The parties to two of the consolidated subprime-related securities lawsuits pending against Oppenheimer Funds have settled the case for a total of $100 million. This settlement has a number of interesting features, as discussed further below, including in particular aspects of the allocation of the total settlement amount between the two consolidated fund actions. The settlement also leaves the consolidated action filed against yet other Oppenheimer Funds pending.
In Spring and Summer 2009, a total of 32 class action lawsuits were filed against a number of the Oppenheimer Funds. These actions were brought by investors who had purchased shares of the Funds that were traceable to offering documents that allegedly contained misrepresentations and omissions. As a general matter, the investors alleged that the Funds had been marketed as representing investments that did not involve undue risk, but that beginning in 2006, the Funds had invested heavily in “risky” investments such as mortgage-backed securities, credit-default swaps and total-return swaps. When the financial crisis hit, these Funds later lost a substantial part of their net asset value.
As ultimately organized, the Oppenheimer Funds lawsuits were organized into three consolidated cases involving, respectively, the Oppenheimer Champion Income Fund; the Oppenheimer Core Bond Fund; and the consolidated “Rochester” cases (involving seven other Oppenheimer Funds).Background regarding the Core Bond Fund action can be found here. Background regarding the Oppenheimer Champion Income Fund can be found here. These two cases were consolidated for discovery purposes. The Rochester cases proceeded independently. Background regarding the Rochester cases can be found here.
The $100 million settlement involves only the Oppenheimer Champion Income Fund action and the Oppenheimer Core Bond Fund action. The consolidated Rochester Funds case is not part of this settlement, which apparently remains pending in the District of Colorado.
The $100 million settlement is described in various settlement documents filed with the District of Colorado on or about May 19, 2011. The stipulation of settlement in the Oppenheimer Champion Bond Fund case can be found here. The stipulation of settlement in the Oppenheimer Core Bond Fund case can be found here. The motions to court for preliminary approval of the settlements can be found here and here, respectively.
The parties’ settlement-related filings portray an interesting settlement process resulting in a settlement with a number of interesting features.
First of all, the parties were able to reach this settlement while the motions to dismiss were fully briefed and pending, but before there had been any ruling on the motions.
Second, the settlement was the result of a protracted settlement mediation process that consumed a number of months. As a result of this process, the parties agreed to the $100 million settlement amount – but the parties were not done yet. They had to further agree on how the $100 million would be split, or allocated, between the Oppenheimer Champion Bond fund case, on the one hand, and the Oppenheimer Core Bond Fund case , on the other hand.
The parties entered a separate process for determining the allocation of the $100 million between the two cases. The parties entered a separate mediation process to determine the process, and for purposes of this separate process, the plaintiffs’ Lead Counsel brought in separate, independent counsel to represent each of the two respective Funds. Each side then presented mediation briefs to the mediator. On February 25, 2011, the mediator determined that the appropriate allocation between the two funds would be 47.5 percent for the Core Bond Fund Class and 52.5 percent for the Champion Income Class.
As a result of this allocation, the parties stipulated that the $100 million settlement amount is to be allocated between the two cases as follows: $52.5 million to the Champion Income Fund and $47.5 million to the Core Bond Fund class. Each of the two settlements is expressly condition on the approval of the settlement in the other case.
The settlement papers say relatively little with respect to the role that insurance may have played in the settlement. The settlement stipulations do specify that the parties to the settlement “understand and agree that any obligation of the Trustee Defendants [I.e., the individuals named as defendants in the suits who had served of trustees of the respective funds] hereunder will be satisfied by insurers or other Defendants and that no portion of the Settlement Amount is to be paid personally by the Trustee Defendants.”
There are a number of noteworthy aspects of this settlement. The first is that it was reached before the motions to dismiss had been ruling. Obviously there is no prohibition on settling cases before the dismissal motions rulings, as cases do settle prior to dismissal motion rulings from time to time. But it is relatively unusual, and the size of this settlement before the dismissal motion rulings is also noteworthy.
It is also noteworthy that these cases have been settled for a significant amount while the other Oppenheimer Fund cases involving the Rochester funds remain pending and unresolved. Those other cases remain on a different track, apparently, but the settlement does put those unresolved cases in an interesting light.
The subprime-related lawsuits against the Oppenheimer funds were only one among several sets of cases filed against mutual fund families or funds raising subprime related allegations. Another of these mutual fund cases, the Schwab Yield Plus case, settled previously for a total of $235 million (about which refer here). Many more of these mutual fund related cases also remain pending. This Oppenheimer Fund settlement put those other mutual fund cases in an interesting light, as well.
In any event, I have added the Oppenheimer Fund settlement to my running tally of subprime-related case resolutions, which can be accessed here. According to my data, the $100 million Oppenheimer Funds settlement represents the sixth largest subprime-related securities lawsuit settlement so far. (If the Rochester funds cases were to ultimately settle, the amount of any settlement of those cases would obviously increase Oppenheimer’s aggregate settlement amount.)
As I have noted before, many of the subprime-related cases remain pending and eventually they will be resolved. It is worth noting that as the various Oppenheimer cases went forward, they were consolidated in various ways, and it appears that other cases are being resolved on a consolidated basis as well. This consolidation processcould reduce the overall number of case resolutions while potentially increasing the total resolution amounts in connection with any one consolidated case.
Nate Raymond’s May 22, 2011 Am Law Litigation Daily article about this settlement can be found here. The plaintiffs’ attorneys’ press release regarding the settlements can be found here. Special thanks to the readers who sent me information about this settlement.
SEC Investigations and D&O Insurance: There are three articles in this week’s National Underwriter that may be of interest to readers of this blog. The articles and their respective links are as follows: “A Newly Assertive SEC, Backed By Whistleblowers, Means Rise in Investigations – And Risks” (here); “As Investigation –Cost Coverage Evolve, Prices on Existing D&O Solutions Drop” (here); “Investigation Edge: Brokers Welcome New ‘Entity’ Product From Chartis” (here).