Investors Ask for a Say in Settlement

NEW YORK -- A group of lawyers representing more than 12,000 individual investors has asked a federal judge for permission to intervene in the planned $1.4-billion stock-analyst settlement between securities regulators and Wall Street investment banks.

The group is seeking to force several changes in the accord, including the revamping of a proposed restitution fund for investors, said Robert Weiss, a New York lawyer whose firm co-chairs the investor group.

“We’re not interested in blocking the settlement,” Weiss said. “We’re interested in making it fairer and more transparent.”

The request was filed Friday.

The proposed Wall Street settlement, announced by regulators to great fanfare in late April, awaits final approval by U.S. District Judge William H. Pauley III in Manhattan.

Pauley raised questions about several aspects of the deal at a hearing this month, including how the restitution fund would operate. The Securities and Exchange Commission filed a response to his queries last week.

If their request to intervene is granted, the investor attorneys would have the right to make formal arguments and raise objections during court hearings on the settlement, said Jim Cox, a securities law professor at Duke University. They also would improve their chances of forcing an appeal if they are dissatisfied with Pauley’s eventual ruling, he said.

But past requests to intervene in SEC enforcement actions have been “uniformly unsuccessful,” Cox said. Theoretically, the government is acting on behalf of the public, and courts see no need for added oversight.

Still, “given the judge’s pre-existing concerns over the settlement, he may well want to listen carefully to objections from affected people,” said Henry Hu, a securities law expert at the University of Texas at Austin.

The investor attorneys’ primary goal is to overhaul the planned $387.5-million restitution fund. The current plan calls for investors to recoup a fraction of their losses. Instead, Weiss said, that money should be used to defray the fees that investors incur when filing arbitration claims.

The group also is seeking changes in the arbitration process itself and wants regulators to make public all documents they have reviewed, not just the excerpts previously released, Weiss said.

The arbitration proposals would help the attorneys by coaxing more people to file cases with them, Cox said.

“This makes it more attractive for people to go to arbitration,” he said.

The SEC refused to comment, as did Citigroup Inc., the firm paying the most in the settlement.

Christine Bruenn, who leads a group of state regulators, said the release of documents is controlled by individual states and it is unlikely that a federal judge would claim jurisdiction.