Notable Class Action Settlements

The >$3.3 billion in settlements, at the time they were reached, represented the largest amount by far recovered in a securities fraud class action; that amount still represents the third largest securities fraud settlement. Jeff developed the plan to allocate those proceeds among acquirers of:

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I. The common stock of Cendant and its predecessor, CUC International, Inc., including stock acquired in exchange for HFS International common stock in the merger between HFS and CUC (which combined to form Cendant on December 17, 1997), the latter of which asserted claims under both the Securities Act and the Exchange Act;

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II. Cendant and CUC common stock options; and

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III. Three separate Cendant debt securities.

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That plan, which addressed the accumulating artificial inflation that entered the market prices of each CUC and Cendant security with each successive materially misleading disclosure, the effects on the market for each security made by three partial corrective disclosures, and the superior strength of the Securities Act claims, was approved over objection and then upheld on appeal. Given the size of the recovery and the necessary complexity of the allocation plan, Jeff also implemented for the first time the following precautions designed to reduce the likelihood of claims administration errors going undetected until after distribution:

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I. To gain assurance concerning claims processing accuracy, retaining a well-respected accounting firm to audit the results of the claims administration and to issue a report thereon that was filed with the court;

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II. To address any issues that may be identified after initial distribution checks were mailed, designing the distribution plan to include a reserve equal to 35% of the net settlement fund;

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III. To prevent challenges from occurring after the reserve was distributed, advising claimants that any disagreement with the check amount must be brought to the claims administrator’s attention by a date specified in the cover letter;

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IV. To allow claimants to evaluate the amount of their checks, including with each check the amount of recognized loss and the pro rata amounts; and

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V. To determine whether any class members submitted proofs of claim that had not been processed, published on the case website and in prominent publications two weeks after the initial distribution was conducted a notice that advised that a distribution had occurred and that anyone that had submitted a proof of claim but did not receive either a check or a notification that the claim was rejected must advise the claims administrator by a date set forth in the notice.

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Several of those precautions, particularly the audit of the claims administrator, have become customary in the administrations of large settlements.