•  Filing Timely Claims In Securities Fraud Settlements
•  Pension Fund Client Successfully Appointed Lead Plaintiff In A Derivative Action Based On Scott+Scott Pleadings
•  Scott+Scott Files Petition On Behalf Of Pension Fund Clients To Intervene In $8.5 Billion Bank of America/Countrywide Mortgage-Backed Securities Settlement

•  Antitrust And Securities Class Actions After Dukes
•  Conferences And Events

•  On The Record

(Flashlit version)


Filing Timely Claims In Securities Fraud Settlements

Securities fraud class action lawsuits have a dual purpose.  They hold companies and individuals who engage in securities fraud accountable to the market and the investing public.  The lawsuits also seek to compensate the class of investors who have been damaged by the fraud.  An individual or institutional investor will be a member of the class if they traded in the securities that are the subject of the lawsuit during the time period in which the fraud was alleged to have occurred.

Ostensibly, when securities lawsuits result in a settlement or judgment in the plaintiffs’ favor, the class members have won.  However, obtaining a settlement or favorable judgment in the class’ favor is not the end of that victory road.  There is still the very important step of filing a timely claim, which avails members of the class of their share of the settlement or award.  Without filing a timely claim, there may be no recovery for an individual or institution that would otherwise be eligible to receive a portion of the recovery.

When a securities fraud class action does reach a favorable outcome for the class, the court appoints a “claims administrator” to handle the compensation to the class.  A claims administrator is a neutral, third party tasked with locating members of the class, notifying them of the resolution of the action, processing class member claims, and ultimately distributing money to eligible claimants.

The claims administrator typically notifies class members of their eligibility to file a claim by sending class members “notice of claim” forms in the mail.  These notices inform the investor of the particulars of the lawsuit and the favorable outcome.  The notices also attach two important documents for class members.  First is a “plan of allocation” that outlines the amounts that claimants can expect to recover based upon their particular trading during the class period.  Second is a “claim form” for class members wishing to claim for that recovery.

Investors must complete and submit the claim form to the claims administrator if they expect to recover any settlement or award monies.  The claim form is a simple document requesting basic identifying information about the claimant.  This includes the claimant’s physical address and contact information for any required follow up by the claims administrator.  In addition, the claim form requests specific information about the claimant’s class period trades in the subject security, such as trade date, number of shares purchased or sold, and the price per share for the security.  All of this information can be handwritten on the claim form.  No electronic expertise or technological savvy is required.

Most claim forms also request accompanying independent verification for each trade listed on the claim form.  To accomplish this, most claimants simply contact their broker or consult their online discount stock brokerage service to obtain broker confirmations of each transaction listed on the claim form.  Along with the information submitted on the claim form, these broker confirmations contain all of the verification and information that the claims administrator needs to process a claim.

It is imperative that an eligible claimant complete the claim form and postmark it to the claims administrator by the deadline specified on the claim form.  These deadlines are usually many months from when the notice of the settlement is first issued.

If an investor has any questions about their eligibility to file a claim, has questions about the claims process, or simply needs assistance in completing a claim form, the claims administrator is a valuable resource available to them and can provide the necessary guidance and support.  Claims administrator contact information is prevalently displayed on the notice of settlement and the claim form for this purpose.

Submitting a claim in a securities fraud class action settlement is a simple and straightforward process.  However, failure to do so in a timely manner can result in needlessly eschewing money and resources that would otherwise compensate an eligible shareholder for their financial harm.

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Pension Fund Client Successfully Appointed Lead Plaintiff In A Derivative Action Based On Scott+Scott Pleadings

            On July 5, 2011, the United States District Court for the Northern District of Illinois consolidated four shareholder derivative actions alleging claims related to Baxter International.  As part of the consolidation, the court appointed a pension fund represented by Scott+Scott as lead plaintiff.  The appointment was based—in large part—on the quality of the pleadings Scott+Scott drafted for the pension fund.  The decision represents yet another achievement for Scott+Scott’s well-regarded derivative practice, which has achieved a number of notable victories across the country in recent years.

