Wednesday, April 11, 2007

Record European Securities Class Settlement

Photo Sharing and Video Hosting at Photobucket On April 11, 2007, Royal Dutch Shell announced (here) that it had agreed to pay $352.6 million to non-U.S. investors who bought Shell shares outside the U.S., in connection with the company’s 2004 oil resources accounting scandal. According to the Times (London), here, the agreement is “thought to represent the largest ever class action settlement in Europe.” The agreement is subject to the approval of the Amsterdam Court of Appeals as we as to “agreed opt-out provisions.”

Shell also announced that it will be seeking a proportional settlement in the U.S. class action proceeding. According to Bloomberg (here), the European settlement is “contingent on a U.S. judge’s ruling not to include claims by non-U.S. investors within the existing class action claim.”

Legal counsel for the European shareholder is New York-based Grant & Eisenhofer and the Dutch law firm Pels Rijcken & Drooglever Foruijn .

CFO.com has further information about the settlement, here.

Would-be reformers of U.S. securities regulation, who routinely cite U.S. litigiousness as the justification for proposed reform, should note that this is a European settlement on behalf of European investors (from multiple countries) proceeding in a European court. I have long contended (most recently here) that differences in regulatory and even litigation regimes in advanced economies may well diminish over time, and, in particular, that investors overseas will increasingly seek legal means in local courts to obtain compensation for corporate misconduct. The Shell settlement is the most recent, and perhaps the most vivid, example of these phenomena.

The With Vigour and Zeal blog has interesting and important background on this settlement here as well as links to key resource documents and materials regarding the settlement here. The Best in Class blog also has an interesting post on the settlement here.

A Different Look at Backdating Luck: A central tenet of the backdating scandal has been the supposedly lucky timing of many of the questioned stock option grants (see my earlier post on Lucky Options grants here). A recent paper by NERA Economic Consulting entitled “Options Backdating: The Statistics of Luck” (here) takes a closer look at what role luck or chance might actually have played in many of the questioned option grants, and reaches the somewhat contrarian conclusion that “some of the grant patterns that at first appear extremely unlikely are actually likely and should be expected.”

The study finds that just as there are companies that granted options on very favorable days, there are companies that granted on very unfavorable days. The article specifically states that the calculations presented in the Wall Street Journal articles that launched the backdating scandal “can be misleading,” and in particular “overstate the number of D & O that have been very lucky.”

Hat tip to Kelly Reyher for the link to the NERA article.

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