The well-publicized settlement this past week of the FDIC’s lawsuit against three former officers of the failed WuMu bank was widely reported as having a value of $64.7 million. A closer look at the parties’ December 15, 2011 settlement agreement reveals some interesting details about the settlement, including the specifics of how the FDIC came up with the reported $64.7 million figure for the settlement. The settlement documents also raise some interesting questions.

 

Washington Mutual Bank failed on September 25, 2008, in the largest bank failure in U.S. history. As discussed here, in March 2011, the FDIC as receiver for the failed bank filed a lawsuit in the United States District Court for the Western District of Washington against WaMu’s former CEO, Kerry Killinger, its former President and COO, Stephen Rotella, and its chief of home lending, David Schneider. The FDIC’s complaint also names Killinger’s wife, Linda Killinger, and Rotella’s wife, Esther. The three former officers were alleged to have caused the bank’s demise through the aggressive residential lending strategy the bank pursued. The claims against the officials’ wives were based on claims that the spouses had arranged to transfer ownership of residential properties in order to evade creditors.

 

There was other litigation filed in connection with the events surrounding WaMu’s collapse, including a securities class action lawsuit separately filed against certain former directors and officers of WuMu; the bank’s offering underwriters; and its auditors. As discussed here, in July 2011, the securities class action lawsuit settled for $208.5 million, of which $105 million was to be paid on behalf of the former directors and officers. The entire $105 million amount was to be funded by the bank’s D&O insurance.

 

Although there were advance reports that the FDIC’s lawsuit against the former WaMu executives had settled, the FDIC did not formally announce the settlement until December 15, 2011. The FDIC’s press release announcing the settlement can be found here. The FDIC also released a detailed summary of the settlement, which can be found here.

 

As explained in the FDIC’s press release and in the accompanying summary, and as detailed in the parties’ settlement agreement, the $64.7 million settlement consisted of several components. The actual cash component of the settlement totaled only $40 million, of which $39.575 million is to be paid on the individual defendants’ behalf by the bank’s D&O insurers. The various insurers in the D&O insurance program that is contributing to the settlement are identified on page 2 of the settlement agreement, as well as in Exhibit A to the settlement agreement. In addition to the cash amount to be paid by the D&O insurers, a total of $425,000 in cash is to be paid by the three former officers ($275,000 from Killinger; $100,000 from Rotella; and $50,000 from Schneider). 

 

The remaining $24.7 million nominal value of the settlements consists of the transfer to the FDIC of certain claims the three individuals have filed in connection with the bankruptcy proceedings of WaMu’s corporate parent holding company. The amount and type of these claims varies among the three individuals, but basically the claims consist of various types of retirement, severance or bonus compensation to which the three individuals claim they are entitled.

 

In addition to the $64.7 million settlement of the FDIC’s action against the three former officers and two of their wives, the FDIC’s December 15 press release also mentions a separate $125 million settlement agreement. Though the information the FDIC provided about the $64.7 million settlement is quite detailed, the FDIC’s press release provides few details regarding this separate $125 million settlement. The press release says only that when the $64.7 million settlement is “combined with the $125 million settlement that the FDIC will receive under the settlement agreement with WMI [the bankrupt holding company] to release its claims against 12 former WaMu directors and other officers, this settlement will result in payments and turn over of claims totaling $189.7 million.”

 

There are a number of interesting things about the settlement and the settlement documents.

 

First, the settlement against the three executive officers may have a nominal face value of $64.7 million, but the actual value could prove to be substantially less. The individuals’ claims in the bankruptcy proceeding are among the many claims asserted by unsecured creditors and are also subject to whatever defenses the bankrupt estate may have. The ultimate value the FDIC actually receives from the assignment of these claims might be nowhere near the face values claimed in the various settlement documents.

 

Second, the D&O insurers’ $39.575 million contribution to the settlement could use a little more elaboration. The D&O insurance program described in the settlement agreement consists of $100 million, arranged in six layers. One might assume that the insurers’ $39.575 million contribution to this settlement represents all or substantially all of the proceeds remaining in the insurance program, owing to the erosion of the limits through the accumulation of defense costs. That is probably what happened, But what is hard to figure is how this insurance and the insurers’ $39.575 million settlement contribution fits in with the other settlements described above, particularly the securities class action settlement and the separate $125 million settlement mentioned in the FDIC’s press release.

 

As noted above, D&O insurers are to contribute $105 million to the securities class action lawsuit settlement. If this amount seems hard to square with the $100 million insurance program described in the FDIC’s settlement agreement with the three executives, it is probably because the D&O insurance contribution to the securities class action settlement was a drawn from a separate tower of insurance. Indeed, stipulation of settlement relating to D&O portion of the securities class action lawsuit describes a very different insurance program than the one the FDIC describes in the more recent settlement. The class action settlement documents describe a $250 million insurance program (not a $100 million program), consisting of a different line up of carriers than listed in the FDIC settlement documents. Although it is hard to tell from the much less detailed description of the insurance tower in the FDIC’s settlement documents, it looks as if the FDIC settlement is to be funded out of a separate tower of insurance, perhaps relating to a separate policy year.

 

If it is hard to square the details of the FDIC settlement and the securities class action settlement, the separate $125 million settlement is a real puzzle. The FDIC’s press release does not explain the source of funds for the $125 million settlement. Indeed, it is hard to tell from the FDIC’s press release exactly what is going on with the $125 million settlement. The FDIC’s press release describes it as a “settlement agreement with WMI to release its claims against 12 WaMu directors and other officers.” This sentence is confusingly written, but it seems to suggest that the settlement is between the bankrupt holding company and the FDIC, and the $125 million is to be paid (by whom?) in order to secure from the FDIC a release of the FDIC’s claims against the bank’s former directors and officers.

 

From the comments about the $125 million settlement in the press, I am making the guess that the bankrupt estate agreed to pay the amount on the theory that if the FDIC sued the various other directors and officers, these directors and officers would be entitled to indemnification. The estate agreed to pay the $125 million, in exchange for the FDIC’s release of its claims, without the FDIC having to actually go through the necessity of actually filing a lawsuit against the other directors and officers.

 

Whatever else may be said about the $64.7 million settlement, it is undeniable that the three executives were called upon to contribute to the settlement out of their own assets, both in the form of cash contributions and in the form of the surrender of rights the individuals themselves undoubtedly considered to be valuable. I emphasize this because one of the questions I have repeatedly asked during the current banking crisis is whether the FDIC will seek to recover from the personal assets of directors and officers of failed banks. The FDIC’s settlement with the three executive officers shows that the FDIC may indeed seek to recover from the personal assets of individuals. One might speculate that the FDIC’s actions may have something to do with the fact that the WaMu collapse was the largest bank failure in U.S. history. It is hard to know the extent to which that aspect of this settlement is relevant to what approach the FDIC might take in connection with its other failed bank lawsuits.

 

While the individual executives did indeed contribute toward the settlement out of their own assets, the settlement has been criticized, mostly on the theory that the individuals did not contribute enough. For example, in her December 17, 2011 column in the New York Times, Gretchen Morgenson referred to the $64.7 million settlement as representing only a “pittance” and as “small potatoes.” She gripped that much of the cash value is to be funded by D&O insurance.

 

For myself, I am unprepared to judge the settlement. I would need to know more about the amounts remaining under the insurance policies. I would also need to understand more about the interaction between the amount of the FDIC’s recovery from the three executives; the three individuals’ rights of indemnification from the bankrupt estate; and the $125 million settlement. (Morgenson suggests that any additional recoveries from the individuals, if indemnified by the estate, would simply reduce the $125 million settlement.)

 

The reality is that if the FDIC had pressed for greater recovery or a larger settlement, it is possible that all the FDIC would have accomplished would have been further erosion of the remaining D&O insurance limits through the accumulation of additional defense expenses. The end result likely would have been an even smaller recovery. The $64.7 million settlement may not satisfy Morgenson and others, but it may have been the best available.

 

I will say that one particular criticism of Morgenson’s is misplaced. She disparages the settlement as a “wrist slap” and “yet another example of the minimalist punishment meted out to major players in the credit boom and bust.” Morgenson’s criticism fundamentally misperceives the nature of the FDIC’s action against the WaMu executives.

 

The FDIC’s action, in its role as WaMu’s receiver, was never intended as a means to administer punishment. Receivership actions are simply salvage operations, intended to try to reduce (or rather, offset) the failed bank’s losses. Whether punishment is to be sought is the business of other agencies and regulators – the Department of Justice, the OCC and the SEC. (Indeed, in the FDIC has referred cases to the DoJ and the SEC where the circumstances surrounding a bank’s failure appear to warrant, as apparently was the case with the failed United Commercial Bank, about which refer here [scroll down]). Whether or not these agencies’ inaction in connection with WaMu’s failure may fairly be criticized, it is not a fair criticism here that the FDIC acting as WaMu’s receiver was insufficiently punitive. The administration of punishment is simply not the FDIC-R’s role.

 

The FDIC as receiver for the failed WaMu bank sought only to maximize its recovery of dollars, and that I strongly suspect that the settlement they reached with the three executives offered the best opportunity for the agency to maximize its dollar recovery.

 

Special thanks to a loyal reader for providing me with a link to the FDIC’s settlement agreement.

 

With the implementation of potentially rich whistleblower bounties under the Dodd-Frank Act, there have been concerns that the incentives will  not only lead to increased numbers of reports and increased enforcement activity, but that the regulatory action will in turn generate follow-on civil litigation. A securities class action lawsuit filed this past week against Bank of New York Mellon give a glimpse of how heightened whistleblower activity could lead to increased follow- on civil litigation.