            In general, a shareholder derivative action involves a situation where a company’s management has breached their fiduciary duties to a company in some manner, and the company has failed to take action to remedy the harms flowing from that breach.  In such instances, a shareholder of the company may step in to assert the claims of the corporation against its disloyal management and give the corporation, and its shareholders, a chance to recover.

            When more than one shareholder files a derivative complaint seeking to assert the same claims, courts often appoint a “leadership structure” in order to streamline the litigation.  Typically, one shareholder is appointed to direct the course of litigation with the assistance of its counsel.  Courts examine a number of factors in determining which shareholder will best be able to represent the interest of shareholders and ably prosecute the litigation, including the size of shareholder’s financial interest in the company, the quality of its pleadings, and the vigorousness of prosecution.  In addition, courts generally favor the appointment of institutional clients, such as pension funds, over individuals.

            In this case, the district court selected the pension fund represented by Scott+Scott over a competing group comprised of two pension funds and supported by a third individual shareholder.  In large part, the basis for the district court’s decision was the fact that Scott+Scott had conducted an extensive investigation into the case. This included the use of a special mechanism under Delaware law whereby Scott+Scott’s client was able to obtain confidential business records from Baxter International.  Counsel for the competing group had not undertaken such an investigation.  The district court found that as a result of this investigation, Scott+Scott had been able to craft a superior complaint that had enhanced the likelihood that the shareholders would be successful.

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Scott+Scott Files Petition On Behalf Of Pension Fund Clients To Intervene In $8.5 Billion Bank Of America/Countrywide Mortgage-Backed Securities Settlement

On July 6, 2011, Scott+Scott filed a petition to intervene in the $8.5 billion Bank of America/Countrywide mortgage-backed securities (“MBS”) settlement on behalf of a group of its public pension clients.  The pension fund group is seeking to intervene in the action so that Scott+Scott can obtain documents and take deposition testimony that will allow the pension fund group to evaluate the fairness of the proposed settlement.

If approved, the settlement would release all claims that Countrywide MBS investors have against Bank of America and Countrywide for the false representations and warranties regarding the mortgage loans that were bundled into the MBS and sold to pension funds.  Under the agreements that govern the MBS, Bank of America and Countrywide are contractually obligated to repurchase those loans that do not conform to the representations warranties in the governing agreements, potentially requiring Bank of America and Countrywide to buy back tens of billions of dollars in bad loans.

Concerns with the Proposed Settlement

The pension fund group has taken issue with the fact that the proposed settlement was negotiated in private by a group of 22 large corporate investors, which included among others Goldman Sachs, BlackRock, and PIMCO.  In its petition, the pension fund group stated that it was concerned that:

·         No public pension funds were included in the group of 22 large corporate investors that negotiated the proposed settlement with Bank of America and Countrywide.

·         Many of the 22 corporate investors that negotiated the proposed settlement appear to have significant ongoing business dealings with Bank of America, raising conflict-of-interest concerns.

·         The proposed settlement appears to release claims belonging to former investors without appearing to provide these investors with consideration for the release of their claims.

·         The $8.5 billion settlement fund is being allocated among investors in accordance with the “payment waterfall” set forth in the pooling and servicing agreements, which may provide some investors with a windfall and may not compensate others for their actual losses.

·         The proposed settlement does not appear to give investors the opportunity to opt-out and does not appear to provide notice to former investors in Countrywide MBS.

·         The proposed settlement appears to give BNY Mellon broad indemnification rights but does not appear to specifically carve out claims against BNY Mellon from the release.

The pension fund group is also concerned because the group of 22 corporate investors that secretly negotiated the deal may not have sufficiently reviewed whether Bank of America can be held liable as the successor-in-interest to Countrywide, which would significantly increase the value of the claims that Countrywide MBS investors are releasing in the settlement.  The group of 22 corporate investors also may not have appropriately evaluated Bank of America and Countrywide’s true exposure when agreeing to the $8.5 billion settlement.

Potential Discovery Topics

The pension fund group has indicated that the potential discovery topics include: whether the settlement negotiations were conducted at arms-length, whether the parties that participated in the settlement negotiations had any conflicts of interests, whether the parties that negotiated the settlement took any informal discovery to assess the merits to the parties’ claims and, if so, what documents and evidence the parties reviewed and considered, and whether the substantive terms of the proposed settlement are fair, reasonable, and in the best interests of the class.

