ISS Discusses Class-Action Settlements Requiring Investor Action

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Investors have a significant number of opportunities to participate in class actions during the upcoming 3-month period. Specifically, 39 North American settlements valued at $1.14 billion have a claim deadline date from August 1, 2022 – October 31, 2022.

The 39 settlements range from a high of $200 million (General Electric Company) to a low of $250,000 (ABTCOIN LLC). 32 of the 39 settlements occurred in U.S. Federal Court, three with the U.S. Securities and Exchange Commission, two in U.S. State courts, and two in Canadian courts. Not surprisingly, the highest quantity of cases – 12 of the 39 (or 31%) – took place in the United States District Court for the Southern District of New York.

The 39 cases averaged 3.94 years from the initial filed complaint through to the official settlement date. The longest case – at an astonishing 13.5 years – was the CIBC settlement at CAD $125 million. The shortest case – at only 15 months – was with Aterian Inc., which settled for a nominal amount of $1.3 million.

These 39 settlements include 35 traditional class actions, as well as one antitrust action, and three meaningful SEC Fair Funds. Note: Section 308(a) of the Sarbanes-Oxley Act of 2002 empowers the U.S. Securities and Exchange Commission with the ability to create a “Fair Fund” – a provision that allows the distribution of a company’s wrongful profits (disgorgements), penalties, and fines back to defrauded investors. In short, the creation of a “Fair Fund” benefits investors who lost money due to illegal or unethical activities from companies (or individuals) that violate securities regulations.

A closer look at a few of the more noteworthy settlements:

In December 2020, the United States Securities and Exchange Commission announced a $200 million settlement with General Electric Co. The Fair Fund was created to resolve allegations against the Boston-based multinational conglomerate related to a failing to disclose material information in its power business and worsening trends in its insurance business. RCB Fund Services was appointed to manage the claims filing process. (Note: A separate action against GE – in the Southern District of New York – was Class Certified in April 2022.)

A claim deadline of September 7th was set in the $165 million BlackBerry Limited settlement. Allegations – first filed on October 4, 2013 – state the Waterloo, Ontario based company misled investors by inflating the success and profitability of its BlackBerry 10 line of smartphones. The case took place in the Southern District of New York. Interestingly, the settlement was reached just one day prior to the scheduled trial date. Shareholders were represented by co-lead counsel Kahn Swick & Foti and Brower Piven. JND Legal Administrations is serving as the court appointed Claims Administrator. (Note: a separate shareholder action, with similar allegations, remains active in Canada.)

A CAD $125 million settlement was reached between investors and CIBC (Canadian Imperial Bank of Commerce). The initial complaint was filed well over a decade ago, July 22, 2008 – where shareholders alleged the Toronto-based bank failed to disclose its exposure – and risks – associated with its U.S. subprime mortgage investments. The case took place in the Ontario Superior Court of Justice. A claim deadline is set for September 16, 2022; Epiq Class Action Services Canada is serving as the court appointed Claims Administrator.

In August 2019, the United States Securities and Exchange Commission announced a $100 million settlement with Facebook Inc. The Fair Fund was created to resolve allegations against the Silicon Valley-based tech giant for making misleading disclosures regarding the risk of misuse of the company’s user data. The settlement noted that for a period of more than two years, Facebook’s public disclosures presented the risk of misuse of user data as merely hypothetical when the company knew that a third-party developer had actually misused Facebook user data. The claim deadline is set for October 26, 2022; RCB Fund Services was appointed to manage the claims filing process. (Note: A separate action against Facebook – with these same allegations was dismissed by a Federal judge in the Northern District of California – however plaintiffs appealed to the Ninth Circuit where the case currently remains ongoing.)

In September 2018, the United States Securities and Exchange Commission announced a $40 million settlement with Tesla, Inc. and its CEO, Elon Musk. The Fair Fund was created to resolve allegations against the electric vehicle manufacturer for failing to have required disclosure controls and procedures relating to Musk’s tweets (specifically an August 7, 2018 tweet that Mr. Musk could take Tesla private at $420 per share, a considerable premium to its stock price at that time). In addition to the monetary amount noted – to be split evenly between Mr. Musk and the Company – the settlement requires a number of corporate governance enhancements, including:

  • Mr. Musk to step down as Tesla’s Chairman and be replaced by an independent Chairman
  • Tesla to appoint two new independent directors to its board
  • Tesla to establish a new committee of independent directors and establish controls to oversee Mr. Musk’s communications
While not one of the larger upcoming settlements – but of significant interest to investors – a claim deadline of September 19th was recently established in the $14.75 million CBS Corporation settlement (now traded as Paramount Global). The #MeToo related case was centered on the broadcasting company’s failure to disclose alleged widespread workplace harassment by former CEO Leslie Moonves. Specifically, the court allowed the following statement: “#MeToo is a watershed moment,” said Moonves at the time. “It’s important that a company’s culture will not allow for this…” This is one example of a recent trend in ESG-related class actions. Gilardi & Company is serving as the court appointed Claims Administrator.Additional settlements have already been scheduled with a claim deadline date beyond October 2022. In fact, when final tallies are calculated from 2022 shareholder class actions, both settlement dollars and number of settlements will be higher than those from 2021.This post comes to us from Institutional Shareholder Services. It is based on the firm’s article, “$1.1 Billion in Settlements Require Investor Action,” dated July 26, 2022, and available here.