The Largest Securities Class Action Settlements in History: Part 2

Some securities class action settlements in particular have generated significant visibility for their large dollar value. Stanford Law School’s Securities Class Action Clearinghouse, in collaboration with Cornerstone Research, previously ranked the top 10 largest of these agreements by dollar value. This article, part two of a series, will review the second half of these top 10 settlements.

WorldCom: Citigroup
In 2002, WorldCom submitted the largest bankruptcy filing in the history of the U.S. Shareholders lost billions, and in the aftermath of this event, investors who bought company shares before the bankruptcy filed suits against financial services giant Citigroup. In May 2004, Citigroup announced it would pay $2.65 billion to settle a securities class action filed on behalf of purchasers of WorldCom securities between April 29, 1999, and June 25, 2002.  Citigroup did not admit wrongdoing, instead saying that it had chosen to settle in order to eliminate the uncertainty and costs associated with engaging in further litigation. The financial services giant announced in August 2004 that it had agreed to establish a $2.65 billion settlement.

AOL Time Warner
On April 9, 2006, it was announced that a federal judge had approved a $2.65 billion settlement related to claims that before America Online Inc. and Time Warner Inc. merged, advertised revenue was accounted for in a fraudulent manner. Because of this improper accounting, investor lawsuits claimed that AOL provided overly high revenue figures for 15 quarters between 1998 and 2002. AOL and Time Warner announced merger plans in 2000, and while AOL’s public image had grown through widespread advertising, its dial up customer base deteriorated, and this development negatively impacted Time Warner. When claims were filed, seven months of negotiations took place under the supervision of a special master appointed by the court. U.S. District Judge Shirley Wohl Kram granted the deal tentative approval in September 2005 and then full approval in April 2006. Under the approved deal, Time Warner would pay most of the amount and Ernst & Young LLP, the company’s auditor, would pay $100 million. On June 8, 2007, a press release indicated that an appeal was delaying initial distribution of the $2.65 billion settlement stemming from the merger of AOL and Time Warner. On June 1, 2007, a group called BizProLink LLC filed a notice of appeal in a federal court in New York. The month before, Kram had signed an order directing payment of an initial distribution for the settlement.

Household International
On Oct. 17, 2013, law firm Robbins Geller Rudman & Dowd released a statement announcing that U.S. District Judge Ronald Guzman had entered a judgment of $2.46 billion against Household International, which has become part of HSBC Finance Corporation, as well as three former executives. The law firm revealed that the judgment contains roughly $1.5 billion in damages and nearly $1 billion in prejudgement interest. The original securities class action claimed that defendants issued a series of materially false and misleading statements about the business, operations and prospects of Household International, and therefore breached federal securities laws. The lawsuit alleged that because of these misleading statements, company securities traded at inflated levels during the class period, which spanned between Oct. 23, 1997, and Aug. 14, 2002. While the first date represented the time Household International announced its results for the third quarter of 1997, the second is when the company revealed that it would restate its financials for the last eight years after providing overstated figures during that period.

Bank of America and Merrill Lynch
Bank of America announced Sept. 28, 2012, that it had settled a securities class action stemming from its acquisition of Merrill Lynch, which closed Jan. 1, 2009. Investors filed a lawsuit alleging that Jan. 16, 2009, BOA revealed that during 2008, Merrill Lynch had posted a preliminary fourth quarter loss of $15.3 billion. “To resolve this situation, BOA agreed to pay $2.43 billion.”  Merrill Lynch’s “principal transactions” revenue for the fourth quarter of 2008 was negative $13.1 billion, stemming from declines in mark-to-market valuations, write-downs and losses from assets held in its trading portfolio. Allegedly, BOA needed to approach the U.S. Department of the Treasury to obtain additional funding and asset guarantees. After revealing this information, BOA shares plunged 31 percent between Jan. 14, 2009, and Jan. 16, 2009. According to the lawsuit, the proxy statement provided material misrepresentations and also neglected to reveal facts needed to make the disclosures true. To resolve this situation, BOA agreed to pay $2.43 billion and also implement new policies surrounding its corporate governance. While BOA denied all allegations, it stated that it was settling to eliminate the uncertainty and cost of further litigation.

Royal Ahold NV
On Nov. 27, 2005, Royal Ahold NV announced that it would pay $1.1 billion to settle a securities class action suit that involved claims related to accounting. This case, titled “In re Royal Ahold N.V. Securities & ERISA Litigation,” was pending before the U.S. District Court for the District of Maryland in Baltimore. The lawsuit was prompted by the company overstating three years of earnings. Under the resulting agreement, the company would pay shareholders who bought stock between July 30, 1999, and Feb. 23, 2003, between $1 and $1.30 per share. On Jan. 9, 2006, Ahold announced that a U.S. federal court had granted the proposed settlement preliminary approval. On June 17, 2006, the company revealed that the aforementioned federal court in Maryland had entered a final order and judgment approving Ahold’s agreement to settle the lawsuit. While an appeal was filed by Drs. W.C.M. Oud, he voluntarily withdrew his appeal with prejudice.

The five securities class action settlements mentioned in this article – and the 10 total mentioned in this two part series – represent the largest and most notable of all shareholder settlements, but a fraction of the total litigation activity.  Battea stays on top of the developments in this space, keeping track of all the latest details for our institutional client base.