Stock Investors Soon May Recover Losses from Research Analyst Settlement
echnology and telecommunications stock investors soon may share in the $432.75 million global research analyst settlement fund. The settlement fund administrator has submitted his proposed plan to the court, and a fairness hearing is set for April 11, 2005. Investors should receive checks within nine months of the court's approval of the plan.
The fund results from a 2003 settlement among 11 brokerage firms alleged to have hyped their investment banking stocks through issuing overly optimistic research reports while privately dismissing their prospects.
The 11 brokerage firms, each paying varying amounts in millions of dollars, which are part of the settlement are: Bear Stearns; Citigroup / Salomon Smith Barney; Credit Suisse First Boston; Deutsche Bank Securities; Goldman, Sachs; J.P. Morgan Securities; Lehman Brothers; Morgan Stanley; Thomas Weisel Partners; UBS Securities; and US Bancorp Piper Jaffray. Merrill Lynch settled separately with regulators, and its "star" analyst, Henry Blodget, also contributed $4 million to the global settlement.
Approximately 50 stocks are involved in the global settlement. They include some well known stocks, such as JDS Uniphase, Worldcom, Global Crossing, AT & T Corporation and Oracle, as well as some high flyers at the time, such as Atmel, Level 3 Communications, Infospace, and Ask Jeeves. For a complete listing of stocks that the global research settlement covers, investors should consult the recent court order, found at:
www.sec.gov/spotlight/globalsettlement/globalplan013105.pdf.
To receive a settlement fund payout for losses, including unrealized losses, investors must have bought the particular stock at the brokerage firm settling for its wrongdoing in connection with that stock. For example, investors cannot file a claim against UBS for Atmel losses unless they bought that stock at UBS. Additionally, the purchase must have occurred during specific time periods. Those "relevant" time periods vary from stock to stock but are available in the court order noted above.
A benefit to investors is that they will not have to prove that they relied upon the analysts' research reports to receive a payout. On the other hand, no payments will be made for eligible losses if those losses are less than $100.
The amount of the payouts, per stock, may vary substantially, depending upon funds available and the number of eligible investors. The proposed plan has two "principles" designed to better compensate those who the plan administrator believes to be more deserving of recovery. The first principle is called the "proximity principle". That means that investors who purchased the stock within 11 trading days of the issuance of an analyst's research report will receive the fullest payout. Investors who did not purchase within those first 11 days may not receive full recovery, depending upon the funds available and the number of eligible investors.
The second fairness principle is called the "information principle". The plan states that purchasers who make larger investments are more likely to spend more on obtaining information regarding those purchases. By comparison, those who make smaller purchases are likely to spend less on information. Consequently, the plan states that, "This principle suggests, therefore, that the events that are subject of the settlement are more likely to have affected those investors making smaller purchases than those making larger purchases." Pursuant to this principle, recovery for those with larger purchases (defined as being above the median value of purchases) will be discounted as much as three percent.
Assuming the court approves the settlement plan, the fund administrator will send notices to eligible investors by June 3, 2005, based upon information that the settling brokerage firms provide to the fund administrator. Investors who do not receive a notice will have until July 8, 2005 to submit proof of purchase and proof of realized or unrealized loss.
Further details of the settlement fund are available at
www.globalresearchanalystsettlement.com.
I will continue to apprise investors of material developments associated with this historic settlement.
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James J. Eccleston is a securities attorney, representing customers as well as brokers and brokerage firms nationwide in arbitration, litigation and regulatory matters. He maintains an informative website at www.FinancialCounsel.com. He is an equity partner with Shaheen, Novoselsky, Staat, Filipowski & Eccleston, and can be reached at 312-621-4400.
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