It was entirely predictable that last spring, after Safeway announced that it had agreed to accept a $9.2 billion offer from the private equity firm Cerberus Capital, shareholders would rush to file suits challenging the deal. As you know, shareholder M&A suits have become an inevitable consequence of merger announcements, and, to the frustration of defendants, are often brought in more than one jurisdiction — which has meant, in years past, that if defendants couldn’t persuade judges to defer to other courts, they sometimes had to defend against the same claims by multiple plaintiffs firms in multiple courts.
Let’s state the obvious: Big Business did not get what it wanted Monday from the U.S. Supreme Court, which refused in Halliburton v. Erica P. John Fund to overturn Basic v. Levinson, the 25-year-old precedent that permits shareholders to bring classwide claims of securities fraud.
As inevitably as thunder follows lightning, shareholder class actions follow deal announcements. Debate has been raging for years now about whether shareholders derive any real benefits from the resolution of these cases, with judges increasingly skeptical about awarding big fees to plaintiffs lawyers who win only enhanced disclosures in deal documents. For defendants, the upside of settlements is more obvious: They obtain global releases of shareholder claims related to the transactions.
The hedge fund NML Capital is going to have to execute some fancy footwork to maintain its argument that Argentina is plotting to evade a ruling by the 2nd U.S. Circuit Court of Appeals that prohibits the foreign sovereign from making payments to holders of its restructured debt before paying off hedge funds that refused to exchange defaulted bonds.
As of April, the Federal Housing Finance Agency has recovered about $15 billion from 15 big banks that supposedly misrepresented the quality of the mortgage-backed securities they peddled to Fannie Mae and Freddie Mac. FHFA is expecting more to come: The conservator still has cases under way against Goldman Sachs, HSBC, Nomura and Royal Bank of Scotland. The National Credit Union Administration, meanwhile, has netted more than $330 million in settlements with banks that duped since-failed credit unions into buying deficient MBS. NCUA is also still litigating against several other defendants, some of which it sued only last September. When you add in MBS suits by the Federal Deposit Insurance Corporation on behalf of failed banks, there are about four dozen ongoing cases, involving some $200 billion in rotten mortgage-backed securities, brought by congressionally created stewards.
For all of the outrage kicked up by Michael Lewis’s depiction of fundamentally rigged securities exchanges in his book “Flash Boys,” there’s a giant obstacle standing in the way of punishing high-frequency traders or the exchanges that facilitate them: the blessing of federal regulators. As Dealbook’s Peter Henning wrote in his White Collar Crime Watch column on why high-frequency trading is unlikely to result in criminal charges, securities exchanges openly sell access to high-speed data feeds and to physical proximity that increases trading speed by milliseconds. Exchanges are, in the words of Andrew Ross Sorkin, “the real black hats” of high-frequency trading, since they unabashedly profit from differentiating access to trading information.
Elan Pharmaceuticals believes it was victimized twice over by SAC Capital, the notorious hedge fund now called Point72. The first time was when SAC obtained insider information about unsuccessful trials of the Alzheimer’s drug bapineuzumab and dumped $700 million in shares of the Irish drug company and its drug development partner Wyeth. But to add insult to that injury, Elan had to spend a small fortune, about $1.6 million, in legal fees and costs stemming from the government’s investigation of SAC’s insider trading. That is money SAC should have to pay, according to Elan. With the hedge fund due to be sentenced Thursday by U.S. District Judge Laura Taylor Swain of Manhattan, the pharma company’s lawyers at Reed Smith have submitted a letter asking Swain to recognize Elan as a victim of SAC’s crimes and order the hedge fund to pay it $1.6 million in restitution.
If you are a customer of a big bank — let’s say a merchant unhappy about the fees you’re being charged to process credit card transactions — good luck trying to bring claims in federal court when you’re subject to an arbitration provision. As you probably recall, in last term’s opinion in American Express v. Italian Colors, the U.S. Supreme Court continued its genuflection at the altar of the Federal Arbitration Act, holding definitively that if you’ve signed an agreement requiring you to arbitrate your claims, you’re stuck with it even if you can’t afford to vindicate your statutory rights via individual arbitration.
The heat surrounding so-called activist investors — hedge funds that buy up big chunks of a company’s stock, then leverage their position to mount proxy campaigns or otherwise force boards to change the way the company is managed — could hardly be more intense than it is now. Well, okay, maybe there would be even more controversy if Michael Lewis wrote a book about a genius upstart who defied accepted deal conventions and revolutionized corporate takeover battles. But putting aside the Wall Street tizzy inspired by this week’s publication of Lewis’s new book about high-frequency trading, the deal world’s favorite topic remains activist investors like Carl Icahn, Paul Singer, William Ackman and Dan Loeb.
France, Brazil and Mexico told the U.S. Supreme Court this week that the 2nd Circuit Court of Appeals has endangered sovereign debt markets with its ruling last year against the Republic of Argentina. In amicus briefs supporting Argentina’s petition for Supreme Court review, the foreign sovereigns argue that the 2nd Circuit gravely misinterpreted the so-called “pari passu” (or equal footing) clause of Argentina’s sovereign debt contracts. By ruling that Argentina may not pay bondholders who exchanged defaulted bonds for restructured debt before it pays hedge fund creditors that refused to exchange their defaulted bonds, the amicus briefs argue, the 2nd Circuit has undermined international debt restructurings, permitting vulture investors to hold entire foreign economies hostage.