Thursday, December 7, 2006

A Little Too Early, A Little Too Late

There are risks in every settlement, but the bankers at JP Morgan can't seem to get the timing down very well in a couple recent settlements in securities fraud class actions.  The Second Circuit overturned a district court's decision to certify a class action in a massive securities fraud suit against dozens of Wall Street firms over their sales of initial public offerings of stock in dot.coms (or dot bombs, if you prefer).  An American Lawyer story (here) discusses the opinion.  Most of Wall Street's heavy hitters, including Goldman Sachs, Merrill Lynch, and that other Morgan (Stanley) fought the class certification in the court of appeals. Unfortunately, JP Morgan dropped out when it entered into a settlement in April 2006 by paying $425 million, a payment it would not have to make now that the class has been knocked out.  The bank may try to get out of the settlement, but if the agreement does not contain a contingency clause on the class certification issue allowing it to withdraw, then the contractual agreement is enforceable in most cases even if it turns out the bank made the wrong guess on the class certification issue. 

To make matters worse, last year JP Morgan entered into a $2 billion settlement over its role in marketing WorldCom bonds after having passed on an earlier offer to settle for $1.4 billion.  Adding it up, that's a billion dollars that the company might not have had to pay had its timing been a little bit better.  Life is full of risks, and litigation is fraught with quite a bit.  An article from TheStreet.Com (here) discusses JP Morgan's settlements. (ph -- thanks to a devoted DC reader for passing this along)

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Comments

Ouch! One would think equitable considerations will prevail and the settlement reformed or rescinded. Unless there was mutual or unilateral mistake by both or one of the parties to the settlement, this one just might stick.

Posted by: Rick Wolf | Dec 21, 2006 8:37:36 PM

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