Compliance March 11, 2009

Securities Class Action Settlements Lower in 2008

The value and number of federal securities class action settlements declined in 2008, according to a report by Cornerstone Research.
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According to Securities Class Action Settlements: 2008 Review and Analysis, the annual settlement value fell by slightly more than 50%, from $62.7 million in 2007 to $31.2 million in 2008. The number of settlements decreased to 99 in 2008 from 110 in 2007.

In a press release, Cornerstone said the sharp drop can be attributed to the decline in multi-billion dollar settlements. No “mega settlement” of more than $1 billion was made in 2008.

Institutional investors served as lead plaintiffs in more than 60% of cases in 2008. Cases involving public pensions as lead plaintiffs are associated with significantly higher settlements, according to the press release.

The median amount of cases settled in 2008 was $8 million, compared to $9 million in 2007, which was an all-time high for all cases settled between 1996 through 2007, according to Cornerstone.

Cornerstone analysts said the decline is unlikely to be a trend in upcoming years. “Settlement figures may well bounce back over the next few years as cases associated with potentially large damages related to the current financial collapse work their way through the judicial system,” said Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse and co-author of the report, in the press release.

Cornerstone also found the average length of a class period in 2008 reached a new high of more than 800 days—nearly a year longer than the average for all settlements through 2007. The average class period before 2008 was 518 days.

The full report is here.

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Compliance March 11, 2009

Cuomo Says Merrill Accelerated Bonus Payments

Attorney General Andrew Cuomo again took a stab at Bank of America (BoA) for not releasing data about bonuses paid to Merrill Lynch&Co. executives.
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In court filings to the New York State Supreme Court, Cuomo rejected Bank of America’s attempts to avoid disclosing the names of and amounts paid to bonus recipients, according to news reports. Bank of America Chief Executive Kenneth Lewis has refused to turn over the names (see “Merrill Executives Subpoenaed in Bonus Probe’ and “BoA Gets Subpoena to Release Bonus Information’).

Cuomo is investigating whether the bonuses violated securities laws and whether Bank of America should have disclosed more about Merrill’s losses sooner, Reuters said.

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Bank of America counters that revealing the data would put them in a poor spot with competitors, making it hard to retain staff, according to news reports.

Cuomo also alleged that Merrill Lynch traders might have booked hefty losses later in 2008 only after learning of their 2008 bonuses, and that Merrill executives did not revisit their decision to pay out $3.62 billion of bonuses, Reuters reported. Cuomo said in the court filing that approving the bonuses in December was “unprecedented at Merrill and particularly imprudent considering the tatters in which the economy lay at the time the bonuses were voted,’ according to The Wall Street Journal.

Bank of America, which acquired Merrill Lynch January 1, has accepted $45 billion overall from the Troubled Asset Relief Program (TARP), according to Reuters.

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