January 2012 Newsletter


•   2011: Third Highest Year OnRecord For The Median Settlement In Securities Class Action Suits

•   Federal Judge NixesSEC-Citigroup $285 Million Settlement

•   Antitrust Enforcement AgencyAction In 2011:  Merger Challenges, Civil Enforcement, Criminal Enforcement, and Competition Advocacy Highlights

•   Massachusetts Attorney GeneralFiles First Government Lawsuit Against Mortgage Lenders For Unfair And Deceptive Business Practices

•   U.S. Conferences And Educational Seminars

•   On The Record . . .

(Flashlit version)

2011: Third Highest Year On Record For The Median Settlement In Securities Class Action Suits

            On December 14, 2011, National Economic Research Associates, Inc. (“NERA”) released its year-end 2011 report analyzing securities class actions, entitled “Recent Trends in Securities Class Action Litigation: 2011 Year-End Review.”  The report, which examines recent securities class action filings, including complaints and settlements, highlights the crucial role that securities class actions play in regulating financial markets and describes several notable trends in securities class actions.  Significant developments identified in NERA’s 2011 report included a sharp increase in the number of suits against Chinese companies, a large number of merger and acquisition objector suits, and an uptick on the value of settlement in 2011.

            In 2011 there were 64 filings against foreign-based companies, which was more than a third of total filings.  By contrast, there were only 24 such filings in 2009 and 27 in 2010.  This increase was largely driven by the surge in filings against companies based in China.  These suits against Chinese companies have largely been located within the Second and Ninth Circuits, with only five cases having been filed outside of those circuits.  Over 90% of these suits made allegations concerning accounting improprieties.  Out of all securities class action suits that alleged accounting violations, over half were suits against Chinese companies.

            Also significant was the high number of merger and acquisition objector suits filed in 2011.  These cases generally allege that officers and directors of target companies in mergers and acquisitions breached their fiduciary duties by either failing to achieve a suitable purchase price for their company or by operating under a conflict of interest.  Although the number of these suits in 2011 dropped to 61 total suits from 68 such suits in 2010, these objector lawsuits still comprised the single largest category of non-standard cases tracked by NERA.

            The median settlement value in 2011 was $8.7 million.  This figure was the third highest median settlement since the Private Securities Litigation Reform Act was passed in 1995.  Although this figure demonstrates that aggrieved investors have had success in recouping their losses through securities class action litigation, investors continue to suffer severe financial losses due to securities law violations.  In fact, the NERA report demonstrated that median investor losses in 2011 due to securities law violations were the second highest on record.

Generally, as investor losses grow, so does the settlement size.  The NERA report, however, demonstrated that this relationship is not linear, as cases with investor losses of below $20 million on average settle for 38% of investor losses while cases with investor losses of over $1 billion settle for an average of 2.3% of investor losses.

As investor losses continue to rise, it is necessary for investors to take steps to protect their portfolios.  One such step is to participate in a portfolio monitoring system that can electronically identify losses arising from corporate fraud.  For information regarding Scott+Scott’s portfolio monitoring system, please contact David Scott at (800) 404-7770 or drscott@scott-scott.com.

Table of Contents 

Federal Judge Nixes SEC-Citigroup $285 Million Settlement

            A federal judge rejected a $285 million plan to settle a lawsuit the U.S. Securities and Exchange Commission (“SEC”) filed against Citigroup for misleading investors about an investment tied to the deteriorating housing market.  The SEC had accused Citigroup—the third largest U.S. lender—of making misrepresentations in connection with a billion dollar fund it structured as a vehicle for unloading residential mortgage-backed securities on investors.  The complaint claims Citigroup knew the assets were backed by underperforming subprime loans.  Nonetheless, Citigroup touted the investments as attractive and then took a short position on those very same assets, betting their value would drop.

            Simultaneous with the filing of its complaint against Citigroup, the SEC sought to have the court approve a sweetheart settlement for Citigroup.  Although the SEC says investors lost more than $700 million, the SEC agreed to let Citigroup off for a fraction of the harm it allegedly caused and with no admission of wrongdoing.  Citigroup agreed to disgorge $160 million in profits, plus $30 million in interest, and pay a $95 million civil penalty to the SEC, while being enjoined from engaging in future securities fraud violations and also required to implement certain internal controls to prevent recurrences.

