If you’ve been wondering what the largest SEC securities settlements have been for the first half of the year, the National Economic Research Associates, Inc., (NERA) recently released it’s mid-year update. NERA has a proprietary database of SEC settlements and judgments going back to July 21, 2002, and they track SEC settlement trends each year.
According to the NERA report for the first half of 2012, there are some interesting trends to keep an eye on:
• The SEC is on pace to settle with more defendants in FY12 than it has in any year since FY05.
• This increase is being driven by heightened settlement activity with individuals, particularly for allegations related to insider trading and Ponzi schemes; the SEC is on pace for a record number of insider trading settlements in FY12.
• The median settlement value with individuals continued to follow the upward path observed since FY10, while the median value of settlements with companies declined after reaching a record value in FY11.
• The largest settlements in 1H12 are the highly publicized settlements with Citigroup Global Markets, Inc. ($285 million), still under appeal after being rejected by Judge Jed Rakoff, and Raj Rajaratnam ($92.8 million).
The 10 largest SEC securities settlements for the first six months of the year were:
|Settling Defendant||Announcement Date||Settlement Amount||Allegation|
|1. Citigroup Global Markets Inc.||10/19/11||$285M||Financial Services Misrepresentation to Customers|
|2. Raj Rajaratnam, Galleon Management, LP||11/8/11||$92.81M||Insider Trading|
|3. Magyar Telekom||12/29/11||$90.80M||FCPA|
|4. George David Gordon, Attorney||2/16/12||$50.51M||Market Manipulation|
|5. Wachovia Bank N.A.||12/8/11||$46.08M||Trading Violations|
|6. Pentagon Capital Management||3/30/12||$42.05M||Market Timing/Late Trading|
|7. GE Funding Capital Market Services||12/23/11||$24.90M||Market Manipulation|
|8. MAAA Trust1||12/22/11||$24.75M||Insider Trading|
|9. Aon Corporation||12/20/11||$14.55M||FCPA|
|10. Joseph F. Skowron III, Portfolio Manager, FrontPoint Partners, LLC||11/17/11||$13.37M||Insider Trading|
|1Settlements that included a jointly liable individual.|
|Read the full NERA Report here.|
Sounds too good to be true? You better believe it baby—and pardon the pun. This week, the makers of Enfamil infant formula got hit with a federal consumer fraud class action lawsuit over allegations they falsely advertise that Enfamil and other formulas contain prebiotics that provide immunity-related health benefits for babies and young children.
The Enfamil class action lawsuit, Shenique Route v. Mead Johnson Nutrition Company d/b/a Mead Johnson & Company, LLC, Case No. 12-cv-7350, U.S. District Court, Central District of California, claims that Mead Johnson & Co. mislabel the products and that they do not support a baby’s developing immune system as advertised.
The Enfamil lawsuit targets misleading statements made on the product labels for Enfamil Premium Newborn formula, Enfamil Premium Infant formula, Enfamil A.R. for Spit-Up Infant formula, and Enfagrow Premium Older Toddler Vanilla Milk Drink products. In particular, the lawsuit takes issue with the claims they contain “Natural Defense Dual Prebiotics” and that they “act like breast milk.”
Specifically, the class action lawsuit states: “Enfamil’s ‘Natural Defense Dual Prebiotics’ do not provide health benefits as represented and certainly are not ‘proven’ to do so. Moreover, there is not competent and reliable scientific evidence supporting the Misrepresentation, and any purported link between immune response and prebiotics in the Mislabeled Products is entirely speculative.”
The lawsuit claims, “experts agree that breast milk is immeasurably superior to baby formula in terms of infant nutrition and other health benefits. Therefore, it is misleading for Defendant to advertise the Mislabeled Products as similar to breast milk when formula cannot provide anywhere near the level of benefits provided by breast milk.”
The Enfamil class action lawsuit is brought on behalf of all U.S. consumers who purchased the mislabeled Enfamil products listed above for personal or household use. It is seeking damages, restitution and more for several alleged violations, including violation of California’s False Advertising Law, Unfair Competition Law, and breach of express and implied warranties.
Being taken for a ride?…Dollar Rent A Car is facing a federal consumer fraud class action lawsuit over allegations that the car rental company cheated customers out of millions of dollars by signing them up for insurance and other services they declined. Oh, the insurance—you know—that endless fine print that needs to be signed in less than 3 seconds—i.e. without reading.