 

As reflected in their press release (here), on December 14, 2011, plaintiffs’ lawyers initiated a lawsuit in the Southern District of New York against the Bank of New York Mellon, twenty of its directors and officers, and its offering underwriters. According to the press release, the plaintiff’s complaint, which can be found here, alleges that the defendants “misled investors regarding the Company’s financial condition by reporting inflated revenue and concealing risks attributable to BNY Mellon’s participation in a scheme to fraudulently overcharge its custodial clients for foreign currency ("FX") trades.”

 

According to the complaint, the details about the bank’s alleged practices first surfaced in January 2011 when two whistleblower lawsuits (in the form of qui tam actions) against BNY Mellon in Virginia and Florida were unsealed. Among other things, the whistleblower suits alleged that BNY Mellon manipulated FX rates, which were selected to maximize the company’s fees. As a result of publicity surrounding these allegations, the Virginia attorney general filed a complaint in intervention relating to the company’s foreign currency. In October 2011, the New York Attorney General and the U.S Department of Justice each filed civil actions against BNY Mellon. The securities lawsuit complaint alleges that the company is also the subject of an SEC investigation.

 

The regulatory actions against BNY Mellon all followed in the wake of the initial whistleblower allegations, which in turn led to the various civil actions against the company, now including the securities class action lawsuit.

 

The qui tam actions that the initial whistleblower filed against the BNY Mellon are not directly related to the whistleblower provisions of the Dodd-Frank Act. (However, as noted in a November 16, 2011 Wall Street Journal article, here, BNY’s foreign currency practices are also the subject of whistleblower reports to the SEC.) The train of events that the BNY Mellon whistleblower allegations set in motion shows how the revelation of whistleblower allegations can lead not only to significant regulatory action but also to significant follow on civil litigation.

 

The whistleblower provisions of the Dodd-Frank Act have only recently been implemented and the SEC’s program is only in its earliest stages. It remains to be seen exactly where the program will lead. But given the substantial bounties provided for in the Act it seems likely there will be increased numbers of reports to the SEC, which in turn could mean increased levels of enforcement activity. Along with all other concerns these possibilities present, there is also the concern that the increased number of reports and increased enforcement activity could, following the same sequence illustrated in connection with the BNY Mellon, lead to a surge in follow-on civil litigation. As we head into 2012, we will have to watch whether increased whistleblowing lead to increased follow-on civil litigation, similar to the suit with which BNY Mellon was just hit.

 

A View from a Window: In those days, the car ferry traversed the Cook Strait twice daily, in the morning heading south from Wellington, on the Southern end of the North Island of New Zealand, and in the evening heading north from Picton, on the Northern end of the South Island. (There are more ferries now, and the crossings more frequent.)

 

After the ferry leaves Picton, the first hour of the northward journey runs through the Queen Charlotte Sound, winding through sea-drowned valleys and steeply sloped channels. Where the Sound finally opens up into the Strait, a single white house sits on a huge bluff, standing alone against a stark landscape.

 

Sometimes when I am having trouble falling asleep, I picture myself standing in the window of the house, in the evening, just as the ferry passes below. A few sounds from the ship drift up to house – a bit of conversation, the clink of a glass, a few notes of music. But the ship moves quickly and it soon disappears into the gathering night. The white foam from the ship’s wake quickly dissipates as well, and all is quiet, in a place remote from the troubles and worries of the world.

 

I watch for a time as the unfamiliar stars of the Southern sky emerge. I turn from the window and slide into bed. And then gentle Sleep envelops me in her warm, soothing embrace, and I drift away, dreaming dreams of serenity and contentment.  

 

The essay question on one of my son’s college applications supplied only the brief prompt: “You are looking out of a window.” For some reason, I felt compelled to respond to this odd prompt. Strangely, my son was uninterested in my brief essay, and uninterested in showing me what he came up with as his response, as well.

 

As a result of legal changes taking place in many countries around the world, as well as U.S. Supreme Court case law developments, questions involving the possibility of securities litigation outside the U.S. has become an increasingly high profile issue. In a guest post, Robert F. Carangelo, Paul A. Ferrillo and Catherine Y. Nowak of Weil, Gotshal & Manges LLP take a detailed look at the issues surrounding the emergency of securities litigation activity and exposures out side the U.S.

 

Many thanks to Robert, Paul and Catherine for their willingness to publish their article here. I welcome guest posts from responsible commentators on topics relevant to this blog. Any readers who are interested in publishing a guest post on this site are encouraged to contact me directly. Robert, Paul and Catherine’s guest post follows:

 

 

 

Key developments in both the litigation and regulatory context are compelling multinational corporations to reassess their global securities litigation and regulatory compliance strategies. In the litigation context, recent U.S. Supreme Court activity has limited the ability of overseas plaintiffs to bring securities class action claims within the United States. As such, plaintiffs have shifted litigation to more flexible jurisdictions in Europe and overseas, thereby forcing global firms listed on multiple exchanges to increasingly defend against securities class action claims and regulatory investigations in numerous jurisdictions. At the same time, governments around the world have responded to the recent financial crisis by bolstering their regulatory capability. Governments have not only adopted more robust legislative regimes with respect to securities regulation, but they have also invested heavily in stronger enforcement protocols.

 

Clearly the rules of the game have changed within the global securities litigation landscape over the past few years. In turn, multinational companies are revaluating their response and responsibilities to adapt to these new challenges. For instance, how do these new realities affect litigation and settlement strategy for securities class actions? [1] What is the impact of a shareholder derivative action being commenced against a multinational firm simultaneously in the United States and abroad? How can global firms comply effectively with heightened U.S. and foreign regulatory investigations? Which of these trends could affect a company’s compliance obligations in a post-Dodd-Frank world? Finally, how does all of this influence a company’s purchase of directors and officers liability insurance? 

 

A new securities litigation strategy, or “Playbook”, is therefore key for global firms that must now compete under these new realities and regulations. Strategic suggestions are discussed below along with practical advice to help navigate global securities litigation and regulatory enforcement.

 

A.  Litigation Context: An Increase in Overseas Securities Litigation

Traditionally, the United States was deemed by overseas plaintiffs as the premier forum in which to mount a securities class action claim against a publicly-traded company. Federal courts were comfortable applying U.S. securities fraud laws to disputes arising outside of the United States and overseas plaintiffs enjoyed the efficiency and sophistication of the U.S. litigation system. However, last year, in an abrupt reversal, the United States Supreme Court dramatically limited the extraterritorial application of U.S. securities laws in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010). This reversal now not only bars plaintiffs from establishing jurisdiction in the United States over a multinational company traded on non-U.S. exchanges, it also limits U.S. jurisdiction in cases involving non-exchange-based securities transactions.

 

While Morrison will likely curb the filing of certain securities litigation actions in the U.S., the net effect of this case seems to be that such litigation will simply shift to other, more flexible, jurisdictions. For example, in 2010, the United States District Court for the Southern District of New York dismissed a securities fraud suit against Fortis, a Belgium-based financial services company.[2] Within one year of the SDNY decision, a Dutch law firm filed suit on behalf of foreign investors against Fortis in the Utrecht Civil Court. [3]  The Dutch Suit chch includes as plaintiffs some of the largest pension funds in Europe, mirrors the same allegations that were previously dismissed in the United States.[4]

 

Below is a list of likely jurisdictions where modified versions of U.S.-type securities litigation are likely to materialize. We also identify emerging jurisdictions that are expected to bolster their securities litigation and regulatory framework in the coming years.

 

Canada

Canadian securities class actions are sharply on the rise. Not only is there a record 28 active Canadian securities class actions currently being considered by Canadian courts, but these class actions are estimated to represent approximately $15.9 billion in claims.[5] This rise can be partly attributed to the perception that Canada has very similar securities class action legislation as the U.S. and therefore plaintiffs routinely launch parallel claims in Canadian jurisdictions. Some of these similarities include comparable certification requirements and the existence of both primary and secondary liability under the laws of most Canadian provinces. 

 

Two recent developments, however, stand out in their ability to increase significantly the number of securities suits brought forward in Canada. First, some Canadian jurisdictions have recently statutorily revoked the “reliance” element of a securities fraud cause of action.[6] By completely removing the reliance requirement in Ontario securities legislation, plaintiffs will no longer have to prove reliance at all, nor rely on a presumption, such as “fraud-on-the-market”, to properly mount a statutory-based claim. It seems likely then that plaintiffs may look to Ontario to advance claims that would otherwise be blocked in the United States due to deficiencies in proving reliance.The other major development is the endorsement of litigation funding in Ontario. In Dugal v. Manulife Financial Corporation, (2011 ONSC 1785, ¶ 3 (2011)),  the Ontario Superior Court approved a third party funding arrangement between the plaintiffs and Claims Funding International (“CFI”), an Irish corporation.[7] In arriving at his decision Justice Strathy commented on how the “loser pays” system, which is currently the typical method of assigning the costs of the litigation in Ontario, disincentivizes a class representative from coming forward: “the grim reality is that no person in their right mind would accept the role of representative plaintiff if he or she were at risk of losing everything they own … no rational person would risk an adverse costs award of several million dollars to recover several thousand dollars or even several tens of thousand of dollars.”[8] It is therefore not surprising that analysts have observed that Justice Strathy’s comments “could prove persuasive to judges in other Canadian jurisdictions and could also encourage potential plaintiffs and litigation funders to enter into similar agreements”[9] throughout the country.

