offer do-it-yourself tax preparation software. The DOJ litigated the case and won its first
favorable merger decision since 2003.
The United States District Court for the District of Columbia ruled that
the proposed transaction threatened to substantially reduce competition and
innovation in do-it-yourself tax preparation services.
Another notable
merger challenge was AT&T’s proposed $39 billion acquisition of
T-Mobile. The merger would have created
the largest mobile wireless company in the United States. The DOJ alleged that the transaction would
have substantially reduced competition in mobile wireless telecommunications
services markets across the United States.
The enforcement action resulted in the parties abandoning the deal
shortly before trial.
The DOJ entered into
a consent decree, which allowed Google to acquire ITA, a software that powers
airfare search engines for travel websites.
The DOJ was concerned that Google would cancel licensing agreements between
ITA and airfare comparison and booking websites. The consent decree requires Google to license
the software on commercially reasonable terms.
The settlement also establishes a mechanism for compliance monitoring
under which licensees have a direct avenue to report violations of the
settlement to the DOJ.
In June 2011, the DOJ
and FTC released an updated version of the Horizontal Merger Guidelines. These guidelines are intended to make the
agencies’ processes more transparent for the benefit of the merging parties,
the antitrust community, and consumers.
Civil Enforcement
The DOJ and FTC
monitor the nation’s markets for threats to competition that could harm
American consumers and businesses. In
2011, the DOJ sued Visa, MasterCard, and American Express, challenging rules
that the credit card networks impose on merchants, which prevented merchants
from extending discounts to consumers who elect to use less expensive forms of
payment. Visa and MasterCard entered into
a settlement with the DOJ, while American Express elected to defend the
merchant restraints in litigation.
Another notable case
is the DOJ’s challenge of a Texas hospital’s use of exclusionary contracts with
health insurers to maintain monopoly power in its local market. This is the first monopolization case brought
by the DOJ since 1999. The hospital
agreement entered into a consent decree that prohibits it from engaging in
practices intended to exclude its rival’s ability to compete in the market.
Criminal Enforcement
Criminal enforcement
of the antitrust laws remains a key priority in federal enforcement
policy. The DOJ filed 90 criminal cases
in 2011, secured over $520 million in criminal fines, and obtained 10,544 days
of jail time for antitrust criminals.
These cases were brought in a number of industries that are key to the
improvement of the U.S. economy, including real estate, auto parts, and
financial services.
The DOJ cooperated
with a number of enforcement agencies across the world to uncover an
international cartel in the auto parts industry. The ongoing investigation has resulted in
four guilty pleas, $200 million in fines, and three jail terms for key
executives involved in the plot to rig bids and fix prices of auto parts that
are found in every American’s vehicle.
The DOJ also imposed
massive criminal fines against JPMorgan Chase, UBS, and Bank of America for the
firms’ involvement in a bid rigging conspiracy in the municipal bond investment
market. JPMorgan paid $228 million, UBS
paid $160 million, and Bank of America paid $137.3 million. The DOJ is coordinating this ongoing
investigation with the U.S. Securities Exchange Commission, the Internal
Revenue Service, the Office of the Comptroller of the Currency, the Federal
Reserve Bank of New York, and 25 state attorneys general.
In real estate, the
DOJ uncovered bid rigging conspiracies at public real estate foreclosure and
tax lien auctions. To date, 32
individuals have pled guilty.
Competition Advocacy
The DOJ and FTC promote competition through advocacy
efforts. In 2011, the FTC continued its
efforts to outlaw anticompetitive “pay-for-delay” agreements. Under pay-for-delay agreements, brand-name drug
manufacturers and the manufacturers of a generic equivalent agree to delay the
onset of generic competition. The origin
of the pay-for-delay agreement is patent litigation that the brand-name
manufacturer institutes after a generic manufacturer files documents with the
Federal Drug Administration announcing its intent to produce a generic
equivalent. In the settlement of the
patent litigation, the brand-name drug manufacturer agrees to drop the suit,
and the generic drug manufacturer agrees to delay entry of its drug in exchange
for cash and other concessions. These
settlements allow branded manufacturers to extend their patent rights at great
costs to consumers and businesses every year.
The DOJ and FTC have continued
efforts to engage with global antitrust enforcement agencies. One accomplishment for the agencies on this
front in 2011 was the Memorandum of Understanding (“MOU”) signed between the
DOJ and FTC with China. The MOU outlines
a cooperation agreement between the countries, intending to enhance
cooperation.
In 2012, civil and criminal enforcement will remain
top priorities for the DOJ and FTC.
International cooperation will also remain a key priority due to the
growing global nature of industry and commerce.
Massachusetts
Attorney General Martha Coakley filed the first government lawsuit against the
nation’s five largest mortgage lenders, specifically targeting the banks’
allegedly unfair and deceptive business practices. The defendants are Bank of America Corp.,
JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally
Financial Inc. The suit also names Merscorp, Inc. and its Mortgage
Electronic Registration System, the system that aided banks in the foreclosure
process.
The lawsuit, filed
December 1, 2011, alleges that the banks “charted a destructive path by cutting
corners and rushing to foreclose on homeowners without following the rule of
law.” It further alleges that the banks
engaged in “robo-signing,” whereby bank employees sign legal documents without
review.
