Tuesday, April 16, 2013

Holding Morgan Keegan fund directors liable

From: RDShatt@aol.com
To: jean.eaglesham@wsj.com, kirsten.grind@wsj.com
CC: kwhitehouse@nypost.com, alan.zibel@dowjones.com, matthias.rieker@dowjones.com, deroberts@charlotteobserver.com
Sent: 4/16/2013 8:52:18 A.M. Central Daylight Time
Subj: Former Morgan Keegan Fund Directors to Settle With SEC

Dear Ms. Eaglesham and Ms. Grind,

As you probably know, besides the SEC civil enforcement action your March 28th article reports on, there is a private securities class action lawsuit going on against Regions Morgan Keegan, which had a fairness hearing on April 12th. See http://www.rmkclosedendfundsettlement.com/.

I think the private class action against Regions Morgan Keegan seeks a faux recovery and has a faux deterrent purpose and effect. As a member of the plaintiff class, I did my best to convey the same to the Court and to the parties. If you are interested in more information, please go to this entry in my blog.

Thank you.

Sincerely,
Rob Shattuck
Birmingham, AL

  • The Wall Street Journal

Former Morgan Keegan Fund Directors to Settle With SEC

Eight former directors of Morgan Keegan Inc. mutual funds have agreed to a deal with the Securities and Exchange Commission to settle a civil enforcement action that attracted attention because of the agency's wider efforts to hold fund boards accountable.
The settlement still has to be approved by commissioners who lead the SEC, and terms of the proposed deal haven't yet been publicly disclosed.
The SEC and former directors this week filed a joint legal motion asking a judge to agree to put on hold a hearing on the case that was scheduled to start on Tuesday.
[image]Mike Brown/The Commercial Appeal/ZUMAPRESS
Morgan Keegan settled civil-fraud charges tied to its funds in 2011.
The two sides have "agreed in principle to a settlement on all major terms," the legal filing said. A stay to the hearing is "appropriate to afford the parties an opportunity to present the settlement offer to the Commission," it added.
Peter Anderson, a lawyer for the two former directors who were Morgan Keegan employees, said, "We're anxious to have [the proposed deal] before the Commission and get it approved and put this matter to a close."
A spokesman for the SEC and a lawyer acting for the six former independent directors declined to comment.
Regions Financial Corp., which owned Morgan Keegan at the time of the alleged wrongdoing has previously declined to comment on the SEC action against the former directors.
The pact resolves a legal action that has caused waves in the $13.5 trillion mutual-fund industry since it was filed by the SEC in December.
"The industry was watching this case," said Marguerite Bateman, a partner at law firm Schiff Hardin LLP.
The former directors sat on the boards of five Morgan Keegan funds that blew up in the financial crisis, racking up losses of more than $1 billion for investors.
In 2011, Morgan Keegan paid $200 million to settle civil fraud allegations that certain assets in the funds were overvalued, without admitting or denying wrongdoing. The portfolio manager who ran the mutual funds paid $500,000 and agreed to a lifetime ban from the securities industry.
The SEC alleged in its action that the eight former directors of the funds "abdicated" their responsibilities by failing to ensure that risky subprime assets held by the funds were valued correctly.
When the action was filed, the former directors all denied any wrongdoing.
The terms of the deal will likely be scrutinized by the 2,200 or so independent directors who oversee mutual funds, as well as fund professionals.
Some legal experts say the SEC decision to pursue the former directors marked a break from past practice. Until now, the agency has typically taken enforcement action against boards only in exceptional cases where there is an allegation the directors were complicit in fraud.
Fund directors have been waiting for guidance on how to handle valuations in the fund portfolios they oversee, rules that have only vaguely been outlined by the SEC over the years, said Ms. Bateman.
She added that if details of the Morgan Keegan settlement are made public, that will hopefully guide directors in the future.
Write to Jean Eaglesham at jean.eaglesham@wsj.com and Kirsten Grind at kirsten.grind@wsj.com
A version of this article appeared March 29, 2013, on page C2 in the U.S. edition of The Wall Street Journal, with the headline: Former Fund Directors to Settle With SEC.

Tuesday, April 9, 2013

Commentary on response of Former Judge Phillips

[Draft]

Former United States District Judge Phillips sent me his response (which can be found here) to the email I sent to Mr. Phillips concerning his Declaration Concerning Approval Of Settlement in the Citigroup case (which email of mine can be found in this entry).