 

There are, however, some limitations on the breadth and scope of Canadian securities fraud claims. In Ontario, damages are limited to the greater of 5 percent of the market capitalization of the company, or $1 million.[10] Damages pertaining to directors and officers are also generally limited to the greater of 50 percent of compensation or $25,000.

 

United Kingdom

In the U.K., class actions have not reached the scale of the U.S., but are routinely applied under current legislation. Class actions, or “group actions,” may be brought under Part 19.11 of the English Civil Procedure Rules, which provides that a Group Litigation Order (“GLO”) can be made to provide for the management of cases alleging common issues of law and fact.[11] Securities fraud related claims, more specifically, can be made either under common law principles (e.g., fraud, deceit, or negligent misrepresentation), or under Section 90 of the Financial Services Markets Act of 2000 (for liability relating to statements made in a prospectus.)[12] Under these provisions, claims can be pursued in a representative action where one representative claimant or defendant acts on behalf of a class of individuals. Shareholders are also permitted to bring derivative suits for director negligence, breach of duty or breach of trust under the U.K. Companies Act 2006.[13] The increased use of litigation funding in the U.K. may also make securities class action claims more viable.[14]

 

 

Netherlands

The Netherlands is also no stranger to securities fraud claims.  In contrast to the U.S., the issue of jurisdiction has not been seriously challenged in Dutch courts. Therefore, courts in the Netherlands are much more flexible in asserting jurisdiction, such as Fortis, which we discuss above. Courts in the Netherlands have also adopted a class settlement procedure, known as WCAM, “to create legally binding multi-national settlements of class action suits alleging securities fraud.”[15] One such example is the landmark $352 million Royal Dutch Shell settlement, which arose from allegations by European investors that Shell overstated its oil and gas reserves.[16] As such, the Netherlands might be the new “place to be” for investors seeking large recoveries for their securities fraud claims.

 

Germany

Though not yet as class action friendly as other highly-industrialized countries, substantive securities fraud claims are filed in Germany. For instance, after a similarly-styled securities lawsuit was dismissed in the U.S. following Morrison, a Canadian bank brought suit in Stuttgart District Court alleging that Porsche manipulated the shares of Volkswagen common stock in 2008 when it was trying to take over Volkswagen.[17]

 

Important differences do, however, exist within the German approach to securities litigation. For instance, Germany passed the Capital Investors’ Model Proceeding Law in 2005. This legislation serves as the primary legal authority for securities fraud class actions.[18] Rather than providing a mechanism to certify a “class-type” claim, the German legislation instead provides for the designation or selection of a “model case.” This “model case,” allows common elements of claims to be litigated first, and its common rulings bind all petitioners.[19] Another difference is Germany’s use of an “opt-in” system. In contrast to the “opt-out” approach in U.S. securities cases, only those claimants who actively choose to opt into the model case before a final judgment or settlement are bound by the decision.

 

Other Emerging Jurisdictions

While some jurisdictions may not have as robust of a securities litigation framework as the countries mentioned above, recent developments across different regions reinforce the need for global firms to monitor potential litigation venues around the world. Australia, for instance, has a well-established history of litigation funding and has adopted legislation that is highly similar to U.S.-style securities laws. Mexico, also recently amended its laws to allow consumers and investors to bring class actions.[20] High-profile restructurings in the Middle East (e.g. Dubai) have spurred shareholders in that region to seek better legislative protections and possible compensation. Finally, securities experts have also speculated that China, in an effort to attract even more investment capital into the country, is likely to introduce more stringent corporate governance and securities standards in the near term.[21]

 

B.    Regulatory Context: Stronger Overseas Securities Regulatory Frameworks

Just as U.S. style securities fraud litigations are heating up in foreign jurisdictions, foreign governments are also enacting new laws and institutions designed to regulate securities and address corruption in the aftermath of Dodd-Frank.

 

Stronger Regulators in Canada and the United Kingdom

Canada and the United Kingdom are both undertaking substantial reform in order to implement stronger regulatory and enforcement agencies. One of the biggest adjustments in Canada is the recent initiative to consolidate the thirteen provincial securities commissions that currently exist into a single regulator at the federal level.[22] The proposed consolidation will bolster regulatory and criminal enforcement across the country and allow for a more consistent approach to securities regulation.[23] In February 2011, the U.K. HM Treasury published a consultation paper providing more detail regarding recent financial regulatory reforms in the U.K. These reforms would be overseen by three new regulatory authorities: the Financial Policy Committee (which would regulate the U.K. financial system as a whole); the Prudential Regulation Committee (which would regulate financial institutions that carried significant risks on their balance sheets); and the Financial Conduct Authority (which would be the successor to the U.K. Financial Services Authority (FSA), the U.K.’s equivalent of the U.S. Securities and Exchange Commission). Under this scheme, the Financial Conduct Authority will have “as it core purpose, protecting and enhancing the confidence of all consumers of financial services . . . .”[24] The introduction of these new institutions by 2012 highlights the commitment of each government to building a stronger enforcement regime for publicly-traded companies.

 

New Anti-Bribery Legislation in Europe

Many countries in Europe have also adopted new anti-bribery legislation that may affect international issuers. The U.K. Bribery Act, which went into effect earlier this year, creates new liabilities for companies that fail to prevent the use of bribery within their organizations.[25] Similarly over the past year, Russia and China both enacted anti-bribery legislation, and Spain updated its anti-bribery statutes thereby criminalizing corporate bribery in that country.[26]

 

An Additional Layer of Regulatory Oversight

Finally, public-traded companies listed on multiple exchanges will now have to navigate another layer of regulatory oversight in Europe, due to the recent introduction of a new European Union regulatory framework for securities and banking.[27] The new European Securities and Markets Authority will provide overall guidance to the European financial markets and will be responsible for ensuring that a single set of harmonized regulations are applied by national regulators.[28]

 

The result of this torrent of regulatory reforms is clear: global firms must be able to navigate not only multiple jurisdictions, but multilateral regulatory initiatives as well. This requires an intimate and thorough understanding of the new rules of the game to develop successful, sustainable securities strategies.

 

C.   Overseas Regulatory Enforcement Activity 

As international securities regulation increases, so does international regulatory enforcement activity. In the U.S., Dodd-Frank reforms allow the S.E.C. and U.S. Department of Justice to assert jurisdiction under the more lenient “cause” and/or “effect” tests, thereby significantly increasing the reach of these regulators. In July 2010, French regulators pursued a large French hedge fund for insider trading,[29] and in January 2011 filed insider trading charges against France’s largest publisher.[30] In 2010, regulators in Hong Kong prosecuted insider trading charges against a large hedge fund.[31] In 2011, the FSA levied a substantial fine against a large multinational company in the U.K. for failing to have proper anti-bribery controls in place.[32] Outside of the bribery context, the FSA also ordered another large fine against the former Chairman of a large U.K. supermarket chain for failing to properly disclose voting rights in such company.[33] In Canada, regulators have also been active. Most recently, the Ontario Securities Commission has been aggressively investigating allegations of securities fraud and insider trading against executives of Sino-Forest Corp.[34] 

 

Cooperation among international securities regulators has also become commonplace.[35] For instance, regulators in France, Costa Rica, and the United States recently collaborated, and later collected significant penalties from a global communications company relating to anti-bribery charges.[36] International issuers would be prudent to update their regulatory protocols with the understanding that future cooperation with multiple regulators may require a much more rigorous response.

 

D.   What Does All this Mean for the Multinational, Publicly Traded Company?

The possibility of trans-national securities litigation and enforcement activity is very real, especially as the plaintiffs bar adapts to the new landscape and foreign jurisdictions. Below are a few suggestions aimed at establishing the new “Playbook” regarding global securities litigation and regulation:

 

Designate a Global Quarterback — Internally and Externally

The potential for U.S.-type securities litigation and enforcement activity abroad requires a reassessment of both internal and external resources. Internally, foreign companies trading on multiple foreign exchanges need to devote legal resources toward understanding the securities laws and regulations in potentially problematic jurisdictions, jurisdictions where new regulations have been implemented, or in jurisdictions where there is likely to be significant groups of potentially-affected shareholders. This type of understanding is crucial in instances where companies are contemplating or have already completed securities offerings on foreign exchanges.

 

For similar reasons, the company should also identify outside legal resources in these jurisdictions that have experience dealing with class actions, and are well-versed with cross-border issues relating to both litigation and regulatory investigations. It is also important to manage the expectations of the parties and regulators to ensure that one jurisdiction investigating alleged misconduct does not outpace the other regulators, thereby unfairly advantaging both existing and potential plaintiffs. For instance, there are currently two class actions proceeding simultaneously in New York and Ontario relating to securities fraud allegations pertaining to IMAX Corporation, the makers of a propriety motion picture film format. The Ontario Superior Court has endorsed plaintiffs’ ability to conduct some discovery, even though the litigation is still at an early stage.[37] Some commentators suggest that this discovery decision “may enable plaintiffs’ classes composed of both U.S. and Canadian investors to perform an end-run around the U.S. Private Securities Litigation Reform Act (“PSLRA”) by filing suit in Canada.”[38]

 

Counsel must also be acutely aware of complex data privacy laws in the European Union, which make electronic discovery considerably more difficult than in the U.S. Ideally, the best outside resource to coordinate all of these concerns is one international law firm that can efficiently plan and manage both litigations and investigations in multiple jurisdictions at the same time.

 

Review Compliance Activities

It has become especially apparent that Dodd-Frank did not just change the landscape of securities regulation and enforcement in the U.S. As noted above, the U.K. and the European Union are working mightily to coordinate regulatory measures already in place in the U.S. Similarly, many countries are either instituting for the first time, or revising already-established laws relating to insider trading and anti-bribery. As a result, it is important for companies to have the adequate internal compliance resources to monitor, train employees, and respond to a fast-changing international regulatory landscape.

