Investors Win Big With Their Small Suit : Litigation: Keating bondholders to recoup 85%, compared to 40% for plaintiffs in class actions.
Nearly 100 small investors never joined the class-action lawsuits filed by attorneys for thousands who lost money in the collapse of Charles H. Keating Jr.’s financial empire. Now they’re glad they stayed out.
The investors, who filed a conventional lawsuit, stand to recover 85% of their money--well ahead of the 40 cents on the dollar that 23,000 other bondholders will receive from the class-action suits.
In their lawsuit, the small group alleged that each of them was defrauded by Keating and 26 others involved with American Continental Corp. and its Lincoln Savings & Loan subsidiary.
On Friday, they are expected to get court approval for settlements with the last four defendants sued, giving them a total of $4.4 million. After attorney fees and court costs, they will end up with 85% of the $3.6 million in principal that was lost when the Phoenix company and its Irvine thrift collapsed in April, 1989, in one of the biggest financial disasters of the decade.
Lincoln is the nation’s biggest thrift failure, costing taxpayers $2.6 billion. And American Continental’s bankruptcy wiped out $288.7 million in investments by minority shareholders and bondholders.
U.S. District Judge Richard M. Bilby in Tucson is to rule Monday on disbursing $153 million, the first batch of settlement money to be given to class members.
Future payouts to those who joined in the 15 class actions are not likely to reach the 100% recovery that their lawyers have often promised, even though the lawyers won jury verdicts totaling $4.4 billion in July against Keating and three others. Keating is broke and in prison, and two other defendants are bankrupt. The fourth is an offshore company that is unlikely to pay much money.
“I consider us very lucky,” said Alan H. Yahr of Sherman Oaks, who sought lawyers to take on a conventional case and helped bring into the lawsuit 98 others who had purchased American Continental bonds. “I can’t imagine anyone in our group not being happy with the outcome.”
The investors and their lawyers, from the Beverly Hills firm of Cooper, Epstein & Hurewitz, long labored in the shadow of the massive, complicated class actions and the well-tooled national reputations of the class-action securities lawyers.
At times, some class-action lawyers took swipes at the little lawsuit. At one meeting of several hundred bondholders in Van Nuys, Yahr said, a class-action lawyer “made some sort of snide comment about our lawsuit, as if it were meaningless and we didn’t know what we were doing.”
But Thomas L. Taylor, the lawyer who spearheaded the court effort for the 99 bondholders, said his relations with class-action lawyers were cordial, though the two groups didn’t share a lot of information that they had gained against common defendants.
“We’re very, very pleased with the way the litigation developed,” Taylor said. “This is not the course to take in every class action, but it worked out very well for our clients, particularly since many were very elderly.”
A conventional suit, filed on behalf of individuals for separate wrongs against them, would not work for all 23,000 investors. That’s why class actions were instituted. But small groups of plaintiffs nevertheless can sometimes achieve what the class cannot.
From the start, Yahr, who is a criminal defense lawyer, and the Cooper, Epstein team were concerned with getting as much money back as quickly as they could because most of the bondholders were elderly and were living off the interest from their American Continental investments.
Yahr, especially, was worried that plaintiffs have little or no control over lawyers in class actions.