I.  Selling shareholders keeping windfall gains; failure of recovery

Mr. Phillips' response would seem to indicate that the class action lawsuit got started without any information about the extent to which selling shareholders obtained windfall gains from selling at artificially inflated prices (corresponding to losses experienced by purchasers who paid artificially inflated prices) and the extent to which such selling shareholders have the windfall gains in their pockets and will keep the gains untouched by the class action lawsuit (i.e, without any information about the extent to which the class action lawsuit would make recovery of the windfall gains).

Theoretically, if all the shareholders who were shareholders at the start of the artificially inflated period sold all their shares during the artificially inflated period, the selling shareholders would walk away with 100% of their windfall gains, and 100% of the losses experienced by the purchasers that correspond to the windfall gains would, in substance, be left with such purchasers, and the class action lawsuit would make no recovery of any of the windfall gains. This scenario is not likely to have happened, and the actual extent to which selling shareholders with windfall gains walk away with and keep the windfall gains will be less than 100%.

Not only does it seem, as stated, that the class action lawsuit was commenced with virtually no information about the percentage of windfall gains that selling shareholders will walk away with, it further seems that this information will never be obtained in the case, whether the case went to a jury verdict or whether the case is settled as the parties are trying to do (i.e.,  the class action lawsuit gets disposed of with no one ever knowing the percent of windfall gains that selling shareholders walked away with and are not recovered, and the percent of windfall gains of which there is effectively no recovery).

Further, it would seem that the structure of the litigation and settlement tends toward minimizing the effective recovery from selling shareholders who obtained windfall gains.  All current shareholders in substance contribute to the settlement fund in proportion to their current holdings, and it is this contribution that allows for potential recovery of windfall gains of selling shareholders. To illustrate how this structure tends towards minimizing the effective recovery from shareholders obtaining windfall gains (and do not walk away with them completely), consider hypothetical shareholders A, B and C, who each owned 100 shares at the start of the artificially inflated period. Say shareholder A sold 90 shares at the peak price during the artificially inflated period, shareholder B sold 90 shares at a much lower price during the artificially inflated period, and shareholder C held his 100 shares throughout the artificially inflated period. None of A, B and C have losses from transactions during the artificially inflated period and so cannot share in the settlement amount. Shareholders A and B, who had, respectively, a large windfall gain and a much smaller windfall gain, will in substance make equal pro rata contributions to the settlement fund based on their 10 share ownership, and A will retain a much larger amount of windfall gain, and B a smaller amount of windfall gain. Shareholder C, who had neither a windfall gain nor a loss from the alleged wrongdoing, will make a pro rata contribution to the settlement fund based on a 100 share ownership (i.e., a much larger contribution than A or B).

Thus, to summarize, the class action lawsuits get started with, and will get disposed of, with virtually no information about how much recovery of windfall gains is effectively made from selling shareholders, the structure of the litigation tends to minimize the effective recovery of windfall gains, and, to the extent there is not effective recovery of windfall gains, the litigation is only reallocating losses in substance (e.g., a purchaser who had a greater loss because the purchaser bought at a higher artificially inflated price gets a part of his loss reallocated to a purchaser who had a lesser loss because the second purchaser bought at a lower artificially inflated price).

Mr. Phillips' response declines to indicate whether the parties made any argument to him about the foregoing, his Declaration to the Court makes no discussion about the foregoing, and his response does not indicate that he weighed any of the foregoing in the balance in reaching his conclusions about the settlement.

Not being expressly informed about the foregoing by Mr. Phillips' declaration, maybe Judge Stein will discern the foregoing, maybe not.  If Judge Stein discerns the foregoing, he ought to at least indicate in any order approving the settlement that he has discerned the same and has taken the same into account.

II,  Confusion about deterrence

It would seem that there is major confusion about deterrence.

Mr. Phillips' response says he has not been presented with any law or precedent where the reasonableness of a settlement such as the Citigroup settlement is related to the potential effect it might have on other possible wrongdoers.

My letter to the Court requests the Court to be clear on this matter and that, if the Court approves the settlement and attorneys fees, the Court's order should expressly state that, under the law, either the amount of any recovery to which the plaintiffs are entitled is entirely independent of any deterrent purpose or deterrent effect of the litigation (i.e, if there was a jury trial, the jury would be instructed that it should give no consideration to whether the litigation serves to deter others), and that the reasonableness of the settlement (and the appropriateness and reasonableness of attorneys fees) are to be evaluated and judged independently of the deterrent purpose or  effect (or lack of deterrent purpose or effect) of the settlement, or else that such is not the case and a deterrence purpose or effect is relevant to recovery and any settlement and attorneys fees that are approved..

