In our previous article, we discussed 2015’s top 10 settlement cases in the field of class action settlements—cases where a substantial settlement fund was created to compensate institutional investors for losses incurred as a result of alleged corporate fraud. In this posting, we’ll review 2015’s top 10 cases—class actions that resulted in the distribution of actual funds to aggrieved parties. While many of these cases are securities class action distributions, some are not securities-related.
1. Bank of America litigation
Distribution size: $2.5 billion
This payout is a direct result of Bank of America’s acquisition of troubled, bankrupt Merrill Lynch in the aftermath of the 2008 financial crisis. Plaintiffs, led by the State Teachers Retirement System of Ohio, asserted that at the time of the merger, Bank of America failed to properly disclose the magnitude of Merrill’s billions of dollars in losses in the fourth quarter of 2008; BoA’s agreement to let Merrill pay up to $5.8 billion in bonuses before the close of the merger, despite these huge losses; the circumstances of the merger; and BoA’s own challenged financial position at the time of the crisis.
2.Private equity antitrust litigation
Distribution size: $590 million
This scandal centers around collusion. In the heyday of leveraged buyouts, a group of private equity firms—among them Bain Capital and Goldman Sachs—agreed not to bid against each other (and as a result drive up prices) to keep bid prices artificially low. This was in direct violation of antitrust laws. Bain and Goldman ended up paying a total of $121 million to settle claims over $121.7 billion in buyouts—equal to 0.1 percent of the deal value, or just under six cents a share.
Distribution size: $473 million
This lawsuit was triggered by the fact that pharma giant Schering-Plough concealed the unfavorable results of a clinical trial of the anti-cholesterol drug Vytorin, which was marketed under the name of Enhance. The distribution compensated investors who held Schering stock between January 3, 2007, to March 28, 2008. After the scandal broke on March 31, 2008, Schering shares plummeted nearly 21 percent.
4.JP Morgan Chase mortgage-backed securities litigation
Distribution size: $280 million
The lead plaintiff, the Public Employees’ Retirement System of Mississippi, accused JP Morgan Chase of misleading investors into buying $36.8 billion worth of mortgage-backed securities before the financial crisis broke. The class action was filed on March 26, 2008. On March 8, 2010, the lead plaintiff also filed a claim against rating agencies, but on July 7, 2011, the claims against the rating agencies were voluntarily dismissed.
5.Merck & Co litigation
Distribution size: $215 million
This case is supplementary to the Schering-Plough Enhance scandal listed as #3 directly above. Merck, which merged with Schering in November 2009, conducted a similar set of falsified clinical trials of the anti-cholesterol drug Vytorin, marketed as Enhance. When the scandal broke in March 2008, Merck shares dropped nearly 15 percent.
6.Apollo Group litigation
Distribution size: $145 million
This class action was in the courts for over 10 years. Plaintiffs sued Apollo after its share price dropped when a U.S. Department of Education report alleged that Apollo had violated DOE rules. On September 7, 2004, Apollo agreed to pay $9.8 million to settle the allegations. Although news of the settlement first became public on September 14, 2004, Apollo’s share price did not decline until September 21, 2004, when a securities analyst issued a report that expressed concern about Apollo’s possible exposure to future regulatory charges. While a civil jury initially awarded damages of $277.5 million, after a long and protracted court battle, both parties agreed to the lesser distribution sum of $145 million. This is a rare case where a securities class action litigation went to trial and was decided by a jury verdict.
7.Sino-Forest Corporation litigation
Distribution size: $102 million
According to plaintiffs, the Sino-Forest Corporation, a Chinese company, released false financial statements, materially overstating the size and value of its forestry assets, including its holdings in China’s Yunnan province, and its revenue from the sale of those assets. Plaintiffs claimed $6.5 billion in damages on behalf of class members. This class action applied to investors who purchased Sino securities between March 19, 2007 and June 2, 2011 on the Toronto Stock Exchange or other secondary markets in Canada.
8.Bernard Madoff Tremont & Rye Funds litigation
Distribution size: $100 million
This is yet another case where the shadow of the financial crisis is still falling upon us, in this instance via its most notorious fraudster, Bernard Madoff. Plaintiffs charged that Madoff paid himself with a whopping 27% of Tremont’s investment capital. Plaintiffs also accused Ernst & Young, Madoff’s auditor, of having failed to react to a series of red flags. However, on March 30, 2010, the court dismissed claims against both Ernst & Young and KPMG.
9.Verifone Holdings Inc. litigation
Distribution size: $95 million
Plaintiffs claimed that they suffered investment losses because VeriFone and some of its executives violated federal securities laws by falsely representing that its April 2006 acquisition of Lipman Electronic Engineering Ltd. would increase gross margins and earnings in 2007 and that it continued this misrepresentation after the acquisition. In addition, VeriFone is accused of having misrepresented its 1Q07, 2Q07 and 3Q07 financial results and of falsely reporting that its reported increases in 1Q07, 2Q07 and 3Q07 gross margins and earnings resulted from higher-margin wireless revenue, better supply chain efficiencies, improved sourcing of strategic components, procurement synergies, and other factors. Although the defendants denied all of the lead plaintiff’s allegations and denied that they did anything wrong, in exchange for the settlement and dismissal of the action, the defendants agreed to a payment of $95 million.
10.Oppenheimer Rochester Funds litigation
Distribution size: $89 million
This major distribution case is yet another aftermath of the financial crisis. In this instance, municipal bond fund investors filed six lawsuits against OppenheimerFunds, a New York-based unit of Massachusetts Mutual Life Insurance Co.; they claimed they suffered major losses during the 2008 financial crisis because Oppenheimer invested their money improperly. Plaintiffs accused OppenheimerFunds of misleading them about the safety of six funds, inflating asset values, and ignoring the funds’ stated objectives and risk guidelines. Despite agreeing to the distribution, OppenheimerFunds denied wrongdoing, maintaining that the investments were consistent with the funds’ stated objectives and policies.
This litany of 2015’s successful distribution cases demonstrates that plaintiff class members can claim substantial amounts in damages when faced with corporate governance wrongdoing and securities fraud. In these instances, the specific nature of wrongdoing ranged from the aftermath of the financial crisis to falsified clinical trial results to a wide range of other infractions, but the pattern seems clear—while companies continue to treat their shareholders unfairly by breaking the law, their shareholders are able to enjoy their day in court.