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O.K., here’s something – on October 17, 2013, Northern District of Illinois Judge Ronald Guzman entered a post-verdict judgment in the long-running Household International securities class action lawsuit. The judgment award consisted of principal damages of $1,476,490,844.21 and prejudgment interest of $986,408,772, for a total judgment amount of $2,462,899,616.21, along with post-judgment interest and taxable costs. According to the lead plaintiffs’ law firm, the judgment represents “the largest judgment ever in a securities fraud trial.” Household International is now a unit of HSBC Holdings PLC. A copy of the judgment can be found here.
Got your attention? Good. Here’s the background.
As detailed here, the plaintiffs first filed their lawsuit back in 2002 on behalf of all persons who acquired Household International securities between October 23, 1997 and October 11, 2002. The plaintiffs contended that during the class period, the defendants concealed that Household "was engaged in a massive predatory lending scheme."
According to the complaint, Household "engaged in widespread abuse of its customers through a variety of illegal sales practices and improper lending techniques." Household also reported "false statistics" that were intended to "give the appearance that the credit quality of Household’s borrowers was more favorable that it actually was." The plaintiffs allege that the "defendants’ scheme" allowed them "to artificially inflate the Company’s financial and operational results."
In the third quarter of 2002, the company took a $600 million charge and restated its financial statements for the preceding eight years, and in October 2002, the company announced that it had entered into a $484 regulatory settlement regarding its lending practices. On November 14, 2002, the company announced that it was to be acquired by HSBC Holdings. (HSBC’s Chairman later admitted that "with the benefit of hindsight, this is an acquisition that we wish we had not undertaken." The entry f the judgment probably doesn’t improve things in that regard.)
The defendants in the lawsuit included Household International and its mortgage finance subsidiary, Household Financial Corporation, and Household’s former CEO and CFO, as well as certain other former officers and directors. The company’s offering underwriters were also initially named as defendants, but they were later dismissed from the case (refer here). The plaintiffs also reached a prior settlement with the company’s former auditor, Arthur Anderson.
As detailed here, trial in the case commenced on March 30, 2009. Judge Guzman bifurcated the case into two parts, with a damages phase to follow the initial liability phase.
As detailed here, on May 7, 2009, the jury returned a mixed verdict in which the jury found for the plaintiff on a number of – but not all – counts. The verdict form the jury entered (which can be found here) is quite complex and very detailed. The jurors were asked to make specific findings with respect to 40 allegedly false and misleading statements. The jury found in favor of the defendants with respect to 23 of the statements. However, the jury found in favor of the plaintiffs with respect to 17 of the statements.
The October 17 judgment order, arriving as it did some four and a half years after the verdict, followed several post-trial defense motions to invalidate the verdict as well as defense objections to thousands of class members’ claims. The Court also considered and ruled on issues concerning the reliance of absent class members on defendants’ statements. The entry of judgment follows an October 4, 2013 order from the district judge denying all of the defendants’ post-trial motions.
The judgment was entered against Household International; its former Chairman and CEO William Aldinger; its former CFO and COO David Schoenholz; and its former Vice-Chair of Consumer Lending Gary Gilmer. The company, Aldinger and Schoenholz were hold jointly and severally liable for the judgment and Gilmer was liable for 10% of the judgment.
It is worth noting that the judgment includes post-judgment interest. That means that interest will continue to accrue during the pendency of any appeal that the defendants may file. (Even at low interest rates, interest costs can ramp up pretty quickly on $2.4 billion).
In addition, according to a statement from the plaintiffs’ firm law firm, the firm is “continuing to litigate defendants’ objections to over 25,000 additional claims with losses in excess of $650 million.” According to the firm, if the defendants’ objections to certain of these claims are denied, the firm will seek entry of judgment in favor of these claimants as well.
As readers of this blog well know, very few securities class action lawsuits actually go all the way to trial. Of the slightly more than two dozen cases that have gone to trial since the enactment of the PSLRA, about half have resulted in defense verdicts. Of the trials that have resulted in plaintiffs’ verdicts, none have resulted in damages awards anywhere remotely approaching the size of this judgment. (The post-PSLRA verdicts are detailed in a handy presentation prepared by our friend, Adam Savett.) The only verdict any where near this one (and still not all that near) was the $280 million plaintiffs’ verdict in the Apollo Group case; after the defendants appealed the verdict all the way to the U.S. Supreme Court, the parties settled the case for $145 million.
This case may have a long history but it may also be a long way from over. As staggering as the judgment is, it also now give the defendants the opportunity to file an appeal. There is of course the issue of filings an appeal bond on a $2.46 billion judgment. And there is the fact that post-judgment interest will accrue during the pendency of any appeal.
As noted above, of the very few securities class action lawsuits have gone all the way to trial, quite a number have resulted in defense verdicts. Just the same, after the Apollo Group verdict and now this verdict, I am going to predict that even fewer defendants will be interested in pushing their securities cases to trial.
Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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