The consolidated  IPO Laddering Cases, that superannuated vestige of a long-gone era that has continued to grind on despite numerous procedural setbacks, apparently has been settled (again), at least according to the parties’ April 1, 2009 settlement stipulation (here). Hat tip to the Law Blog for the link to the stipulation.


According to the settlement stipulation, the aggregate gross amount of the settlement is $586 million, out of which will come both plaintiffs’ attorneys’ fees and extensive notice and administrative expenses. The amount of the plaintiffs’ attorneys’ fees are not specified in the agreement. News reports (here) suggest that the plaintiffs intend to seek fees of as much as $195.3 million, plus $56 million in expenses, from the settlement.


The stipulation provides for two different $10 million advances from the gross settlement fund for the payment of notice and administration expenses, and provides a mechanism should further expenses become necessary. Clearly, the parties anticipate that notice of and administration for the settlement will be massive, expensive undertakings.


The publicly available version of the stipulation does not answer the question I was most interested to know, which is who, between the underwriter defendants and the issuer defendants and their insurers, will be paying how much of the proposed settlement? Unfortunately, Exhibits E and F to the stipulation, which reflect the defendants’ respective settlement contributions, were filed under seal. The prying curiosity of nosy bystanders like me sadly will go unfulfilled.


My curiosity about the relative settlement contributions is driven largely by the convoluted history of the prior attempts to settle this case (or should I say these cases?). Readers will recall (as discussed at length here), that prior settlement attempts were derailed on December 6, 2006 when the Second Circuit held that the district court had erred in certifying a class against the offering underwriter defendants. Among other things, that decision vitiated the pending settlement in which the issuer defendants had agreed to pay the investor plaintiffs $1 billion, with the issuers’ contribution to be reduced to the extent of investor recoveries from the underwriter defendants. The decision also set aside J.P. Morgan’s proposed agreement to pay $425 million to settle its liability.


Following that setback, the case ground on. On March 26, 2008, Southern District of New York Judge Schira Schindlin denied the defendants’ renewed motions to dismiss, as discussed here. Though this case probably could have kept squadrons of attorneys employed from now until doomsday, there comes a time for all things to end.


So much as has changed since these cases first flooded in during 2001, particularly in recent months. Not only has Lehman Brothers gone bankrupt, but other high profile underwriter defendants have been merged out of existence. 41 of the issuer defendants have gone bankrupt. Indeed, Mel Weiss, who was at the outset at the vanguard on behalf of the investor plaintiffs, has pled guilty to criminal charges. And so this massive case, initially involving 55 underwriter defendants and 310 issuer defendants, may have finally come to an end.


Press reports (here) quote one of the plaintiffs’ attorneys as saying "When these cases were filed in 2001, no one would have believed that in 2009 Bear Stearns would be out of business, Lehman in bankruptcy, and names like Salomon and Merrill Lynch erased from the financial landscape…Under the circumstances, this settlement is the best available real-world alternative."



It should be noted that the agreement is subject to court approval as well as a host of contingencies, and could still be terminated by any one of a number of parties or contingencies.


The mammoth size of the proposed settlement is impressive. A quick look at historical settlement data suggests that this settlement would represent the 12th largest securities class action settlment of all time. Inevitably this latest settlement attempt will draw comparisons to the prior $1 billion minimum attempt to settle the case.


In addition, curious readers will want to take a look at the schedules to Exhibit C to the stipulation, which show a number of interesting things. First, the schedules show, as required by the PSLRA, the gross recovery per damaged subject security – in most cases, only a penny or two per share.


Second, the schedule also shows the plaintiffs’ preliminary estimate of the potential damages for class members, indexed by issuer defendant. These estimates reflect some truly staggering numbers. Even if they are purely theoretical, they are nonetheless impressive. Some of them, with respect to just a single issuer, exceed the entire amount of the settlement itself. For example, the estimate for is $1.166 billion. The estimate for Global Crossing is $780 million. Foundry Networks, $720 million; Commerce One, $641 million.


The schedule omits to provide an aggregate number for all of the issuer defendants, but I suspect that the figure would rival the kind of numbers that only someone like the late Carl Sagan and Timothy Geithner would be comfortable saying in public (and even then, in Geithner’s case, only recently). In any event, those are some big numbers.


One likely byproduct of this settlement will be the forthcoming mailings to the settlement class members. I can only imagine how many individual pieces of mail we are talking about, and how much the postage alone will cost. No wonder the notice and administrative expenses are expected to be so high. The class mailings by themselves could remedy the U.S. Postal Service’s chronic operating deficits.


In all seriousness, this settlement stipulation obviously was a maddeningly difficult thing to nail down. The attorneys who finally got this monster worked out in a global settlement (or at least an attempted global settlement) are to be congratulated on tackling what had to have been an extraordinarily difficult challenge. Even if history should ultimately little note nor long remember what happened here today, their efforts are worthy of respect.