Banks Lose Bid on Settlement
The judge overseeing a $1.4-billion settlement of an investor lawsuit alleging that investment banks issued biased research told the administrator of the fund Friday to seek more investors who may be eligible for compensation.
Banks including Citigroup Inc. and Bear Stearns & Co. agreed in 2003 to pay $1.4 billion to settle state and federal claims that analysts published misleading research to win investment-banking business. In May, with $164 million unclaimed from investor victims, U.S. District Judge William Pauley in New York sought suggestions on what to do with the money.
Pauley on Friday rejected a proposal from the banks that they be allowed to use the remaining money to settle lawsuits brought by investors who sued over biased analyst research. Instead, Pauley told the administrator of the settlement fund to seek additional investors who may be eligible to collect.
“The distribution fund administrator estimates that if the participation rate could be increased from 50% to 75% of eligible claimants, approximately $123 million in additional funds would be distributed,” Pauley said.
The Securities and Exchange Commission wanted the unclaimed money, which has grown to $172 million, to be used to find and pay additional victims and to cover interest to investors who already received a recovery.
Besides Citigroup and Bear Stearns, firms contributing to the fund included Lehman Bros., Credit Suisse First Boston, J.P. Morgan Securities Inc., Merrill Lynch & Co., Morgan Stanley, Thomas Weisel Partners, U.S. Bancorp, Goldman Sachs Group Inc., Deutsche Bank and UBS Securities.
At a hearing in July, Pauley suggested that the banks had agreed in 2003 to cover losses in certain stocks, knowing that few investors had suffered significant losses. The banks denied the suggestion.
“Most defendant investment banks oppose conducting additional outreach at this point in time, contending that the distribution fund administrator is unlikely to elicit a substantial number of compensable claims,” Pauley wrote Friday. “However, the defendants offer no evidence to support their contention.”
