The Largest Securities Class Action Settlements in History
While shareholders, companies and judges have been settling securities class actions for years, some of these particular agreements stand out because of their immense monetary value. In a two-part series, we will review the top 10 largest shareholder settlements in history and how investors were compensated. This first post will cover the five biggest agreements.
Enron Corporation
Currently, Enron Corporation holds the world record for the largest securities class action settlement in history, according to data provided by the Stanford Law School Securities Class Action Clearinghouse in collaboration with Cornerstone Research. In September 2008, a federal court approved a $7.2 billion settlement plan. The agreement, approved by U.S. District Judge Melinda Harmon, distributed payments to investors who purchased the company’s stock between Sept. 9, 1997, and Dec. 2, 2001, the day the company went bankrupt, according to The Houston Chronicle. “A federal court approved a $7.2 billion settlement plan.” The plan contained methods whereby roughly 1.5 million persons and organizations such as institutional investors would receive an average of $6.79 per share, the media outlet reported. Shareholders who bought preferred shares would receive an average of $168.50 a share under this agreement. The $7.2 billion settlement was reached after plaintiffs initially pursued legal action against large banks that worked with Enron, claiming that by creating and then financing questionable deals, these financial institutions contributed to fraudulent activity, according to the news source. While some of these banks were willing to settle, others refused to come to such an agreement and eventually won a ruling in the 5th U.S. Circuit Court of Appeals, which stated they were not major players in the alleged fraud.
WorldCom
In September 2005, a federal judge approved a $6.1 billion securities class action settlement settlement, which resolved a lawsuit brought forth by WorldCom shareholders after the telecommunications giant suffered an accounting collapse in 2002. U.S. Judge Denise Cote provided this ruling in Manhattan federal court, and after $347 million went to legal fees, WorldCom investors received more than $5.75 billion. At the time, the $6.1 billion figure made this agreement the largest shareholder settlement in history, according to The Washington Post. Investment banks pledged more than $6 billion of this amount, with JPMorgan Chase & Co. and Citigroup Inc., the largest underwriters of WorldCom, providing $4.6 billion of that figure. “WorldCom investors received more than $5.75 billion.” Aside from the amount contributed by financial institutions, 11 former WorldCom directors agreed to provide $55.25 million, including $20.25 million in their own money, the media outlet reported. In reply, Jeffrey Golan, an attorney for the shareholders, emphasized the benefit of having these board members contribute some of the settlement amount. “This type of settlement furthers the goal of making directors accountable for their actions of the companies on whose boards they sit, while also empowering them to ask tough questions and demand management responsiveness,” said Golan, according to the news source.
Tyco International
In December 2007, a federal court in New Hampshire finalized a $3.2 billion securities class action settlement related to a lawsuit filed by shareholders of Tyco International Ltd. According to the plan, which was approved by U.S. Judge Paul Barbadoro, Tyco paid $2.975 billion to investors, while PricewaterhouseCoopers LLP, its auditor, provided another $225 million. Investors who bought or otherwise came to own company securities between Dec. 13, 1999, and June 7, 2002, were covered by the settlement and received remuneration as per the agreement.
Cendant
In August 2000, a federal judge approved a proposed securities class action settlement, resolving a lawsuit brought forth by the shareholders of Cendant, created through the 1997 merger of HFS International and CUC International, Inc. The decision created a settlement fund that contained $3.2 billion, including $2.85 billion in cash for Cendant investors supplied by Cendant and HFS Individual Defendants and another $335,000 in cash provided by Ernst & Young LLP.
Petroleo Brasileiro S.A. – Petrobras: American Depository Receipts (ADRS)
On January 3, 2018, Petrobras announced that in connection with the losses investors suffered from the “Lava Jato” (“Operation Car Wash”) bribery scandal, it had agreed to a USD 2.95 Billion settlement with investors who purchased American Depository Shares (ADS) and certain Petrobras bonds. The settlement fund has since grown to $3 Billion. In addition to assisting clients that traded Petrobras ADS and the Petrobras bonds identified below, Battea is assisting a large number of institutional clients who suffered hundreds of millions in dollars in losses trading Petrobras common shares (PETR3) and Petrobras preferred shares (PETR4), which are listed on BM&F Bovespa, as well as certain Petrobras bonds that were purchased or acquired in non-US transactions that did not clear or settle through the Depository Trust Company’s book-entry system, with submitting their claims via current litigation efforts in District Court in Rotterdam, the Netherlands. Investors are turning their attention to the fact that Petrobras Global Finance B.V., as well as many international Petrobras subsidiaries are headquartered in the Netherlands (not in Brazil), and believe the avenue for recovery via litigation here, provides a much stronger outlook than doubtful arbitration efforts in Brazil. Learn more about the separate litigation in the Netherlands.
What Investors Need To Know
As a result of the aforementioned securities class action settlements, investors received billions for their holdings of company securities. Because a significant portion of such cases settle, investors can benefit greatly from having up-to-date information on the filing of shareholder lawsuits. Having easy access to such data is even more valuable due to the high number of these cases, particularly for institutional investors with a broad-based portfolio. To learn about the remaining cases in the top 10 largest securities class action settlements in history, tune in for the next piece.