            Accusing the agency of failing to do its job, the Honorable Judge Jed S. Rakoff of the U.S. District for the Southern District of New York concluded he had “not been provided with any proven or admitted facts upon which to exercise even a modest degree of independent judgment.”  In seeking court approval of the settlement, the SEC had brazenly argued that public interest was not a consideration in this case—a position Judge Rakoff flatly rejected, refusing to be “a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious importance.”  He said that if the charges against Citigroup are true, the SEC settlement is too weak to hold the bank accountable.  Calling Citigroup “a recidivist” securities fraud offender, he further criticized the SEC’s practice of letting financial institutions like Citigroup settle without admitting or denying liability:

            As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup’s position in this very case.

            Instead of approving the settlement, the court set the case for trial in July 2012.  A trial could establish conclusions that investors could use against Citigroup, as could a new settlement that includes admissions by the bank.  Citing legal error, the SEC vowed to appeal this decision to the U.S. Court of Appeals for the Second Circuit.

Table of Contents 

Antitrust Enforcement Agency Action In 2011:  Merger Challenges, Civil Enforcement, Criminal Enforcement, and Competition Advocacy Highlights

            The U.S. Department of Justice’s Antitrust Division (“DOJ”) and the Federal Trade Commission’s Bureau of Competition (“FTC”) share responsibility for enforcing the nation’s antitrust laws.  The DOJ and FTC share the core mission of ensuring that consumers and businesses are protected from violations of the antitrust laws.  The pillars of these bodies’ work are merger enforcement, civil enforcement, criminal enforcement, and competition advocacy.

            Merger Enforcement

            In 2011, the DOJ and FTC reported an increase in merger filings from 2010.  The DOJ received 1,450 merger applications in 2011, which was up 25% from the 1,166 merger filings in 2010.  The DOJ allowed 98% of the transactions it reviewed without requesting further information from the parties.  The FTC reported challenging 17 mergers.  Among these actions was the DOJ’s challenge of H&R Block’s acquisition of TaxACT.  Both companies offer do-it-yourself tax preparation software.  The DOJ litigated the case and won its first favorable merger decision since 2003.  The United States District Court for the District of Columbia ruled that the proposed transaction threatened to substantially reduce competition and innovation in do-it-yourself tax preparation services.

            Another notable merger challenge was AT&T’s proposed $39 billion acquisition of
T-Mobile.  The merger would have created the largest mobile wireless company in the United States.  The DOJ alleged that the transaction would have substantially reduced competition in mobile wireless telecommunications services markets across the United States.  The enforcement action resulted in the parties abandoning the deal shortly before trial.

            The DOJ entered into a consent decree, which allowed Google to acquire ITA, a software that powers airfare search engines for travel websites.  The DOJ was concerned that Google would cancel licensing agreements between ITA and airfare comparison and booking websites.  The consent decree requires Google to license the software on commercially reasonable terms.  The settlement also establishes a mechanism for compliance monitoring under which licensees have a direct avenue to report violations of the settlement to the DOJ.

            In June 2011, the DOJ and FTC released an updated version of the Horizontal Merger Guidelines.  These guidelines are intended to make the agencies’ processes more transparent for the benefit of the merging parties, the antitrust community, and consumers.

            Civil Enforcement

            The DOJ and FTC monitor the nation’s markets for threats to competition that could harm American consumers and businesses.  In 2011, the DOJ sued Visa, MasterCard, and American Express, challenging rules that the credit card networks impose on merchants, which prevented merchants from extending discounts to consumers who elect to use less expensive forms of payment.  Visa and MasterCard entered into a settlement with the DOJ, while American Express elected to defend the merchant restraints in litigation.

            Another notable case is the DOJ’s challenge of a Texas hospital’s use of exclusionary contracts with health insurers to maintain monopoly power in its local market.  This is the first monopolization case brought by the DOJ since 1999.  The hospital agreement entered into a consent decree that prohibits it from engaging in practices intended to exclude its rival’s ability to compete in the market.