The Dollar Rent A Car lawsuit, entitled Sandra McKinnon v. Dollar Thrifty Automotive Group, Inc. d/b/a Dollar Rent a Car, et al., Case No. 12-cv-4457, claims: “Over the last four years Dollar has implemented a systematic program nationwide through which its employees and agents illegally dupe customers into signing up for collision damage waiver (‘CDW’), car insurance and other added services that consumers have specifically declined. This is not an isolated incident with one consumer, but rather a systematic pattern of conduct that has occurred at a number of Dollar locations located throughout the United States.”
“Dollar has received multiple complaints about these issues but incentivizes its employees to make such sales, even by illegal means. If employees fail to obtain an average 30 per day upsales of additional options for three months they may be terminated and not eligible for unemployment,” the lawsuit claims. “Employees are thus incentivized to take advantage of the customers’ irritation, long lines, and misleading or high pressure sales tactics, by just telling them to tap certain lines to decline coverage when it may have the opposite result, or simply forge their signature.”
The class action lawsuit is brought on behalf of Dollar customers who paid for CDW, insurance and other products from Dollar that they specifically declined or did not authorize during the past four years. It is seeking actual, compensatory, statutory and exemplary damages and an injunction barring Dollar from continuing this alleged scheme.
And the subprime saga continues. This week Citigroup agreed to a securities class action settlement involving a $590 million payout to shareholders who alleged they had been misled about the bank’s exposure to subprime mortgage debt before the financial crisis.
Filed in November 2007, the lawsuit contends that Citigroup together with some of its former senior executives and directors failed to disclose the bank’s huge holdings in securities known as collateralized debt obligations (CDOs) that were tied to mortgage securities until November 2007, when it took a multibillion-dollar write-down on the CDOs. Citigroup later wrote down the CDOs by tens of billions of dollars more.
According to the lawsuit, Citigroup had previously tried to hide the deteriorating value of its holdings through improper accounting practices. “Citigroup used inflated, unreliable and unsupportable marks to keep its CDO-related quasi-Ponzi scheme alive and to give the appearance of a healthy asset base,” the lawsuit states.
The plaintiffs included pension funds in Colorado, Ohio and Illinois. The lawsuit was led by former employees and directors of Automated Trading Desk who received Citigroup shares when they sold the electronic trading firm to the bank in July 2007. The proposed settlement, which was given preliminary approval by Judge Sidney Stein of the U.S. District Court in New York, covers investors who bought Citi shares from Feb. 26, 2007, through April 18, 2008. Shares of Citigroup traded as high as $55 in the summer of 2007. By spring of 2008, its stock price had tumbled by half.
Ok—that’s it for this week—see you at the bar!
How Greek is your Yogurt? In fact, is your yogurt even yogurt? If you’ve been buying Yoplait Greek yogurt from General Mills, there’s a consumer fraud class action lawsuit that alleges the giant food processor has been misrepresenting the product as being Greek and yogurt.
“Yoplait Greek does not comply with the standard of identity of yogurt,” the lawsuit states. “Indeed, Yoplait Greek contains Milk Protein Concentrate (“MPC”) which is not among the permissible ingredients of yogurt, non-fat yogurt, and low-fat yogurt (collectively “yogurt”) as set forth under the Food, Drug, and Cosmetic Act.”
The Yoplait Greek yogurt class action lawsuit also states “The use of MPC is financially advantageous to defendants.” It allows General Mills to manufacture more product at lower cost, and that’s why they use it in the production of the yogurt.”
If this leaves you stuck for breakfast options—may I recommend last night’s leftovers…
Card Sharks Caught. This is one for all you conspiracy theorists out there—it’s pay day! A preliminary $7.2 billion settlement has been agreed by credit card giants MasterCard Inc, and Visa Inc, making it the largest antitrust settlement in US history.
The MasterCard Visa settlement, if approved, would resolve lawsuits brought as far back as 2005 by retailers who allege the credit card companies fixed debit and credit card swipe fees. Swipe fees are a small percentage of the purchase price and are taken by the credit card companies on every transaction made using their cards.
According to the terms of the settlement, filed in federal court in New York, Visa will pay $4.03 billion and MasterCard will pay $2.02 billion to a class of merchants, including small businesses and stores.