The case is currently pending in the New York Supreme Court in New York County.  The pension fund group’s petition to intervene is fully briefed and awaits a ruling by the court.

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Antitrust And Securities Class Actions After Dukes

The Supreme Court’s recent decision in Wal-Mart Stores, Inc. v Dukes, 131 S. Ct. 2541 (2011) has gained considerable attention and raised much debate about whether, under Chief Justice Roberts’ watch, the Court has made it significantly more difficult for plaintiffs to bring large lawsuits.  While Dukes does make it more difficult to bring certain types of large class actions, in particular those involving employment discrimination claims, it has little effect on many other class actions that are critical to vindicating plaintiffs’ rights, including classes alleging antitrust or securities violations.

            Dukes involved a gender discrimination claim against Wal-Mart, brought on behalf of a class of 1.5 million current and former female employees, for back pay and injunctive relief.  The class plaintiffs’ theory of the case was that Wal-Mart’s policy of allowing individual store managers to make decisions regarding promotions and raises based primarily on their own subjective discretion resulted in disparately worse treatment for all of Wal-Mart’s female employees.  Further, the class plaintiffs’ alleged that although this discrimination took place at each of Wal-Mart’s 3,400 stores across the country, Wal-Mart’s executives were aware that their policy of allowing store managers to make decisions based on their discretion had a disparate impact on women.

            The Supreme Court reversed decisions from lower courts permitting certification of the proposed class.  It concluded that plaintiffs had not established one of the requirements for class certification, specifically the requirement that there must be at least one issue of law or fact “common” to all class members.  As the Supreme Court explained, the commonality requirement does not simply ask whether there is a common question among all class members—such as, were all female Wal-Mart employees discriminated against—but rather examines whether there is a common answer to that question, e.g., did a single policy cause disparate treatment to all female Wal-Mart employees.  Class actions require a common “answer” because they can only simultaneously resolve the claims of all class members if, in the event that plaintiffs’ proposed answer is proven true, the answer would explain the injury that each class member suffered.

            To establish commonality in Dukes, the class plaintiffs had to show that each of the store managers, in each of Wal-Mart’s 3,400 stores, exercised his or her subjective discretion in a manner that discriminated against each of Wal-Mart’s many female employees.  The Supreme Court held that in the absence of some corporate policy discriminating against female employees, thousands of store managers from across the country could not all have exercised their individual discretion in the same way; or, in other words, not every store manager had the same decision process for offering promotions and raises.  Consequently, even if some store managers did exercise their discretion in a manner that discriminated against women, the proposed class action would be inappropriate because it would inaccurately provide that same explanation (or answer) for women who were not given a promotion or a raise by a store manager whose decision process was unbiased.  Indeed, the Supreme Court left open the possibility that plaintiffs could have satisfied the requirements for a smaller class composed, for instance, of all the female employees of a single store.

            The foregoing analysis, however, should not typically apply to antitrust or securities class actions.  Antitrust claims by definition allege a common source of injury for all potential plaintiffs.  More specifically, they allege either that multiple defendants conspired to achieve an anticompetitive goal, like price fixing—in which case everyone who pays the artificially high price for the good in question does so because of the conspiracy—or that a single defendant has abused its monopoly power towards an anticompetitive end.  Likewise, securities claims allege that some misstatement disseminated to the market caused all market participants to incorrectly value the security in question, and that by relying on that incorrect value, investors paid an incorrect price for the security and ultimately lost money on the transaction.  For those reasons, the Supreme Court recognized in Dukes that courts frequently certify securities classes and, recently, in Erica P. John Fund, Inc. v. Halliburton, 131 S. Ct. 2179 (2011), the Supreme Court even overruled a lower court decision that had refused to certify a securities class.  Accordingly, Dukes should not stop potential plaintiffs from aggressively pursuing remedies for their injuries, or from using class actions as means of doing so, in particular where they have suffered antitrust or securities injuries.