 

Review D&O Insurance

Finally, with the increase in trans-national securities-related litigation and regulatory investigations, it is critically important to verify that the company’s directors and officers liability insurance policy (“D&O policy”) will adequately respond to these new challenges abroad. D&O policies are very tailored instruments and are often dependent on the specific jurisdiction where the litigation or investigation is commenced. Therefore a company must also investigate whether the current D&O policy in place will actually apply not only to potential litigation or investigation in a foreign jurisdiction, but also with regards to any settlement resulting therefrom.[39]  Also, it is important to confirm if the D&O policy in question for the particular claim provides coverage for investigations and shareholder derivative actions (as corporate indemnification obligations may vary from country to country). This is an important and complicated area; it is imperative that large companies carefully determine whether it is worth the expense to engage both experienced insurance counsel and a D&O broker experienced on the international playing field to review its D&O coverage from a trans-national claims and investigations perspective.  This is not an area to be penny wise and pound foolish, as the stakes have undoubtedly risen given the new paradigm of global securities litigation, regulation, and enforcement activity.

 


[1] Certain jurisdictions refer to “class actions” as “mass plaintiff” actions.

 

[2] Copeland v. Fortis, 685 F. Supp. 2d 498 (S.D.N.Y 2010).

 

[3] The Dutch firm filed in association with two plaintiff-side U.S. law firms, Grant & Eisenhofer P.A. and Barroway Topaz Kellser Meltzer & Check, LLP.

 

[4] English Translation of Dutch Writ, filed on January 10, 2011 in Utrecht Civil Court, Netherlands, http://investorclaimsagainstfortis.com/publication.php

 

[5] See, NERA Consulting, Trends in Canadian Securities Class Actions, 2010 Update, http://www.nera.com/67_7185.htm.

 

[6] See e.g., Securities Act, R.S.O. 1990, c. S.5 at s.138.3 (Can.). See Silver v. Imax Corp. [2009] O.J. No. 5573 and [2009] O.J. No. 5585. (in certifying a global class of plaintiffs, Justice van Rensburg appears to have accepted that the "fraud-on-the-market" or "efficient market" theory can also be applied in common law claims in Ontario, at least at the pleading or class certification stage.

 

[7] Id. at ¶ 4.

 

[8] Dugal at fn 28.

 

[9] David H. Kistenbroker, Alyx S. Pattison, Patrick M. Smith, Recent Developments in Global Securities Litigation, 1904 PLI Corp. 607 (2011) at 642 citing Kevin LaCroix, A Closer Look at Litigation Funding and the “Loser Pays” Model, The D&O Diary (Apr. 20, 2011), https://www.dandodiary.com/tags/litigation-funding/

 

[10] This cap or “liability limit” does not apply if a person or company knowingly misrepresents or knowingly fails to disclose certain information.  Securities Act, R.S.O. 1990, c. S.5 at s. 138.7(2) (Can.).  Liability limits also do not apply to common law fraud damages. In Silver v. Imax Corp, the Ontario Superior Court certified common law fraud claims along with statutory claims.

 

[11] Civil Procedure Rules, 2010, Parts 19.10-15. (U.K.).

 

[12] See Financial Services and Markets Act, 2000, c.8, § 382-384. For a claim under Section 90 of the FSMA, the element of reliance is not required to be proven, nor is the element of scienter.

 

[13] Companies Act, 2006, c. 46 (U.K.).

 

[14] Litigation funding allows for a litigant to finance their litigation costs by entering into an agreement with a third party company. In exchange, the third party retains a right to a share in the settlement, pending a successful resolution for the litigant.

 

[15] David H. Kistenbroker, Alyx S. Pattison, Patrick M. Smith, Recent Developments in Global Securities Litigation, 1904 PLI Corp. 607 (2011) at 626.

 

[16] Importantly, the Dutch statute only provides for the resolution, and not the litigation of class claims, thereby rendering it highly attractive to plaintiffs.   Kevin LaCroix, Does the Royal Dutch Shell Settlement Approval Portend a Rush of European Collective Actions? THE D&O DIARY (June 3, 2009) https://www.dandodiary.com/2009/06/articles/international-d-o/does-the-royal-dutch-shell-settlement-approval-portend-a-rush-of-european-collective-actions/.

 

[17] A parallel investigation by German prosecutors of former Porsche company executives continue, as well. Jan Schwartz & Josie Cox, VW’s Porsche Merger Knocked By German Probe , Reuters, (Feb. 24, 2011) http://www.reuters.com/article/2011/02/24/us-porsche-probe-idUSTRE71N1R020110224.

 

[18] David H. Kistenbroker, Alyx S. Pattison, Patrick M. Smith, Recent Developments in Global Securities Litigation, 1904 PLI Corp. 607 (2011) at 643.

 

[19] Note that individual elements are litigated separately and that these individual proceedings are suspended pending the litigation and resolution of the model case. Kapitalanleger-Musterverfahrensgesetz “KapMuG” – the Capital Investors’ Model Proceeding Law (2005). For an excellent overview of Germany’s substantive securities laws, see Gerhard Wegen, Congratulations from Your Continental Cousins, 10b-5: Securities Fraud Regulation from the European Perspective, 61 Ford. L. Rev. S57 (1993).

 

[20] See, Mexico Adopts a Class Action Procedure, (July 29, 2010) http://globalclassactions.stanford.edu/content/mexico-adopts-class-action-procedure-july-29-2010.

 

[21] Dave Bradford, European D&O Insurance Market: Reforms Cause a Shifting Landscape (Sept. 22, 2011) http://corner.advisen.com/advisen_webinars_European_DO_Insurance_Market.html.

 

[22] Several provinces petitioned the Supreme Court of Canada for its opinion on “whether the legislation drafted to implement the national regulatory system is within the constitutional jurisdiction of Parliament.” The Supreme Court is expected to render its decision by the end of 2011. Canadian Securities Transition Office Homepage, http://csto-btcvm.ca/home.aspx; Monica Gutschi, Canada Securities Regulator Seen Mid 2012: Transition Office Head, Wall Street Journal, (September 15, 2011) http://online.wsj.com/article/BT-CO-20110915-712291.html.

 

[23] See, Canadian Securities Transition Office Homepage, http://csto-btcvm.ca/home.aspx.

 

[24] See HM Treasury, A New Approach to Financial Regulation: Building a Stronger System, at 60 (Feb. 20, 2011).

 

[26] See Joe Palazzolo, Russia Criminalizes Foreign Bribery, Wall Street Journal, (May 5, 2011) http://blogs.wsj.com/corruption-currents/2011/05/05/russia-criminalizes-foreign-bribery/; As to Chinese anti-bribery activity, see Amendment VIII of the Criminal Law of the People’s Republic of China, Feb. 25, 2011, which prohibits individuals and corporations from providing “money or property to any foreign party performing official duties or an official of international public organizations for the purpose of seeking illegitimate business benefits.” As to Spanish anti-bribery activity, see reforms to Law 10/1995 of the Spanish Criminal Code.

 

[27] See Regulation (EU) No. 1095/2010 of the European Parliament and of the Council of 24 November 2010.

 

[28] Id. at 331/85 (9); See also, Jonathan Wilson, Dodd-Frank Rules Will Extend SEC’s Global Reach, Financial Times, (Aug. 16, 2011).

 

[29] Louise Armistead, Hedge Fund B&G Faces French Insider Trading Charge, The Telegraph, (July 28, 2010). http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/investmenttrusts/7913366/Hedge-fund-BandG-faces-French-insider-trading-charge.html.

 

[30] Bruce Carton, Securities Enforcement and Litigation Goes Global, securities docket (Feb. 9, 2011, 2:32 pm) http://www.securitiesdocket.com/2011/02/09/securities-enforcement-and-litigation-goes-global/.

 

[31] Robert Cookson, Hong Kong Cracks Down on Insider Trading, Financial Times (Apr. 29, 2010) http://www.ft.com/intl/cms/s/0/a323c01a-533e-11df-813e-00144feab49a,s01=1.html#axzz1Zj91jwz6.

 

[32] CCL Compliance Services, FSA Fines Willus Limited GBP 6.895 Million for Anti-bribery and Corruption Systems and Control Failings (July 21, 2011) http://www.cclcompliance.co.uk/news_and_events/news/9861.

 

[33] Natalie Holt, FSA Fines Sir Ken Morrison £210k Over Share Sales, MoneyMarketing, (Aug. 15, 2011).

 

[34] See Sean B. Pasternak & Doug Alexander, Sino-Forest Executives Face Direct Hit From Regulator in Fraud Probe, Bloomberg, (Sept. 8, 2011).

 

[35] See e.g., Russian Regulator and Deutsche Börse Sign Cooperation Agreement, (May 21, 2010), http://deutsche-boerse.com/INTERNET/MR/mr_presse.nsf/maincontent/3490EB84EF8761D4C125772A004D19A1?Opendocument&lang=en&

 

[36] Squire Sanders, The DOJ and SEC Close 2010 with an FCPA Bang!, (Jan. 9, 2011) http://www.anticorruptionblog.com/industry-investigations/.

 

[37] Dana Peebles and Paul Steep, “Shareholders granted wide pre-suit "discovery" powers in proposed Securities Act cases” (2008) McCarthy Tetrault LLP http://www.mccarthy.ca/article_detail.aspx?id=4120

 

[38] David H. Kistenbroker, Alyx S. Pattison, Patrick M. Smith, Recent Developments in Global Securities Litigation, 1904 PLI Corp. 607 (2011) at 641.

