By Nate Raymond
After more than five years litigating a major securities class
action, you'd think a lawyer would be offended when investors
begin opting out of the settlement he cut.
Not Ira Press, the Kirby McInerney lawyer who took the lead
in a $590 million settlement with Citigroup Inc now awaiting
final court approval. On Wednesday, European fund manager
Swisscanto Asset Management AG filed a lawsuit accusing Citi of
misrepresenting its financial condition from 2006 to 2009, after
opting out of the Citi class action over the same allegations on
Dec. 6. "I don't take it personally," Press said.
The reality, he said, is that opt-outs have become a regular
fixture in any big securities class action, including the one
against Citi. "Opt-outs are certainly more prevalent now than
they were 10 years ago, there's no question," Press said. "You
always had to allow for the possibility of opt-outs, and now
it's far from just a possibility."
In total, 134 investors besides Swisscanto -- including the
state of New Jersey and the Pennsylvania school employee pension
fund -- opted out of the Citi settlement by the Dec. 6 deadline.
Several investors, such as International Fund Management S.A.
and Stitching Pensioenfonds ABP, had filed individual cases
against Citi as early as 2010.
Swisscanto didn't say in its lawsuit why it decided to go it
alone rather than take the settlement money, and its lawyer,
Stuart Grant of Grant & Eisenhofer, didn't respond to requests
for comment. But at a conference Tuesday hosted by the New York
City Bar Association, Max Berger of Bernstein Litowitz Berger &
Grossmann said investors routinely opt out if they're not happy
with how much they'd earn on a settlement.
Generally speaking, "the recovery for them is significantly
greater than the recovery they would have gotten in a class
action," Berger said.
Many of the opt-out settlements are confidential, although a
few are public. In 2005, a group of institutional investors in
WorldCom Inc represented by Lerach Coughlin Stoia Geller Rudman
& Robbinsopted out of a $6.1 billion class action settlement
arising out of that company's collapse and reached a $651
million settlement with WorldCom's banks. A group of Tyco
International investors represented by Bernstein Litowitz,
meanwhile, recovered $105 million outside of a $3.2 billion
class action settlement. Blair Nicholas, the lead lawyer for the
Tyco opt-outs, said the recovery was eight times what they would
have netted in the class action.
No wonder more opt-out cases are being filed. In November, a
dozen institutional investors represented by Bernstein Litowitz
-- including California Public Employees' Retirement System, the
Teacher Retirement System of Texas and the Montana Board of
Investments -- opted out of a long-running securities class
action against Pfizer and filed their own lawsuit alleging
Pfizer misled shareholders about the safety of the drugs
Celebrex and Bextra.
Still, going it alone isn't without risks, Berger warned.
"You have to be prepared to pretty much open your kimono and be
open to full discovery, depositions, document discovery," he
said. "The risks in that litigation have to be matched with the
potential recovery." Berger said he recommends opting out only
if the losses are substantial enough to grab the defendants'
For defendants, the risk of not being able to buy global
peace is top-of-mind. Since the Private Securities Reform Act of
1995, the number of settlements with so called "blow-up"
provisions that would permit the deals to be invalidated if
there are too many opt-outs has shown a general, though uneven,
trend upward, according to NERA Economic Consulting. By the
first half of 2012 they'd reached 40 percent, compared with 21.4
percent in 2007.
In the Citi case, Press said, he isn't worried about his
settlement being affected by the opt-outs. The plaintiffs filed
papers seeking final approval of the accord Friday, after the
opt-out deadline passed. "We believe the number of opt-outs
relative to size of the class represents to us an endorsement of
the settlement by the class as a whole," he said.
Shannon Bell, a spokeswoman for Citi, said the bank believed
Swisscanto's lawsuit "is without merit and will defend against
it vigorously." Citi is represented by Paul, Weiss, Rifkind,
Wharton & Garrison.
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