In response to my earlier piece, Five Reasons Why Investors Need a Non-US Opt-In Service, a client noted that investors who register early, as recovery efforts get organized, can pay higher fees and costs than those filing claims later at time of settlement. Early registrants sign agreements obligating themselves to pay organizer contingency fees and expense reimbursements that often don’t apply to late-joining investors.

While the contractual obligations do offset some of the premium for early registration, they should not eliminate it, and clients can take steps in advance to try to minimize the bite.

• Keep in mind these situations are limited: They’re most likely to occur with Dutch collective settlements because, as noted earlier, the Netherlands offers a favorable legal mechanism for global resolutions, and has a generous five year limitations period that can be easily disrupted and extended. Other jurisdictions are not as friendly to claimants joining late in proceedings and/or after cases have settled.
• Consider all options beforehand: As with anything, investors should shop for the best terms. In cases involving high profile scandals, multiple organizers compete for client registrations. As a result, their proposed fees and terms vary. In Steinhoff, seven organizers proposed contingency fees ranging from 14.5% to 25% of the recovery net of expenses. Investors have some ability to negotiate better terms, particularly if they have large losses and are willing to join early and anchor the organizer’s group. If you rely on third parties for information on competing matters and their terms, be sure they present all options in an unbiased way.
• Consider less costly strategies: Claim preservation approaches don’t involve litigation and in some cases, organizers will offer lower fee rates because they don’t have to make as significant an investment. If possible, consider strategies with out-of-pocket costs that significantly reduce the success fees. If available options include litigation in one country and a representative action in another, like Dutch Foundations, think about how things may play out if the company wants to buy global peace and whether joining the representative effort is your best option.
• Exclude recovery amounts from other efforts: When negotiating fee agreements, try to exclude from organizer compensation recovery amounts from sources not directly related to or resulting from the direct litigation. These include class or representative suits and regulatory recoveries. If they cannot be excluded, try to negotiate reduced fees on these amounts since they don’t result from the organizer’s efforts and investments. Investors that join efforts early should not be penalized on these other sources by having to pay more on them than those who waited.
• Ensure any court awarded or negotiated costs offset your contractual obligations: Outside the US, if claimants sue and lose then they may be ordered to pay the other side’s legal fees and expenses. The amount of this risk varies by country. Most clients think about adverse cost awards from the receiving end, and strive to ensure the organizers insulate them from having to pay such awards. But investors should also think about what happens if the courts award the plaintiffs their fees and expenses after a successful outcome, or the defendants agree to pay the plaintiffs’ legal fees and expenses as part of a negotiated resolution. Investors should ensure their contracts with organizers give an offset for any amounts awarded or negotiated.

Finally, if you still feel case organizers are being overly compensated, discuss it with them. Legal proceedings can play out in ways neither side expects, justifying after-the-fact changes to avoid windfalls. Organizers have a strong interest in keeping their institutional clients happy. They know most will be eligible in future matters and have the ability to choose among organizers. Your discussion should be constructive as both sides have an interest in the other feeling fairly treated and satisfied with the final outcomes.

Learn More

To learn more about how FRT can help your firm maximize recoveries in shareholder class action settlements for passive participation (opt-in), active participation (opt-out) and non-standard cases, contact us at learnmore@frtservices.com.

About FRT

SETTLED CLAIMS  I  PASSIVE GROUP  I  ANTITRUST  I  FUTURE CLAIMS  I  OPT-IN MONITORING  I  OPT-OUT MONITORING

Founded in 2008, Financial Recovery Technologies (FRT) is the leading technology-based services firm that helps the investment community identify eligibility, file claims and collect funds made available in securities and other class action settlements. Offering the most comprehensive range of claim filing and monitoring services available, we provide best-in-class eligibility analysis, disbursement auditing and client reporting, and deliver the highest level of accuracy, accountability, and transparency available. For more information, go to www.frtservices.com.

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