 

[39] For example, many jurisdictions require D&O Policies to be issued by an insurer that is “locally admitted” in the particular jurisdiction, rather than a global insurer from another country, such as the U.S.

 

During 2011, elevated levels of M&A related litigation and the surge of litigation involving U.S.-listed Chinese companies offset declining numbers of credit crisis-related lawsuits, leading to overall levels of securities class action lawsuit filings consistent with recent years, according to a annual securities litigation study of NERA Economic Consulting. NERA’s December 14, 2011 report, entitled “Recent Trends in Securities Class Action Litigation: 2011 Year-End Review,” can be found here.

 

Based on the 213 filings between January and November 2011, NERA projects 2011 year-end filings of 232, which would be slightly below the 241 securities class action lawsuits filed in 2010 but above the 218 filed in 2009, and consistent with the 1997-2004 average of annual filings of 231.

 

Though the 2011 filing levels are consistent with recent years, the mix of cases has “changed substantially.” Credit crisis-related case, which predominated among filings in recent years, declined, while at the same time, M&A-related cases accounted for nearly 29% of all filings and filings against U.S.-listed Chinese companies have accounted for 18%.

 

Filings in the Second and Ninth Circuits accounted for more than half of all 2011 filings. However, the M&A objection suits are much more evenly distributed, with eight to ten merger objection cases filed in each of the Third, Fourth, Fifth and Ninth Circuits.

 

By contrast to recent years in which filings against companies in the financial sector predominated, 2011 filings have not been concentrated against companies in any one sector. (Filings against companies in the financial sector accounted for about 16% of all filings, which is in line with pre-credit crisis averages). More filings were against companies in the electronic technology and technology services sector that any other sector, representing about 21% of filings. Health technology accounted for 15% of filings.

 

More than a third of 2001 filings were against foreign-domiciled companies, more than double the levels of such filings in recent years. This increase of filings against foreign-domiciled companies was largely driven by filings against companies either domiciled or having their principal executive offices in China, which accounted for 39 of the 2011 filings. The pace of filings against Chinese companies slowed as the year progressed, with 27 filings in the year’s first half and 12 during the period July through November. However, the 12 filings during the period July to November are still above the 2010 total of ten cases involving Chinese companies.

 

Securities class action lawsuit settlements during 2011 averaged $31 million, compared to $108 million in 2010. However, if settlements in excess of $1 billion and the IPO laddering settlements are excluded, the 2010 average falls to $40 million, while the 2011 average stays at $31 million.

 

The 2011 median settlement was $8.7 million compared to 2010’s all time-median settlement of $11 million. Though the median settlement fell in 2011 compared to 2010, the median still represents the third highest annual median.

 

The NERA study is quite detailed and contains a wealth of other information and it merits being read at length and in full.

 

Discussion

In “counting” securities class action lawsuit filings, NERA counts multiple lawsuits against the same defendant in the same circuit as a single filing. However, if there are filings against the same defendant in different circuits, NERA counts those filings in separate circuits as separate filings, which may result in NERA’s annual filing count being higher than filing accounts that are published elsewhere.

 

In addition, NERA’s 2011 filings count is the result of a year end-projection based on actual filings from January through November. The fact that NERA’s 2011 filing number is the result of a projection may also result in differences between NERA’s year end number and those shown in other year end reports.

 

NERA “counts” only securities class action lawsuits filed in federal court. That means it does not include securities class action lawsuits filed in state court (as is permitted under The Securities Act of 1933). Similarly, while the NERA report contains extensive analysis of M&A related lawsuit filings, that analysis is limited to M&A cases filed in federal court. Many M&A related cases are in fact filed in state court. NERA’s analysis of M&A related litigation does not relate to those state court lawsuits.

 

Finally, in reporting on annual filing levels, NERA’s analysis reflects a consideration only of absolute numbers of filings. NERA’s does not include an analysis of those filings compared to the total number of publicly traded companies. As I have commented elsewhere, the total number of companies whose shares are publicly traded in the U.S. has declines substantially in recent years. The fact that absolute numbers of filings have stayed more or les consistent while the numbers of public companies has declined could be argued to suggest that overall levels of securities class action lawsuit filing have been increasing.

 

Carriers generally contend that  insurance does not cover amounts that represent “disgorgement” or that are “restitutionary” in nature. But what makes a particular payment a “disgorgement”?  In a December 13, 2011 opinion (here), the New York Supreme Court, Appellate Department, First Division, held that amounts Bear Stearns paid in settlement of SEC late trading and market timing  allegations represented a disgorgement that is not covered under its  insurance program.  Because the appellate court’s decision reversed the lower court ruling that the settlement payment did not constitute a disgorgement, the case provides an interesting perspective of the question of what makes a particular payment a “disgorgement” for purposes of determining insurance policy coverage.

 

Background

In 2006, the SEC notified Bear Stearns that the agency was investigating late trading and market timing activities units of Bear Stearns had undertaken for the benefit of clients of the company. The agency advised the company that it intended to seek injunctive relief and monetary sanctions of $720 million. Bear Stearns disputed the allegations, among other thing arguing that it did not share in the profits or benefit from the late trading, which generated only $16.9 million in revenue.

 

Bear Stearns ultimately made an offer of settlement and –without admitting or denying the agency “findings” – consented to the SEC’s entry of an Administrative Order, in which, among other things, Bear Stearns agree to pay a total of $215 million, of which $160 million was labeled “disgorgement” and $90 million as a penalty.

 

At the relevant time, Bear maintained a program of insurance that, according to the subsequent complaint, totaled $200 million. Bear Stearns sought to have the carriers in the program indemnify the company for the company’s settlement with the SEC. However, the carriers claimed that because the $160 million payment was labeled “disgorgement” in the Administrative Order, it did not represent a covered loss under the insurance policies.

 

In 2009, J.P. Morgan (into which Bear Stearns merged in 2008) filed an action seeking a judicial declaration that the insurers were obliged to indemnify the company for the amount of the $160 million payment in excess of the $10 million self insured retention. The company’s supplemental summons and amended complaint can be found here. The company argued that notwithstanding the Administrative Order’s reference to the amount as “disgorgement,” its payment to resolve the SEC investigation constituted compensatory damages and therefore represented a covered loss under the insurance program. In support of this contention, the company further argued that Bear Stearns’ earned only $16.9 million in revenue and virtually no profit from the late trading and market timing activities, and therefore the SEC settlement amount could not have represented a disgorgement. The carriers moved to dismiss the company’s declaratory judgment action

 

The Lower Court’s September 14, 2010 Order

In an order entered September 14, 2010, (here), New York (New York County) Supreme Court Charles E. Ramos denied the carriers’ motion to dismiss. He held that the Administrative Order’s use of the term “disgorgement” did not conclusively establish that the settlement amounts were precluded from coverage.

 

In reaching this conclusion, he noted that the Administrative Order “does not contain an explicit finding that Bear Stearns directly obtained ill-gotten gains or profited by facilitated these trading practices,” and he found that the provision of the Order alone “do not establish as a matter of law that Bear Stearns seeks coverage for losses that include the disgorgement of improperly acquired funds.” He also found that the Order does not, as would be required to preclude coverage “conclusively link the disgorgement to improperly acquired funds.”  He noted in that regard that “there are no findings that Bear Stearns directly generated profits for itself as the result” of the alleged misconduct and for him to so conclude now “would be to resolve disputed issues of material fact.”

 

Because he found that he was “unable to conclude, on the basis of the language of the Administrative Order alone that the disgorgement is specifically linked to the improperly acquired funds,” he rejected the insurers’ argument that they were entitled to dismissal.

 

The December 13 Appellate Decision

A December 13, 2011 opinion written by Justice Richard Andrias of  the N.Y. Supreme Court, Appellate Division, First Department, reversed the lower court’s holding, granted the motions to dismiss and directed the entry of judgment in favor of the insurers. Contrary to Justice Ramos, the appellate court concluded that the sequence of events and allegations “read as a whole” are:

 

not reasonably susceptible to any interpretation other than that Bear Stearns knowingly and intentionally facilitated illegal late trading for preferred customers, and that the relief provisions of the SEC Order required disgorgement of funds gained through that illegal activity.

 

The Court went on to state that “the fact that the SEC did not itemize how it reached the agreed upon disgorgement figure does not raise an issue as to whether the disgorgement payment was in fact compensatory.” 

 

The Court further noted that in generating revenue of at least $16.9 million, “Bear Stearns knowingly and affirmatively facilitated an illegal scheme which generated hundreds of millions of dollars for collaborating parties and agreed to disgorge $160,000,000 in its offer of settlement.”  

 

Discussion         

Given that the SEC Administrative Order expressly identified the $160 million portion of the settlement as a “disgorgement,” it was always going to be an uphill battle to establish that the amount was not a disgorgement. The company argued essentially that the amount was not a disgorgement because the payment did not correspond to any specific pecuniary benefit that Bear Stearns received. The company argued in paying the amount it was not so much disgorging anything so much as it was paying damages. Justice Ramos concluded that the Administrative Order was not factual conclusive and that there was enough of an issue that dismissal was not appropriate.

 

The appellate court essentially concluded that the question was not so much whether Bear Stearns was disgorging an amount corresponding to its own specific pecuniary gain, but rather whether or not it was disgorging amounts that its “illegal scheme” had “generated.”  In effect, it was enough to show that there was a benefit from the illegal conduct, whether or not person making the disgorgement directly received that benefit.