            Criminal Enforcement

            Criminal enforcement of the antitrust laws remains a key priority in federal enforcement policy.  The DOJ filed 90 criminal cases in 2011, secured over $520 million in criminal fines, and obtained 10,544 days of jail time for antitrust criminals.  These cases were brought in a number of industries that are key to the improvement of the U.S. economy, including real estate, auto parts, and financial services.

            The DOJ cooperated with a number of enforcement agencies across the world to uncover an international cartel in the auto parts industry.  The ongoing investigation has resulted in four guilty pleas, $200 million in fines, and three jail terms for key executives involved in the plot to rig bids and fix prices of auto parts that are found in every American’s vehicle.

            The DOJ also imposed massive criminal fines against JPMorgan Chase, UBS, and Bank of America for the firms’ involvement in a bid rigging conspiracy in the municipal bond investment market.  JPMorgan paid $228 million, UBS paid $160 million, and Bank of America paid $137.3 million.  The DOJ is coordinating this ongoing investigation with the U.S. Securities Exchange Commission, the Internal Revenue Service, the Office of the Comptroller of the Currency, the Federal Reserve Bank of New York, and 25 state attorneys general.

            In real estate, the DOJ uncovered bid rigging conspiracies at public real estate foreclosure and tax lien auctions.  To date, 32 individuals have pled guilty.

            Competition Advocacy

            The DOJ and FTC promote competition through advocacy efforts.  In 2011, the FTC continued its efforts to outlaw anticompetitive “pay-for-delay” agreements.  Under pay-for-delay agreements, brand-name drug manufacturers and the manufacturers of a generic equivalent agree to delay the onset of generic competition.  The origin of the pay-for-delay agreement is patent litigation that the brand-name manufacturer institutes after a generic manufacturer files documents with the Federal Drug Administration announcing its intent to produce a generic equivalent.  In the settlement of the patent litigation, the brand-name drug manufacturer agrees to drop the suit, and the generic drug manufacturer agrees to delay entry of its drug in exchange for cash and other concessions.  These settlements allow branded manufacturers to extend their patent rights at great costs to consumers and businesses every year.

            The DOJ and FTC have continued efforts to engage with global antitrust enforcement agencies.  One accomplishment for the agencies on this front in 2011 was the Memorandum of Understanding (“MOU”) signed between the DOJ and FTC with China.  The MOU outlines a cooperation agreement between the countries, intending to enhance cooperation.

            In 2012, civil and criminal enforcement will remain top priorities for the DOJ and FTC.  International cooperation will also remain a key priority due to the growing global nature of industry and commerce.

Table of Contents 

Massachusetts Attorney General Files First Government Lawsuit Against Mortgage Lenders For Unfair And Deceptive Business Practices

            Massachusetts Attorney General Martha Coakley filed the first government lawsuit against the nation’s five largest mortgage lenders, specifically targeting the banks’ allegedly unfair and deceptive business practices.  The defendants are Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally Financial Inc.  The suit also names Merscorp, Inc. and its Mortgage Electronic Registration System, the system that aided banks in the foreclosure process.

            The lawsuit, filed December 1, 2011, alleges that the banks “charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law.”  It further alleges that the banks engaged in “robo-signing,” whereby bank employees sign legal documents without review.

            The complaint sets out six causes of action.  Five involve claims that the defendants engaged in unfair or deceptive business practices, including commencing foreclosure proceedings without being the holder of the mortgage, relying on fraudulent documentation, and failing to modify loans after promising to do so.  The sixth cause of action involves claims that the defendants failed to register transfers of beneficial interests in mortgages.  The complaint cites multiple examples of situations where the banks allegedly failed to comply with the statutory requirements for conducting foreclosures.

            The Massachusetts lawsuit comes in the midst of settlement negotiations between the attorneys general of all 50 states and the five banks.  The states hope that these negotiations will lead to a multi-billion dollar settlement over the way the banks handled mortgage loans nationwide.  The banks would like to avoid separate legal battles in each of the 50 states by reaching a comprehensive agreement.

            Attorney General Coakley is unhappy with both the pace and content of the settlement negotiations.  She opined that the negotiations have been ongoing for over a year now, yet “the banks have failed to offer meaningful relief to homeowners.”  Other states, including California, Delaware, Nevada, and New York, have also raised objections during the settlement negotiations.

