Court Approves Global Settlement
For Investors To Recover Losses From Brokerage Firms
ecently a federal district court approved the historic $1.4 billion global settlement between ten of the large brokerage firms (as well as Henry Blodget and Jack Grubman) and federal and state securities regulators. This approval clears the way for the eventual distribution of settlement funds to investors.
The Securities and Exchange Commission (SEC) has posted information on its website
(www.sec.gov)
identifying the brokerage firms, the wrongs alleged, the stocks covered and the relevant purchase periods for settlement eligibility. Let's summarize.
1. Which Brokerage Firms Committed Wrongs Against Investors?
Firms That Issued Fraudulent Research:
Credit Suisse First Boston (CSFB), Merrill Lynch and Salomon Smith Barney.
Firms That Issued Unfair Research, or Research Not in Good Faith:
Bear Stearns, Goldman Sachs, Lehman Brothers, Piper Jaffray, UBS PaineWebber, Credit Suisse First Boston (CSFB), Merrill Lynch and Salomon Smith Barney.
Firms That Received or Made Undisclosed Payments for Research:
J.P. Morgan, Morgan Stanley, UBS PaineWebber, Piper Jaffray, and Bear Stearns.
Firms That Engaged in Acts and Practices That Created or Maintained Inappropriate Influence by Investment Banking Over Research Analysts:
All Firms noted above.
Firms That Failed to Supervise:
All firms noted above.
2. What Stocks Are Covered?
For each brokerage firm (except Merrill Lynch, which already has paid its settlement monies), the court has issued an Order Regarding Distribution Fund Plan. These orders list each stock covered as well as the purchase period covered. The orders are available on the SEC's website.
The global settlement covers only a handful of stocks. To recover losses on stocks not covered by the global settlement, investors may file securities arbitration claims. Likewise, for claims to recover large losses on stocks covered by the global settlement, investors may file both a global settlement claim as well as a securities arbitration claim. After all, the global settlement eventually will distribute to investors only about $388 million. Additionally, there likely will be situations in which an investor has lost money on a particular stock, but his or her brokerage firm's distribution fund does not cover that stock. In those cases securities arbitration would be the only recourse.
3. Securities Arbitration As A Remedy
Securities arbitration claims have mushroomed in the last few years. Claims may allege a host of wrongs, such as that the investments recommended were not suitable for the particular needs of the investor, or that there were misrepresentations or omissions of material facts, or that there was churning, unauthorized trading, broker negligence or failure to supervise.
The brokerage firm research analyst conflict claims most clearly would fall into the category of an omission of a material fact. That is, this type of claim involves the brokerage firm's failure to disclose a conflict of interest and the failure to disclose the existence of contrary opinions and research regarding whether a particular stock should be purchased. In most cases, the individual broker servicing the investor's account probably was duped as much as the investor by the brokerage firm's wrongdoing. If so, the broker would not properly be named as a respondent in the arbitration claim.
Further details will follow as they arise with respect to filing claims with the global settlement.
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