 

This case is fairly fact specific, but it still a useful and interesting decision because it reaffirms the basic principles around the insurability of disgorgements and because it illustrates the issues to be considered in determining whether or not a specific amount represents a disgorgement or not.

 

All of that said, the company may still seek to appeal this decision to the New York Court of Appeals and so there may yet be more to be heard in connection with this case.

 

Chris Dolmetch’s December 13, 2011 Bloomberg article discussing the opinion can be found here.

 

Advisen Management Liability Journal: Although I suspect that most readers of this blog have already seen it, if you have not yet had a chance, you will want to take a look at the inaugural issue of the Advisen Management Liability Journal, which can be found here. The publication is attractive and interesting and it clearly represents a welcome addition to help in the exchange of ideas in the D&O insurance industry. My congratulations to everyone at Advisen for this inaugural issue, particularly my good friend, Susanne Sclafane, the publication’s senior editor. I am sure everyone in the industry is looking forward to future editions of this publication.

 

A federal court has denied the motion of former IndyMac CEO Matthew Perry to dismiss the action that the FDIC, as the failed bank’s receiver, had filed against him. In a December 13, 2011 order (here), Central District of California Judge Otis D. Wright II held that under California law the business judgment rule does not protect officers’ corporate decisions and accordingly he rejected Perry’s argument that the FDIC’s complaint must be dismissed for failure to plead around the business judgment rule.

 

As discussed here, in July 2011, the FDIC as receiver for the failed IndyMac bank sued Perry alleging that as the bank’s CEO he had breached his duties to IndyMac and acted negligently in allowing IndyMac to continue to generate and acquire more than $10 billion in risky residential loans for sale into the secondary market. As the secondary market became unstable, the bank was forced to take the loans into its own investment portfolio, where the generated substantial losses, allegedly in excess of $600 million. IndyMac failed on July 11, 2008 and the FDIC was appointed as the bank’s receiver.

 

Perry moved to dismiss the FDIC’s complaint, arguing that the FDIC failed to allege facts sufficient to overcome the business judgment rule. Perry argued that the business judgment rule applies and insulates him from personal liability for his actions prior to IndyMac’s demise.

 

In opposing Perry’s motion, the FDIC argued that under California law the business judgment rule does not apply to officers. Judge Wright agreed. He concluded that the relevant legal authority does not support a conclusion that common law business judgment rule encompassing the general judicial policy of deference to business decisions should apply to officers. He also found that California’s statutory business judgment rule does not extend its protection to corporate officers. After reviewing the statute, applicable legislative history and relevant case law, he concluded that when the California legislature codified the business judgment rule, “it purposely excluded its application to corporate officers.” Because the FDIC’s allegations against Perry in his capacity as an office, Judge Wright denied his motion to dismiss.

 

Discussion

Historically, courts in applying the business judgment rule have not always carefully examined whether or not the rule’s protection should apply to officers as well as to directors. Over time, some have argued rather vigorously that the rule should not apply to officers. Others have argued that officers should be entitled to rely on the business judgment rule. Certainly it would seem that in those jurisdictions where officers and directors are held to have the same duties then they should be entitled to the same protections.

 

In any event, the question of whether or not an officer is entitled to the same protection under the business judgment rule as a director is a question of state law on which state law will control. Judge Wright’s decision is clearly reflection of his analysis under California state law. But though it is limited on that basis, his conclusion nevertheless highlights the interesting question whether as a matter of public policy the decisions and actions of corporate officers should enjoy the same protection under the business judgment rule as directors.

 

Setting aside the question of whether or not officers are entitled to the protection of the business judgment rule is the question of whether or not questions involving the applicability of the protections should be addressed at the motion to dismiss stage. There is the further procedural question of whether the plaintiffs must be expected to plead around the defense in order for their case to go forward, or whether the protections are in their nature more in the form of an affirmative defense to be invoked and substantiated by the defendant as the case goes forward. Judge Wright’s analysis does not examine these issues in detail but they present and added level of inquiry beyond the issues Judge Wright does address.

In any event, special thanks to a loyal reader for providing me with a copy of Judge Wright’s decision.

 

More About the FDIC’s Settlement with WaMu Executives: As was widely reported yesterday, the FDIC has settled the action it brought as receiver for the failed Washington Mutual bank against three former WaMu executives and their wives.  The early reports did not specify the amount of the settlement, but a December 14, 2011 Wall Street Journal article (here) fills in some of the missing details.

 

The total amount of the settlement is $64 million, consisting of about $400,000 from the settling parties themselves, and the balance of the cash amount to be paid by insurance. The executives are also to forego a total of $24 million in retirement benefits and bonus claims.

 

The Journal article also makes a tantalizingly brief mention of a prior $125 million settlement that the FDIC previously reached “to release claims against other former outside directors and officers.” As I noted here, there had been some suggestion in the press when the FDIC first filed its action against the three executives that the agency had separately settled or reached an agreement with the failed bank’s outside directors, but the brief mention in the Journal article is the first affirmative substantiation I have seen since that time referencing this separate settlement. Any readers that can shed light on this separate settlement are encouraged to pass along whatever information they can.

 

Whether the process is just winding down for the year or the process is actually winding down for good, the bank closure rate has recently fallen off dramatically. The FDIC has not taken over any banks for three weeks straight, with no bank closure at all so far during the month of December. And there were only five bank closures in November, after eleven in October.

 

With 90 bank failures so far in 2011, the total number of failed banks since January 1, 2008 stands at 412. The monthly high water mark during that four year period occured in July 2009, when the FDIC took control of 24 banks. More recently, the monthly numbers of bank failures has been well below the monthly high. But even if the rate of bank failures has more recently been down from those higher levels, the overall 2011 bank failure levels remain well above 2008 levels, when only 25 banks failed.

 

More than half of the bank failures so far this year have been concentrated in just four states, Georgia (which has had 23) and Florida (12), Illinois (9) and Colorado (6). The number of 2011 closures Colorado is a little bit unexpected, as during the preceding three years between 2008 and 2010, the state had a total of only three bank failures. The other three states, by contrast, have pretty much led the way throughout the current bank failure wave. Since 2008, Georgia has had a total of 74 bank failures; Florida has had 57; and Illinois has had 43. Bank closures in those three states, plus California (38) represent more than half (209) of the 412 bank failures between January 1, 2008 and today.

 

The number of lawsuits that the FDIC has filed so far against the former directors and officers of failed banks as part of the current bank failure wave currently stands at 17 (about which refer here, scroll down). The FDIC has maintained its very deliberate pace in initiating new lawsuits. However, this past week the agency did update the page on its website on which it discloses the number of lawsuits that has been authorized.

 

According to the FDIC’s site, as of December 8, 2011, the FDIC has authorized suits in connection with 41 failed institutions against 373 individuals for D&O liability for damage claims of at least $7.6 billion. These figures representing the authorized lawsuits contrast starkly with number of lawsuits that the agency has actually filed: So far, the agency has filed only 17 lawsuits against 135 former directors and officers of 16 failed financial institutions. Given the discrepancy between the number of suits authorized and the number of suits filed, there clearly are many more suits in the pipeline, with even more lawsuits likely to be authorized in the months ahead.

 

The FDIC’s website also mentions that that two of the 17 lawsuits it has filed so far already have settled. One of the two settlements occurred in the lawsuit the FDIC filed in connection with the failed First National Bank of Nevada. As discussed here, the FDIC and the defendants in that case settled for a stipulated judgment, the individual defendants’ assignment to the FDIC of their rights under the bank’s D&O insurance policy, a release of claims and the FDIC’s covenant not to execute the judgment against the individuals. The other of the other of the two settlements was entered in the lawsuits the FDIC had filed on connection with the failed Corn Belt Bank and Trust. In May 2011, the parties advised the court that they had settled the case, but the court file does not reflect the details of the settlement.

 

Though only two settlements have been announced, there are stories circulating that the FDIC has settled the lawsuit that the agency filed against three former directors and officers of failed Washington Mutual bank and their wives. Indeed, in an October 27, 2011 order in the case (here), Western District of Washington Marsha Pechman stayed all pending deadlines in the case, after noting that the parties had advised the court that the case had settled. (She gave the parties 60 days to complete their settlement and to file their settlement papers with the court.)

 

The amount of the purported WaMu settlement has not yet been disclosed, but there are a number of relevant data points that may suggest the likely settlement range. The recently announced $208.5 million settlement of the WaMu securities class action lawsuit included a $105 million settlement contribution on behalf of the individual director and officer defendants, to be funded entirely by D&O insurance.

 

In the settlement papers filed in connection with the WaMu securities class action settlement, it was disclosed that the $105 million in insurance proceeds were to be drawn from a D&O insurance tower (including both traditional and Excess Side A insurance) of $250 million. The $105 million contribution toward the WaMu securities class action settlement materially reduced the amount of insurance remaining in the tower, and it is likely the defense costs in the various actions pending against the former WaMu officers and directors further depleted the amount of insurance remaining.

 

The amount of the any settlement in the WaMu FDIC lawsuit remains to be seen and it also remains to be seen whether and to what extent the individuals might contribute toward the settlement out of their own assets. But the amount of insurance remaining is at this point likely to be under $100 million, so in the absence of any significant contribution from the individuals the amount of any cash settlement in the WaMu case is likely to be below $100 million. Given that the collapse of Washington Mutual was the largest bank failure in U.S. history, it will be interesting to see the amount of any settlement that ultimately does emerge.