            Massachusetts’ lawsuit may lead to a stronger settlement for the states by demonstrating that the banks will face multiple legal actions if an agreement cannot be reached.  If the Massachusetts action progresses, it will force the banks into substantive discovery production for the first time.

            The case is Massachusetts v. Bank of America, et al., No. 11-4363 (Mass. Sup. Ct.).

Table of Contents 

U.S. Conferences And Educational Seminars


+January 10-12, 2012

Public Funds Summit presented by Opal Financial Group

The Phoenician Hotel & Conference Center

Scottsdale, AZ

This conference addresses issues that are critical to the investment success of senior public pension fund officers and trustees.  The conference offers three days of panels, presentations, and networking with industry peers where discussions will focus on investment risk, asset recovery, examine the processes for selection and evaluation of service providers, investigate legal concerns with fund investment and management policies, and fiduciary education.  More than 100 U.S. public funds will be represented as well as several foreign government and municipal funds.

+January 11-13, 2012

Metropolitan Baltimore Council AFL-CIO Unions 21st Annual Leadership Conference

Bally’s Hotel

Atlantic City, NJ

This regional conference is planned for the decision makers of the more than 200 locals affiliated with the Metropolitan Baltimore AFL-CIO.  This is an excellent opportunity to network with Baltimore’s labor community.  The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) is a voluntary federation of 57 national and international labor unions.  The AFL-CIO was created in 1955 by the merger of the AFL and the CIO.  The AFL-CIO union movement represents 12.2 million members, including 3.2 million members in working America. Members are from various professions—teachers, miners, firefighters, farm workers, bakers, engineers, pilots, public employees, doctors, nurses, painters, and plumbers and more.


+January 12-14, 2012

The Los Angeles Benefits Conference

JW Marriott at LA LIVE

Los Angeles, CA

The American Society of Pension Professionals and Actuaries in conjunction with the National Institute of Pension Administrators, the IRS, and the Western Pension Benefits Conference provides an opportunity for attendees to gain knowledge about current regulatory, legislative, administrative and legal topics.  This conference focuses on addressing the educational needs of pension and employee benefits professionals particularly in the western part of the United States.  Emphasis will be placed on recent developments in ERISA litigation where Supreme Court rulings conflict with plan documents and the types of remedies that may be available in breach of fiduciary duty cases as well as plan fee cases.


+January 15-17, 2012

The 24th Annual Police, Fire, EMS, & Municipal Employee Pension & Benefits Seminar (NAPO) presented by Financial Research Associates LLC

Caesars Palace

Las Vegas, NV

The National Association of Police Organizations (“NAPO”) has evolved into an organization that represents uniformed and non-uniformed public safety workers and their pension plans.   Founded in 1978, NAPO is a coalition of police unions and associations from across the United States that serves to advance the interests of America’s law enforcement officers through legislative and legal advocacy, political action, and education.  Founded in 1978, NAPO remains the strongest unified voice supporting law enforcement officers in the United States and represents more than 2,000 units and associations, 241,000 sworn officers, 11,000 retired officers, and 100,000 citizens who share a common dedication to fair and effective crime control and law enforcement.


+January 22-24, 2012

9th Annual Made In America: Taft-Hartley Benefits Summit presented by Financial Research Associates LLC

Planet Hollywood

Las Vegas, NV

The 2012 Made in America Summit will be divided into multiple tracks:  track “A” providing upfront education on pension investment issues and track “B” health & welfare topics, thus offering two conferences in one.  Several sessions will feature domestic equity issues and explore asset recovery.  The “get ready-to-use information on how to advance funding status” will be presented using numerous case studies.  Thousands have attended Made in America and more than 60% of the attendees are Trustees/Administrators.  This year special appreciation will be given to the Advisory board and executive committee members who represent more than 10 union factions including the Teamsters, UFCW, IBEW, NECA, OLFBP, NCCMP, Plumbers’ Welfare Funds, and National Elevator Health & Pension Funds.


On The Record . . .

“Injustice anywhere is a threat to justice everywhere.”

Martin Luther King, Jr., Minister, Civil Rights Activist, and 1964 Nobel Peace Prize Recipient, born January 15, 1929

Letter dated April 16, 1963

Table of Contents


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  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

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: drscott@scott-scott.com + UK Tel: 0808.234.1396