In August 2007 investors filed a law suit against Bank of America's Countrywide Financial Corporation alleging, among other things, that Countrywide violated federal securities laws by making false and misleading statements concerning its business as an issurer of residential mortgages and related activities. This February a settlement notice was issued in the case calling for a $624 million settlement fund making the Countrywide case one of the largest credit-crisis related settlements ever.
However, as the settlement approval date approaches, it is worth noting that a number of large investors have pulled out of the deal. According to the Wall Street Journal Law Blog (here) a number of large investors have rejected the settlement and opted to pursue their own suit, including large state pension funds like California Public Employees Retirement System. Jonathan Stempel of Reuters (here) reports that the 33 investors that opted out included several other large asset managers such as BlackRock and TIAA-CREF. According to the WSJ Law Blog, the institutional "defections" have led to changes in the settlement agreement, which is now $601.5 million. Significantly, the Law Blog reports that Labaton Sucharow, lead counsel in the case, reduced its request for fees by almost $1 million to $46.5 million.
As a result of the large investors who opted-out of the class action, Countrywide could have pulled out of the suit. It has chosen not do so. In the meantime it has recently been hit by a series of other lawsuits by those institutions that opted out of the $624 million settlement. Reuters reports (here) that suits were recently filed in Michigan, Oregon, and Fresno County California five days after Bank of America reported that it may incur an additional $6.1 billion of write downs and legal costs associated primarily with Countrywide.
The Countrywide opting out scenario does raise the question of whether investor activity in the case is part of a larger trend. Back in July Kevin LaCroix of the D&O Diary observed here that the State of New York had pursued two separate actions individually against Merrill Lynch and Bank of America. Yet, he did note at that time that opting out was not as prominent as it once had been in 2006 and 2008. Trend or not, it does seem to be true that the propriety of opting out is highly case specific and depends on several factors including the likelihood of success in a separate individual suit, the size of the investor and its investment, the type of investor, and the size of the settlement relevant to the number of claimants. In the case of Countrywide, for example, Oregon reportedly said it lost $14 million by investing in Countrywide and that it might have netted merely $500,000 from the settlement in that case. It clearly felt that it could get more in a separate individual suit. On the other hand, as described by the Securities Litigation Watch here, opting out may not always be the most favorable option as it can have adverse results in some cases.