 

The American Civil War Viewed from Other Shores: As detailed in Amanda Foreman’s massive book A World on Fire: Britain’s Crucial Role in the American Civil War, many individual Britons were so taken up with the apparently romantic appeal of the Confederacy that they enlisted in the Confederate Army. Many were convinced that the South would win its independence, and one Englishman was so certain that he converted “his entire savings into Confederate currency, while it was still cheap to buy.”

 

The British sympathies for the Southern Cause had many sources, but one of the most important was economic, as a significant part of the British mill industry was dependent on the import of cotton from the Southern States. But despite this obvious financial pull toward the Confederacy, the British Government remained officially neutral, in part because the government did not want to be drawn into the war, on either side. As the war progressed and the appalling numbers of casualties began to accumulate, a vocal peace party began to form in England, in the interests of stopping the carnage. Most of the supporters of this position believed (without any particular evidence) that the Confederacy would have to abandon slavery anyway, after the war ended.

 

It took two developments, both of which were agonizingly long in coming, for British sentiment to begin running in favor of the North and of the Union. The first was Lincoln’s Emancipation Proclamation, which allowed Northern supporters to contend that the purpose of the war was to end slavery. The real problem the supporters of the North faced was that for the first two years of the war, the North looked incapable of winning. Finally, after the tide finally turned at Gettysburg, the increasing likelihood of a Northern victory allowed the British political elites to begin to envision the possibility of a re-united country after the war concluded.

 

What Foreman does particularly well in this interesting and detailed book is to tell the tale of the battle for the hearts and minds of the British people while the actual war went forward back in the States. The British government’s official position may have been one of neutrality but it seems as if no one in Britain was personally neutral. After the surrender at Appomattox and shock of Lincoln’s assassination, the Britons rediscovered their natural affinities for their American cousins, and the groundwork was laid for a relationship that has ever since been described as “special.”

 

I heartily recommend this book, which the New York Times selected as one of the Ten Best Books of 2011.

 

With the addition of a $417 million settlement involving Lehman Brothers’ offering underwriters, the pending settlements in the Lehman Brothers securities class action lawsuit now total $507 million. Nate Raymond’s December 6, 2011 Am Law Litigation Daily article discussing the underwriters’ settlement can be found here. A copy of the December 2, 2011 settlement stipulation in the underwriter’s settlement can be found here.

 

As discussed at length here, earlier this year the former Lehman executives who were defendants in the securities class action lawsuit reached an agreement to settle the claims against them in the suit for $90 million. The executives’ settlement, if approved, is to be funded entirely with D&O insurance. The plaintiffs’ motion to the court for approval of the settlements can be found here.

 

The motion papers explain that the $417 million settlement with the underwriters was the result of mediation and over six months’ negotiation. The participants in the underwriter settlement include over 40 offering underwriters. The settling underwriters are listed in footnote 2 of the motion papers. The lineup makes for some interesting reading, as it almost reads like a casualty list from the credit crisis. Not only is Lehman Brothers not around any more, but neither are many of its underwriters. Some have been merged out of existence, and among the survivors are many that are only around as a result of the kind of massive government bailout that Lehman alone was forced to do without.

 

The settlement does not include Lehman’s auditor, Ernst & Young. As discussed here, Lehman’s accounting was the subject of sharp criticism in the report of bankruptcy examiner. The examiner referred to the companies now infamous “Repo 105” transactions as “balance sheet manipulation.” The examiner’s report also states that there may be a “colorable claim” against the company’s auditor on the grounds that it "did not meet professional standards" for its "failure to question and challenge improper or inadequate as disclosures."

 

According to the Am Law Litigation Daily article, the settlement also does not include UBS, which according to the article, “is facing different allegations than other underwriters because it underwrote principal protected notes, structured investment products that [the plaintiffs’ claim] were guaranteed regardless of Lehman’s bankruptcy.”

 

The stipulation does not state whether or not any portion of the $417 million is to be paid by insurance. I was also not able to find in the settlement stipulation how the amount is to be divided among the participating underwriters.

 

I have in any event added the Lehman underwriters’ settlement to my running tally of subprime and credit crisis-related case resolutions, which can be accessed here.

 

Readers interested in subprime and credit crisis-related securities class action lawsuit settlements will also want to take a look at Alison Frankel’s December 6, 2011 post on Thomson Reuters News & Insight (here) about the recent $315 Merrill Lynch MBS securities class action lawsuit. Frankel read the settlement-related filings very carefully, and she has a number of interesting observations about the methodology for calculating damages in the MBS securities cases, which in turn helps to explain how the parties reached their $315 million settlement.

 

D&O Insurance: Investigative Cost Coverage: As I have frequently noted on this blog, one of the recurring D&O insurance issues is the question of coverage for costs incurred in connection with SEC investigations, particularly with respect to costs before the SEC investigation has become formal.

 

In a November 21, 2011 memo entitled “When is an SEC Investigation a ‘Claim” for Purposes of D&O Coverage?” (here), attorney Joan L. Lewis of the Dickstein Shapiro firm takes a look at these recurring questions, and she compares two recent cases presenting these issues, the Office Depot case (about which refer here) and the MBIA case (refer here).

 

With a relatively recent purchase of an iPad 2, I have made a quantum leap in technology utilization. The iPad is not only a brilliant piece of technology in and of itself, but it is also a platform for a host of brilliant applications. Indeed, there are so many nifty applications that using my iPad has become a process of continuing discovery as I encounter new ways of using the device on virtually a daily basis.

 

In this post, I share the best applications I have discovered so far. My purposes are two-fold. First, I simply want to pass along the best of my discoveries – some of them are so cool. Second, I want to encourage readers to share with me and with the rest of The D&O Diary community their own iPad application discoveries. With as many as 70,000 apps available for the iPad now and more available every day, there have to been many more brilliant applications out there that I simply haven’t discovered yet.

 

Before I get into my apps review, I should clarify what in my view makes an application great. First it has to take advantage of the iPad itself, to do something more or better than a website alone can do. Second, it has to be free (or at least at no additional cost). As I discuss below, there are at least some apps for which I am willing to pay, but mostly my cheapskate requirements control. Third, the application has to be easy to install and to use.

 

I should also add that I am not a gamer, and so I don’t have any opinions about game applications. Readers who want game app recommendations will have to look elsewhere (like here for instance).

 

So without further ado, here is my list of favorite iPad apps (so far):

 

News: All of the leading news outlets have iPad apps. I have installed apps for the Wall Street Journal, the New York Times, the Financial Times, and the Economist. They are all pretty good and convenient when I find myself somewhere without access to the print editions of those publications. Overall, though, I prefer reading the print versions. On the other hand, I don’t have print subscriptions to all of them, and it is convenient to be able to browse through them through a single device in one easy to navigate environment. There is something tidy and comfortable about sitting in my easy chair and accessing all of these publications using a single device.

 

But something better than a bunch of separate applications is a single application that assembles the news in one easy to access and navigate environment. The best iPad news application along these lines is Flipboard. This application has an elegant interface that you can flick through like pages of a magazine. The application assembles news headlines from a host of publications around the world and displays them in an attractive, easy to read format. You can also have your Facebook and Twitter feeds forwarded into the application so that they are presented in the same attractive format.

 

Music: One of the things that the iPad does particularly well is provide a platform for listening to music. I use a couple of different music apps, and I like them for slightly different reasons.

 

I like to listen to classical music when I am working, so using the Pandora application, I have assembled a group of “stations” all built around one of the classical music composer (Mozart, Chopin, Telemann, etc.). Then when I access Pandora, I set the “play” function on “Quick Mix” so that the playlist draws randomly from the various stations. (You can do the same thing for contemporary artists, too.) There are occasional short commercials on Pandora, which I don’t particularly like but don’t particularly mind either.

 

When I ride the exercycle, I like to listen to classic rock and alternative rock. For this type of music, I prefer the I Heart Radio application, which has a directory of radio stations from around the country, organized by genre. I have assembled a group of favorite stations that I regularly listen to. The directory also includes a number of commercial free stations as well, which I particularly like. One cool feature of this application is that you can touch the icon for any particular station and a bubble will appear above the station showing  the title and artist of the song playing on the station at that moment. This feature allows you to quickly move between songs and stations to hear the music you want to hear.

 

Sports: Some of the best applications I have found are sports-related. I should add that one of my goals in getting the iPad in the first place was to be able to watch sports on the road while I am traveling. I particularly hoped to be able to have access to European soccer. The good news is that there are some terrific sports applications out there.

 

By far the best application available for the iPad in my humble opinion is the Watch ESPN app. Not only does the app allow you to watch the various ESPN channels live, but it also provides live programming that the usual ESPN cable service line up doesn’t include. (The service is free but in order to access it, you have to subscribe to a participating cable service.)

 

The best part of the Watch ESPN app is a feature that you might not even find unless you were looking for it. On the page for ESPN Channel 3, there is a “Replay” tab, where all of the accumulated ESPN sports event broadcasts are archived. The archive operates real time, so as soon as a program has concluded, it is available in the archive. The archive includes ESPN programming from around the world, and so the list of replays available is exponentially greater than the small handful of games and shows you might be able to watch on the ESPN channels on your TV.

 

The programming available using the Replay tab is incredibly diverse, and pertinent to my purposes, includes a wealth of European soccer games. (It also includes, for example, Rugby, Cricket, European Hockey, Polo, and many other sports as well.) I am able to follow and watch complete games from all of the top European soccer leagues, including the Premier League, La Liga, Serie A, Eredivisie, the Bundesliga, and Ligue 1. The replays also include some Euro 2012 qualifying games and some UEFA Champions League games, usually the ones that I want to see anyway. Some international friendly competitions are also included. Though these games are not shown live, given the time difference between Europe and the US, I would rarely be able to watch these games live anyway. The ability to watch these complete games in crystal clear quality – and for free – is absolutely fantastic.