Additionally, both Visa and MasterCard will also agree to cut swipe fees by 10 basis points (0.1 percent) for eight months, which amounts to an additional $1.2 billion in relief for merchants.
The settlement also allows merchants and stores to impose a “checkout fee” to pass onto consumers, which is limited by a cap. It’s your lucky day!
Also included in the proposed settlement are credit card issuers such as JPMorgan Chase, Capital One, and Bank of America. Time to switch to the dark side…
Sachs Sacked. Remember 2008—(how could you forget, right?) The collapse of the financial world as we knew it—and the institutions such as Goldman Sachs who were in part responsible? Well, in 2009 The Public Employees’ Retirement System of Mississippi filed a securities class action against the financial institution, alleging New Century Financial Corp, which originated a Goldman Sachs $698 million mortgage-backed securities offering, failed to adhere to its underwriting standards and overstated the value of the collateral backing the loans.
The fund claimed Goldman Sachs didn’t conduct proper due diligence when it bought the loans in 2005. If I’m not mistaken, that was the crux of the entire meltdown—lack of due diligence—on everyone’s part.
This week, a preliminary Goldman Sachs securities class action settlement was announced.
The lawyer representing the retirement fund told U.S. District Judge Harold Baer in a letter made public that both sides had accepted a settlement proposed by a mediator. Details of the agreement weren’t disclosed, according to a report by Bloomberg Businessweek.
The case is Public Employees Retirement System of Mississippi v. Goldman Sachs Group Inc., 09-cv-01110, U.S. District Court, Southern District of New York (Manhattan).
Ok—That’s a wrap. Happy Friday! See you at the bar!
With Friends Like These…So who hasn’t heard about the Facebook IPO lawsuit feeding frenzy set off this week by allegations that Mark Zuckerberg’s social media platform may not have as rosy a future as originally perceived?
In a nutshell, the allegations boil down to claims that Facebook, CEO Mark Zuckerberg and the underwriters—Morgan Stanely—misled thousands of shareholders in the $16 billion IPO when they “selectively disclosed” information about an analyst’s downgraded revenue forecast only to “a handful of preferred customers.”
The securities class action lawsuit has been filed on behalf of all persons who purchased the common stock of Facebook, Inc, pursuant and/or traceable to the Company’s May 18, 2012 initial public offering (the “IPO” or the “Offering”), against the Company and certain individual defendants and the lead underwriters of the IPO for violations of the Securities Act of 1933.
The specific Facebook IPO lawsuit allegations are that on or about May 16, 2012 Facebook filed with the SEC a Registration Statement for the IPO. On May 18, 2012, the Prospectus with respect to the IPO became effective and 421 million shares of Facebook common stock were sold to the public at $38/share, thereby valuing the total size of the IPO at more than $16 billion.
The Complaint alleges that the Registration Statement and Prospectus contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and were not prepared in accordance with the rules and regulations governing their preparation. Specifically, defendants failed to disclose that Facebook was experiencing a severe reduction in revenue growth due to an increase of users of its Facebook app or website through mobile devices rather than a traditional PC such that the Company told the Underwriters to materially lower their revenue forecasts for 2012.
And, defendants failed to disclose that during the roadshow conducted in connection with the IPO, certain of the Underwriter reduced their second quarter and full year 2012 performance estimates for Facebook, which revisions were material information which was not shared with all Facebook investors, but rather, selectively disclosed by defendants to certain preferred investors and omitted from the Registration Statement and/or Prospectus.
As of May 22, Facebook common stock was trading at approximately $31/share, or $7/share below the price of the IPO. Plaintiffs and the Class have suffered losses of more than $2.5 billion since the IPO.
This is going to be interesting…
Hanging Up on AllianceOne. This is AllianceOne has agreed to a preliminary $9 million settlement this week, of a consumer fraud class action pending against the company. Preliminary court approval was recently given.
The AllianceOne lawsuit alleges that the company violated the Telephone Consumer Protection Act by calling cell phones using an automated dialer or with a pre-recorded voice message without the recipients’ prior express consent.
Under the terms of the settlement, AllianceOne denies any liability (of course…does anyone ever accept liability?).