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U.S. Events

Conferences And Educational Seminars

+August 5-10, 2011

National Association of State Retirement Administrators (NASRA) 2011 Annual Conference

Grand Geneva Resort

Lake Geneva, WI

NASRA is a nonprofit association whose members are the directors of the nation’s state, territorial, and largest statewide public retirement systems.  NASRA members oversee retirement systems that hold more than two-thirds of the more than $2 trillion in state and local government assets, and that provide pension and other benefits to most state and local government employees.  The annual NASRA conference, held exclusively for members, takes place the first week in August every year.  Presentations by informed speakers are on a variety of pertinent subjects including investment management, world events applicable to the pension industry, actuarial, data processing, health care and significant happenings in each of the states and territories.

+August 7-9, 2011

Texas Association of Public Employee Retirement Systems (TEXPERS) 2011 Summer Educational Forum

Omni Mandalay

Irving, TX

A small group of individuals, who were members of several Texas public employee retirement systems, formed Texas Association of Public Employee Retirement Systems (TEXPERS) in 1989 as a statewide voluntary nonprofit association to provide quality education to trustees, administrators, professional service providers, and employee groups and associations engaged or interested in the management of public employee retirement systems.  TEXPERS system and associate membership has grown substantially, representing $475 billion in assets.  TEXPERS executes its educational mission by organizing two annual conferences for pension trustees to receive information about investments, fiduciary duties, governance, ethics, and legal matters.  This year’s forum takes a look into the market volatility and its global impact following the market meltdown in an effort to understand the market as it takes its course mimicking the ebb and flow of investors’ sentiment, and giving a perspective into elected officials’ responses toward defined benefit plans.

+August 13-17, 2011

National Association of State Auditors, Comptrollers, and Treasurers (NASACT) 2011 Annual Conference

The Hilton Burlington

Burlington, VT

The National Association of State Auditors, Comptrollers, and Treasurers was founded in 1915 to allow principal state officials concerned with state financial management to gather annually and discuss problems and issues of mutual interest.  Over the years, state financial management has become increasingly complex and, in response, NASACT has grown to address new needs by offering increased levels of service, training, and networking.  NASACT is also affiliated with the Center for Governmental Financial Management (CGFM), a not-for-profit 501(c)(3) entity created to facilitate NASACT’s mission and goals on an international level.  The Association’s Washington office acts as a liaison with congressional committees, federal agencies and other national associations on issues of interest to NASACT, while its Lexington, Kentucky’s office is the main headquarters for training and development.  Transparency and clear direction is an ongoing theme within NASACT’s training.  NASACT’s two day annual conference, held each August, is the Association’s premiere event designed to provide maximum opportunities for state auditors, state comptrollers, and state treasurers to network with each other and hear industry leaders speak on current and emerging issues.

+August 27-31, 2011

National Association of State Treasurers (NAST) Annual Conference

Ramkota Hotel Bismarck

Bismarck, ND

The National Association of State Treasurers, founded 35 years ago, encourages the highest ethical standards, promotes education and the exchange of ideas, builds professional relationships, develops standards of excellence, and influences public policy for the benefit of the citizens of the states.  Membership is composed of all state treasurers, or state finance officials with comparable responsibilities from the United States, its commonwealths, territories, and the District of Columbia.  Headquartered in Lexington, Kentucky, with a Federal Relations office in Washington, D.C., NAST provides a resource for state treasurers to communicate concerns on pending legislation and regulatory actions by federal agencies.  The private sector is represented through the Corporate Affiliate Program, established to build professional relationships and foster cooperation between the public and private sectors, including educational initiatives.  The gathering of NAST membership at conferences is an outstanding opportunity for all members to discuss issues that will enhance the efficiency and effectiveness of state treasuries, inform the public and other decision-makers about the responsibilities of state treasurers, and communicate positions of financial matters pertinent to all states.

Government Finance Officers Association’s Conferences

+August 10-12, 2011

Officers of Arizona GFOAz Summer Training

Loews Ventana Canyon Resort

Tucson, AZ

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On The Record:

Herbert Hoover, US President, born August 10, 1874  “Competition is not only the basis of protection to the consumer, but is the incentive to progress.” [State of the Union Address, December 2, 1930]

Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
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  • Consider what level of participation any given situation requires   
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To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: + UK Tel: 0808.234.1396     

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