 

There are some other apps that are particularly good for following European soccer. The Fox Soccer 2Go application allows you to watch short, same-day highlight videos of all of the English Premier League games, and some other European leagues as well. The video highlights also include same-day UEFA Champions league games and Euro 2010 qualifiers. Fox Soccer also has a fee-service that allows you to access live game day broadcasts of many European league games, but the monthly $19.99 access fee violates all of my cheapskate principles.

 

Another site I can recommend for following European soccer is actually available only through a conventional web browser, not as an iPad application, but the site is formatted so that it performs well on the iPad. The site is GOL TV, the Spanish-language soccer network. The site hosts game day video highlights of a number of the European leagues, including some (like the Portuguese league) that ESPN and Fox Soccer don’t follow as closely. The site’s video replay function has a full-screen feature that adapts particularly well to the iPad.

 

One of the most remarkable applications I have discovered – and the only one for which I have been willing to pay more than a nominal fee – is the Sling Player app. This app must be used in conjunction with the Slingbox, which is a device that attaches to your TV set top cable box. The Slingbox takes your cable TV signal and makes it available on the Internet, so that you can watch television on any Internet-connected device. (A tip of the hat here to my friend Rick Bortnick, who is the one who first told me about Slingbox.)

 

Using the SlingPlayer application, I can now watch “my TV” on my iPad, anywhere in the world. Say, I am stuck in an airport on a flight delay; I can watch any basketball, or football, or whatever game that is showing on my TV. Or, as I did during a flight delay on Monday, I can watch a replay of “The Hangover,” sitting at the gate waiting for my flight to board.

 

The idea that you don’t need a TV to watch TV is absolutely fantastic. This is one of the things I was thinking of when I said at the outset of this post that I have made a quantum leap in technology utilization. The lines between devices and functions have been reduced to the point of meaninglessness. And for anybody who is thinking, geez, I could do all that with my laptop, all I can say is you are not visualizing the ease of use and flexibility of the iPad (for example, its instant on/instant off capability, and the absence of any need for an operating system and all of your programs to load before you can even use the device).

 

Cool Apps: Finally there are some apps that are just cool. Trying to list them all here would be impossible. I have included just four here, really by way of illustration, and as part of the invitation to others to share their favorite apps with me and with other readers:  National Geographic World Atlas: Provides access to an entire library of maps (worth the $1.99 charge); Marvel Comics: Yes, you can use your iPad to read Shakespeare, but isn’t it cool that you can also use it to read comics (for free!): Epicurious: Access over 30,000 recipes displayed in a beautiful format; Google Translate: provides translations for over 60 languages, including spoken translations for many languages.

 

So I have been happy to share my favorite applications here; I hope readers out there with their own favorite apps will share them with me and with the rest of The D&O Diary community using the comment feature. I have to go now, there’s a game on….

 

In an interesting twist on a long –running credit-crisis related securities suit, Wells Fargo has agreed to pay $75 million to settle the Wachovia equity investor securities class action lawsuit, even though their suit had been dismissed at the district court level and was on appeal at the time of the settlement. The parties’ November 21, 2011 notification of the settlement to Southern District of New York Judge Richard Sullivan can be found here. Victor Li’s December 3, 2011 Am Law Litigation Daily article about the settlement can be found here.

 

The settlement relates to litigation brought by former equity shareholders and bondholders of Wachovia Corporation.  The equity securities holders’ and bondholders’ actions arise from  financial disintegration Wachovia experienced between its 2006 purchase of Golden West Financial Corporation and its 2008 merger with Wells Fargo & Company. The allegations are based on the difficulties Wachovia experienced as a result of the Golden West “Pick-A-Pay” mortgage portfolio. Further background regarding the equity securities litigation can be found here and background regarding the bondholders’ litigation can be found here.

 

As discussed here, on March 31, 2011, Southern District of New York Judge Richard Sullivan granted the defendants’ motions to dismiss the equity securities litigation, but he denied the motion to dismiss the bondholders’ action, other than with respect to certain bond offerings in which the plaintiffs had not actually purchased any securities. A copy of Judge Sullivan’s opinion can be found (here),

 

Judge Sullivan granted the defendants’ motions to dismiss the equity securities plaintiffs’ ’34 Act claims, finding that the plaintiffs had not sufficiently alleged scienter. Judge Sullivan concluded that the “more compelling inference” is that “Defendants simply did not anticipate the full extent of the mortgage crisis and the resulting implications for the Pick-A-Pay loan portfolio. Although a colossal blunder with grave consequences for many, such a failure is simply not enough to support a claim for securities fraud.” He added that “bad judgment and poor management are not fraud, even when they lead to the demise of a once venerable financial institution.”

 

Judge Sullivan also granted the defendants’ motion to dismiss the equity securities plaintiffs’ ’33 Act claims, finding that their “scattershot pleadings” failed to “afford proper notice, much less provide facially plausible factual allegations.” He added that he could not conclude “that the relevant offering documents contained material omissions in violation of affirmative disclosure obligations.”

 

Thereafter, the bondholders, whose case survived Judge Sullivan’s dismissal motion rulings, went on to settle their lawsuit for a total of $627 million, which, as discussed here, is the largest settlement to date as part of the subprime and credit crisis-related litigation wave. The settlement amount of $627 million represented two different settlement funds: $590 million on behalf of the Wachovia defendants, including 25 former directors and officers of Wachovia, as well as 72 different financial firms that underwrote bond offerings for Wachovia between 2006 and 2008; and $37 million on behalf of Wachovia’s auditor, KPMG.

 

Meanwhile, the Wachovia equity investors, whose action Judge Sullivan had dismissed, had appealed the dismissal to the Second Circuit. In an apparent move to avoid having the case revived on appeal, Wells Fargo has now agreed to pay $75 million to settle the equity investors’ suit. The case must be remanded from the Second Circuit in order for the settlement to be presented to the district court for approval.

 

As I noted at the time of the $627 million settlement with the Wachovia bondholders, Wachovia’s purchase of Golden West has to be one of the leading candidates for the title of worst deal leading into or as part of the credit crisis-related financial transactions. There is a lot of competition in the worst transaction category, including Bank of America’s purchase of Countrywide. But there is no doubt that the Golden West deal is one of the real stinkers.

 

From the perspective of Wells Fargo, the litigation consequences for the bank from the mortgage meltdown are becoming rather impressive. When you consider this $75 million settlement and he Wachovia defendants’ $590 contribution to the bondholders’ settlement, which came on the heels of the $125 million Wells Fargo mortgage backed securities settlement (about which refer here), it looks like the financial crisis litigation consequences for Wells Fargo have been massive . The bank’s current aggregate settlement costs of $790 million may provide some explanation why it preferred to settle this case than to run the risk that the securityholders might succeed in having the dismissal of their case overturned on appeal.

 

The $75 million Wachovia equity investors’ settlement comes on the heels of the public disclosure of the $315 million Merrill Lynch mortgage-backed securities settlement, which Alison Frankel first reported in a November 18, 2011 article on Thomson Reuters News & Insight (here). Though the fact and amount of the settlement have been public for a couple of weeks, the parties have only just now filed their actual stipulation of settlement, dated December 5, 2011 (here). The $315 Merrill settlement dwarfs Wells Fargo’s earlier $125 million MBS settlement, which has stood as the largest MBS-related settlement so far.

 

In the Merrill Lynch MBS lawsuit, the plaintiffs alleged that the defendants (Merrill Lynch and related Merrill entities; certain other underwriter defendants and certain Merrill officers) had mislead investors who purchased the MBS securities, through statements in the securities’ offering documents that misrepresented the quality of the loans and the adequacy of the collateral within the loan pools.

 

Like Wells Fargo, Merrill and its acquirer Bank of America have also now paid out or at least agreed to pay out an impressive aggregate amount in subprime and credit crisis-related securities lawsuit settlements. As discussed here, Merrill had previously settled the subprime-related securities lawsuit brought by its shareholders for $475 mm, and had also settled the related ERISA lawsuit for $75 million.   Merrill separately settled the subprime-related lawsuit brought by its bondholders for $150 million (refer here). With the addition of the recent $315 MBS settlement, Merrill’s aggregate settlements are now up to $1.015 bb.

 

And to line up everything in its proper category, the $624 million Countrywide settlement, in addition to the $1.015 bb of Merrill settlements, all arguably belong on BofA’s ledger. The Merrill and Countrywide settlements altogether total about $1.639 billion, or fully 40 percent of all of the subprime and credit crisis related lawsuit settlement amounts so far (which total about $3.913 billion). These Merrill and Countrywide settlements plus the Wells Fargo settlements total $2.48 billion, which reresents almost 64% of the aggregate amount of the subprime and credit crisis related lawsuits settlements to date

 

What the Merrill, Countrywide and Wachovia/Wells Fargo settlements have in common, in addition to representing the largest of the subprime and credit crisis related lawsuit settlements, is that in each case the corporate defendant is now part of a financially strong successor in interest. This circumstance contrasts significantly with other subprime and credit crisis cases – like those involving Lehman Brothers and Washington Mutual, for instance – where the corporate defendants are defunct and there is no solvent successor in interest. Securities suits involving these defunct companies have settled for much smaller amounts that those involving solvent companies.

 

I have in any event added the Wachovia equity investors’ settlement and the Merrill MBS settlement to my running tally of subprime and credit crisis-related securities class action lawsuit case resolutions, which can be accessed here.