Abandoned CUSIPs in complex Merck case present filing challenges

In general, securities class actions follow a fairly consistent path and don’t vary highly from case to case. But there are cases that take the path less traveled, like Merck, whose journey included a trip the U.S. Supreme Court to address of statute of limitations issues. The Merck litigation is a good example of how proper expertise and attention to detail is important in adequately addressing complex, non-standard cases in order to file accurately and maximize settlement recoveries.

merckOn January 15, 2016, Merck announced that it had reached an $830 million settlement of the long-running Vioxx-related securities class action lawsuit, the beginning of which dates back to 2003. In November 2003, plaintiff shareholders filed a securities class action against Merck alleging that certain directors and officers made false and misleading statements about the safety of the company’s pain medication, Vioxx. Merck sought to dismiss the complaint arguing that the statute of limitations had passed, and the district court granted the motion to dismiss. The dismissal was eventually heard by U.S. Supreme Court in 2010, which unanimously ruled that the plaintiffs’ action was not time-barred. The case returned to the district court, where it finally settled in January of this year.

One element of complexity exists in the length of the case and how far back it ranges. Since the case was originally dismissed, then appealed, and the appeal was eventually successful, the class period spans from May of 1999 through October of 2004. Since the affected transactions date back a decade and a half, many firms may experience data retrieval issues. There’s a likelihood the necessary transactions have been archived or exist on an antiquated or obsolete system, or the firm may have changed custodians once or more since the beginning of the class period. All of these issues can pose problems identifying, accessing and retrieving the necessary data.

Another complex element of the case involves a capital restructuring Merck undertook that occurred on Nov 3, 2009. This transaction created additional security identifiers including a new CUSIP, ISIN and SEDOL. Standard third party class action data providers did not include these identifiers as relevant securities for this case despite many firms retroactively changing the old identifiers to the new identifiers. Several FRT clients did have class period transactions with the new identifiers, which may have been an issue if they were to have filed internally or with a less diligent third party filer.

In addition, there were two SEDOLS associated with the original Merck CUSIP. Standard third party class action data providers did not provide this SEDOL and data providers like Bloomberg did not have this SEDOL associated with the original Merck CUSIP. FRT receives multiple data feeds of security identifiers to provide redundancy, and therefore, FRT was aware of the additional SEDOL and was able to file claims for all eligible transactions for both SEDOLs.