Here’s the facts as you need to know them: the agreement is subject to final court approval. The recovery, less attorneys’ fees and expenses to be paid to Class Counsel, will be distributed to class members who received an autodialed call from the company or their affiliates and agents on a cell phone without their prior consent between February 8, 2004 and November 30, 2010, under procedures to be implemented by the court overseeing the settlement. After paying administrative expenses, attorneys’ fees and costs, a donation to a charitable organization, and awards to class members, the remaining amount in the settlement fund, if any, will be returned to AllianceOne.
For more information about the settlement, go to www.AllianceOneSettlement.com.
Asbestos Lawsuit Settlement. The family of the recently deceased Hannibal “Scottie” Saldibar will hopefully have some closure now, as they have just been awarded a $2.4 million settlement in an asbestos mesothelioma lawsuit they brought.
Saldibar, a tile setter from New Haven, died after contracting the asbestos-related cancer. He was 84 when he died, and had worked as a tile setter for 30 years. He passed away in January 2010, just nine months after being diagnosed with asbestos mesothelioma.
According to a report by the CT Post, it took a Superior Court jury only 3 hours of deliberation before finding the Tile Council of North America liable in Saldibar’s death, and awarding his family $1.6 million. An additional $800,000 was then awarded by the judge, in punitive damages. Tile Council of North America developed the asbestos-containing mortar used by tile setters for many years.
That’s a wrap folks—you at the bar—and have a safe and enjoyable Memorial Day weekend as we remember our Vets!
Another Corny Lawsuit? Ummm—you decide. A consumer fraud lawsuit was filed this week—testing the boundaries of food labeling vis-a-vis PepsiCo’s snacks business, Frito-Lay. The issue? Frito-lay is misleading consumers by making claims that its products, which contain genetically modified corn and vegetable oils, are all-natural, according to the lawsuit. (All natural corn=all natural chips? Really?)
Specifically, the lawsuit claims that by labeling some of its Tostitos and SunChips products as “made with all-natural ingredients” Frito-Lay is misleading consumers because genetically modified corn and vegetable oils are also present in the product. “The reasonable consumer assumes that seeds created by swapping genetic material across species to exhibit traits not naturally theirs are not ‘all natural’,” the claim states.
The claimant is pursuing the case on the basis of a violation of California and federal laws relating to unfair and fraudulent claims. I’m still struggling with the thought of any of this type of “food” being ok on any level—never mind whether or not it’s genetically modified. Bah humbug!
Diamonds are Forever. So’s the De Beers Price Fixing Settlement now. The U.S. Court of Appeals for the Third Circuit has issued an opinion today upholding the settlement in the antitrust class action litigation against the South African company De Beers, the world’s largest diamond supplier, for allegedly conspiring to monopolize the sale of rough diamonds.
The appellate court affirmed an order by U.S. District Judge Stanley R. Chesler of the District of New Jersey that approved a settlement under which De Beers agreed to pay $295 million to U.S. jewelry makers, retailers, and consumers who purchased diamonds and diamond jewelry beginning in 1994.
The settlement also prevents De Beers from continuing its illegal business practices and requires De Beers to submit to the jurisdiction of the Court to enforce the settlement. Ouch! That’s a wee bit more than a wrist slap —but hey—that tennis bracelet sure looks good…
Talk about Soaring Gas Prices… More price fixing—this time in the stock market (now there’s a surprise)—and this time the guilty party is Amaranth Advisors LLC. They got hit with a $77.1 million settlement in a securities lawsuit brought by traders who allege the hedge fund manipulated the natural gas market. Whoa Nelly!
According to Businessweek, Amaranth collapsed in 2006 after losing $6.6 billion on natural gas trades. In August 2009, the Commodity Futures Trading Commission announced that Amaranth paid $7.5 million to settle market manipulation allegations however, in their lawsuit, the traders presented an expert who estimated damages at $3.5 billion.
Then, in April of this year, the Federal Energy Regulatory Commission issued a $30 million civil penalty against Brian Hunter, an Amaranth trader accused of manipulating the natural gas market in 2006.
FYI—the settlement isn’t final yet—a hearing on final approval of the class-action, or group, accord is reportedly scheduled for March 27 and, if approved, could pave the way for investor reimbursement.
Ok—That’s a wrap for this week. Merry Christmas—Happy Hanukkah—and Season’s Greetings—have a wonderful holiday everyone…