Bank of America settlement ranks in top 10 all-time securities class actions

As other financial giants like Lehman Brothers and AIG were in a sharp decline during the fall of 2008, Bank of America was poised to make a major acquisition. The $50 billion purchase of Merrill Lynch by Bank of America was announced in September 2008, at the height of the financial crisis. At the time of the announcement, both institutions touted the merger as creating a global financial superpower that would lead to increased earnings within two years.

Unknowingly to investors, the financial health of Merrill Lynch, and subsequently Bank of America, was in a free-fall. Shareholders for both companies voted to approve the acquisition on December 5, 2008, without direct knowledge that Bank of America executives foresaw a fourth-quarter loss of tens of billions of dollars. It wasn’t until January 16, 2009, weeks after the merger became official, that Merrill Lynch’s fourth-quarter net loss of $15.31 billion was released. The disclosure enraged shareholders who were not privy to the forecast when they approved the deal in 2008.BofA/ML Logo

As a result, shareholders entered into a class action against the bank. The bank recently settled the case for $2.43 billion, ranking it within the top 10 largest securities class action settlements on record, joining the likes of WorldCom and Enron. A settlement has been reached in principle, but the claims administrator is not yet accepting claims. When the settlement is approved by the court in the coming months, the claims will begin to be accepted.

This case differs from than the majority of class action settlements in that it is what’s described as a merger case. While the eligibility requirements for a “typical” class action settlement involve a court-approved class period, eligibility of a merger case depends only on how many shares were held at the time of the merger, regardless of when the shares were purchased. As the Bank of America/Merrill Lynch merger was consummated on Jan 1, 2009, this is the day investors need to have held the shares to be eligible for filing a claim. Another interesting facet of this case is that only Bank of America Common Stock, as well as Put and Call options on the common stock, are eligible. Merrill Lynch shares held at the time of the merger are not eligible.

The Bank of America case is one of about 120 credit crisis cases filed between 2007 and 2008. Many of these cases are very large in comparison to other class action settlements, and therefore can take longer to settle. Based on the average settlement time, it is likely that we will see several more cases related to the financial crisis settle in the near future.

Class action settlement recoveries – Be ready when it matters

3rd base coachThe job of a third-base coach can be pretty boring. Innings or even games can go by without much action. That is, until there is a runner on first, a double into the gap, the lead runner rounding third, and the base coach needs to make a critical, split-second decision whether or not to send him home.

A lot goes into making that decision: the coach’s knowledge of the game, the runner’s speed, the fielder’s arm strength, the number of outs, the score, and the inning. So the third base coach must be ready to call upon his experience and expertise at any time, especially when the game is on the line.

Like a third base coach, asset and investment managers must draw on experience and expertise when handling class action settlement recoveries. While many claims filings are routine in nature, investors need to be prepared for the case that has the potential for a big score.

Recovery Complexities Drive Need for Experience & Expertise

Staying on top of securities class action claim settlements can be frustrating and labor intensive. That task becomes even more difficult when a corporate restructuring, merger, or acquisition is involved. In these types of corporate actions, CUSIPs and ticker symbols are often reassigned, making it harder to identify eligibility and keep track of securities class action filings.

The primary challenge in these cases is recognizing all relevant transactions as they relate to securities litigation. When a change in ticker symbol is triggered due to a merger, acquisition, or name change, a CUSIP tied to one security could be referenced by more than one ticker symbol. Likewise, one ticker symbol might reference multiple CUSIPs if ownership of that particular ticker had changed over a period of time. The same ticker could even reference different securities on different exchanges within the US at the same time.  Without a comprehensive map detailing how a security has been identified over time, it can be easy to miss transactions relevant to a certain securities class action settlement claim, which would result in settlement funds being forfeited.

For example, when Bank of America acquired Countrywide in 2008 (an event that resulted in an $8.5 billion class action settlement), the case involved over 12,000 different CUSIPs and 162 securities across various security classes. Numerous corporate actions led to multiple CUSIP changes under the Bank of America umbrella. All of these CUSIPs were relevant to the class action settlement and had to be tracked in order to ensure full compensation for investors. Piecing together all of the security identifiers and how they are relevant to each specific litigation is required to ensure that the maximum dollar amount is recovered – one minor omission can lead to a rejection of your entire claim and cost millions of dollars.

Similarly, a change in custodian can lead to incomplete filings and missed class action recoveries. One FRT client had a claim submitted by their custodian with a $400k recognized loss, but the custodian did not hold all of the client’s shares. This can happen if the firm uses multiple custodians or has changed custodians over time. FRT was able to look at all their holdings across custodians and calculated $23 million in recognized loss, resulting in the client recovering more than 50 times what they would have from the original custodian filing.

Optimize Recoveries with a Strong Third Base Coach

While the process of filing for class action settlements requires specialized expertise and capabilities, it is not beyond the reach of today’s asset and investment management firms. By partnering with FRT, investors can insure that every eligible filing is accurate and comprehensive, is properly submitted and accounted for, and that all eligible investor funds are recovered and disbursed to the rightful parties.

FRT proactively scours industry data sources in order to identify all cases and relevant securities identifiers to ensure that every possible filing can be made.  Working from client trading data, FRT is able to identify all eligible security positions to ensure that your firm capitalizes on all possible settlement funds.

FRT combines significant investments in technology and processes automation with world class service from a team of knowledgeable recovery professionals. No other class action recovery provider can match FRT’s experience and insight into the growing complexity of the global class action market.

When a big case is on the line, investors trust FRT to bring home the winning run.