The complaint sets
out six causes of action. Five involve
claims that the defendants engaged in unfair or deceptive business practices,
including commencing foreclosure proceedings without being the holder of the mortgage,
relying on fraudulent documentation, and failing to modify loans after
promising to do so. The sixth cause of
action involves claims that the defendants failed to register transfers of
beneficial interests in mortgages. The
complaint cites multiple examples of situations where the banks allegedly
failed to comply with the statutory requirements for conducting foreclosures.
The Massachusetts
lawsuit comes in the midst of settlement negotiations between the attorneys
general of all 50 states and the five banks.
The states hope that these negotiations will lead to a multi-billion
dollar settlement over the way the banks handled mortgage loans
nationwide. The banks would like to
avoid separate legal battles in each of the 50 states by reaching a
comprehensive agreement.
Attorney General
Coakley is unhappy with both the pace and content of the settlement
negotiations. She opined that the
negotiations have been ongoing for over a year now, yet “the banks have failed
to offer meaningful relief to homeowners.”
Other states, including California, Delaware, Nevada, and New York, have
also raised objections during the settlement negotiations.
Massachusetts’
lawsuit may lead to a stronger settlement for the states by demonstrating that
the banks will face multiple legal actions if an agreement cannot be
reached. If the Massachusetts action
progresses, it will force the banks into substantive discovery production for
the first time.
The case is Massachusetts v. Bank of America, et al.,
No. 11-4363 (Mass. Sup. Ct.).
U.S. Conferences And Educational Seminars
+January 10-12, 2012
Public Funds Summit presented by Opal
Financial Group
The Phoenician Hotel &
Conference Center
Scottsdale, AZ
This conference addresses issues that are critical to the investment
success of senior public pension fund officers and trustees. The conference offers three days of panels,
presentations, and networking with industry peers where discussions will focus
on investment risk, asset recovery, examine the processes for selection and
evaluation of service providers, investigate legal concerns with fund
investment and management policies, and fiduciary education. More than 100 U.S. public funds will be
represented as well as several foreign government and municipal funds.
+January 11-13, 2012
Metropolitan Baltimore Council
AFL-CIO Unions 21st Annual Leadership Conference
Bally’s Hotel
Atlantic City, NJ
This regional conference is
planned for the decision makers of the more than 200 locals affiliated with the
Metropolitan Baltimore AFL-CIO. This is
an excellent opportunity to network with Baltimore’s labor community. The American Federation of Labor and Congress
of Industrial Organizations (AFL-CIO) is a voluntary federation of 57 national
and international labor unions. The
AFL-CIO was created in 1955 by the merger of the AFL and the CIO. The AFL-CIO union movement represents 12.2
million members, including 3.2 million members in working America. Members are
from various professions—teachers, miners, firefighters, farm workers, bakers,
engineers, pilots, public employees, doctors, nurses, painters, and plumbers
and more.
+January 12-14, 2012
The Los Angeles Benefits
Conference
JW Marriott at LA LIVE
Los Angeles, CA
The American Society of Pension
Professionals and Actuaries in conjunction with the National Institute of
Pension Administrators, the IRS, and the Western Pension Benefits Conference
provides an opportunity for attendees to gain knowledge about current
regulatory, legislative, administrative and legal topics. This conference focuses on addressing the
educational needs of pension and employee benefits professionals particularly
in the western part of the United States.
Emphasis will be placed on recent developments in ERISA litigation where
Supreme Court rulings conflict with plan documents and the types of remedies
that may be available in breach of fiduciary duty cases as well as plan fee
cases.
+January 15-17, 2012
The 24th Annual Police, Fire, EMS, & Municipal Employee Pension
& Benefits Seminar (NAPO) presented by Financial Research Associates LLC
Caesars Palace
Las Vegas, NV
The National Association of Police Organizations (“NAPO”) has evolved
into an organization that represents uniformed and non-uniformed public safety
workers and their pension plans.
Founded in 1978, NAPO is a coalition of police unions and associations
from across the United States that serves to advance the interests of America’s
law enforcement officers through legislative and legal advocacy, political
action, and education. Founded in 1978,
NAPO remains the strongest unified voice supporting law enforcement officers in
the United States and represents more than 2,000 units and associations,
241,000 sworn officers, 11,000 retired officers, and 100,000 citizens who share
a common dedication to fair and effective crime control and law enforcement.
+January 22-24, 2012
9th
Annual Made In America: Taft-Hartley Benefits Summit presented by Financial Research
Associates LLC
Planet Hollywood
Las Vegas, NV
The 2012 Made in America Summit
will be divided into multiple tracks:
track “A” providing upfront education on pension investment issues and
track “B” health & welfare topics, thus offering two conferences in
one. Several sessions will feature
domestic equity issues and explore asset recovery. The “get ready-to-use information on how to
advance funding status” will be presented using numerous case studies. Thousands have attended Made in America and
more than 60% of the attendees are Trustees/Administrators. This year special appreciation will be given
to the Advisory board and executive committee members who represent more than
10 union factions including the Teamsters, UFCW, IBEW, NECA, OLFBP, NCCMP,
Plumbers’ Welfare Funds, and National Elevator Health & Pension Funds.
“Injustice anywhere is a threat to justice everywhere.”
Martin
Luther King, Jr., Minister, Civil Rights Activist, and 1964 Nobel Peace
Prize Recipient, born January 15, 1929
Letter dated April 16, 1963
Scott + Scott LLP is a nationally recognized law firm headquartered in Connecticut with offices in New York City, Ohio and California. The firm represents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.
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- Consider what level of participation any given situation requires
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