Here at the Litigation Daily, we recently pondered whether we’d ever see more directors and officers being held personally accountable for corporate scandals. Judging from a proposed settlement announced on Wednesday between Bear Stearns and its former shareholders, it looks like we’re not there yet.
Bear Stearns, now a unit of JPMorgan Chase & Co., and a group of its directors and officers agreed on Wednesday to pay $275 million in cash to settle a shareholder class action alleging that the defendants misled investors about its financial results during the run-up to the financial crisis. The settlement doesn’t appear to require individual defendants to make any payment out of their own pockets; presumably their contribution will be covered by directors and officers insurance. (The Wall Street Journal has reported that the individuals won’t be contributing any funds of their own, citing anonymous sources.)
The deal must be approved by U.S. District Judge Robert Sweet in Manhattan. (Here’s the unopposed motion for approval filed by plaintiffs lawyers at Labaton Sucharow and Berman Devalerio.)
Paul, Weiss, Rifkind, Wharton & Garrison represents JPMorgan. Several firms represent individual directors and officers, including Kramer Levin Naftalis & Frankel for Bears’ long-time chief executive James Cayne; Skadden, Arps, Slate, Meagher & Flom for his successor Alan Schwartz; and Schulte, Roth & Zabel for its former chairman Alan “Ace” Greenberg.
This settlement agreement comes just two weeks after Manhattan U.S. District Judge Lewis Kaplan approved a $90 million settlement in a similar suit against Lehman Brothers and a group of its executives and directors. As we previously reported , Kaplan had expressed concerns about the fact that the entire $90 million is covered by D&O insurance, meaning top Lehman officials won’t pay a penny. Plaintiffs lawyers at Bernstein Litowitz Berger & Grossmann had anticipated Kaplan’s concerns and took the unusual step of putting together a report explaining that defendants’ combined liquid worth is substantially less than $100 million. Based on that report and financial information handed over by Lehman officials, Kaplan called the settlement “fair, reasonable, and adequate” in a May 24 order, as we reported here.
In contrast, Wednesday’s settlement proposal in the Bear Stearns case is devoid of such details about the individual officers and directors’ financial resources, so we’re assuming they aren’t on the hook for the any of $275 million, as is the norm in shareholder litigation. Labaton Sucharow and Berman Devalerio state in court papers that the proposed settlement is an “excellent result for the Settlement Class,” and that it came after a review of 9 million pages of documents and two mediation sessions led by former judge Layn Phillips, now a partner at Irell & Manella.
We reached out to Labaton partner Thomas Dubbs, but didn’t hear back. We also didn’t get a response from Paul Weiss partner Eric Goldstein who represents JPMorgan.