My letter to the Court pointeed out how the lead plaintiffs and their attorneys in the Bank of America case touted in their press release the deterrence effect of the Bank of America class action and settlement.

Furthermore, in Bank of America, the plaintiffs specifically seek corporate governance changes and they assert this as part justification for their settlement agreement and fees.

In considering the deterrence question, the Court ought to reflect on the extent to which deterrence is considered a justification in civil actions brought by the SEC and other regulatory agencies and make a determination either that deterrence should be considered a factor in private civil litigation or not.

The settlements and attorneys fees in these cases amount to hundreds of millions, and billions, of dollars, and it does not seem unreasonable to think the Court should be clear about how it is considering deterrence as relevant or not relevant to the litigation and the settlements and attorneys fees.

III. Email communications

A. Judge oriented organizations


From: RDShatt@aol.com
To: koellinp@staff.abanet.org, fja@federaljudgesassoc.org, sandersen@ajs.org
Sent: 4/11/2013 7:32:09 A.M. Central Daylight Time
Subj: Citizens importuning judges with citizen concerns
To: ABA Justice Center
      Federal Judges Association
     American Judicature Society
I have been endeavoring to communicate to your respective judge oriented organizations concerns that I have about class action lawsuits, with a view to such concerns receiving reactions from your organizations and getting passed on within your organizations.
I am wrapping up my work with three similar securities class action lawsuits that claim a failure of banks to make proper disclosures of information, which led to "artificially inflated" stock prices for a period of time and to purchasers of stock experiencing losses from having paid the "artificially inflated" prices.
The problem with these cases is that selling shareholders who sold at the "artificially inflated" prices get windfall gains that they are able to walk away with and keep in their pockets, the class action lawsuits seem to disregard that there is a failure of recovery of those windfall gains, and they merely undertake to reallocate losses among the purchasers and also other shareholders who experienced no gain or loss.
I think the work I have done establishes that the parties and the experts in the cases have failed to give recognition to the foregoing, and they failed to present the same to the Court. It is unclear the extent to which the judges in the cases have given or will give recognition to the same.
Further, I think my work establishes that there is significant confusion in the minds of the parties and the experts about whether any deterrence purpose or effect of the lawsuits has any relevance to the amount plaintiffs are entitled to recover or to the fairness and appropriateness of a settlement and amount of attorneys fees. It is unclear whether the judges in the case are also confused about this.
The particulars of my work can be accessed by starting at this latest entry in my blog, which discusses a certain Declaration Regarding Approval of Settlement, which was submitted by Former United States District Judge Layn R. Phillips to the Court in the Citigroup case pending in the Southern District of New York. That entry will give links to other entries in my blog that should provide full information about what I have done in the three cases in question in order to try to bring my citizen's concerns to the attention of the judges in the cases.
Hundreds of millions and billions of dollars of settlements and attorneys fees are involved in these three cases alone. Citizens and investors generally, I think, are entitled to see cases like these disposed of with greater clarity and understanding by the parties, the experts, and the judges, than seems to be happening. I hope your respective judge oriented organizations will review this work of mine and determine whether I have voiced concerns that are deserving of attention by your organizations, your members, and others who look to your organizations for information and guidance about matters such as this.
Thank you.
Sincerely,
Rob Shattuck
Birmingham, AL

B. Ethics and compliance community

From: RDShatt@aol.com
To: KDarcy@theecoa.org, pat@ethics.org, roy.snell@corporatecompliance.org
Sent: 4/12/2013 7:24:55 A.M. Central Daylight Time
Subj: Report of case work to ethics and compliance community
To: Ethics & Compliance Officer Association
      Ethics Resource Center
      Society of Corporate Compliance and Ethics
Dear Mr. Darcy, Dr. Harned, and Mr. Snell,
I am wrapping up my work on the three private class action lawsuits that I have told you about, and I wish to pass on to you what that work establishes that has bearing on the ethics and compliance mission of your three organizations.
I think quite a bit has been revealed by the exercise I went through with Former United States District Judge Layn R. Phillips, who was the "expert" attending to the submission of the settlement to the Court in the Citigroup case.
From the perspective of the ethics and compliance community, there is either great confusion or much games playing going on about whether these hundreds of millions and billions of dollars of settlements and attorneys fees are supposed to have anything to do with deterring corporate wrongdoing. This is especially highlighted in the Citigroup and Bank of America lawsuits by their failure to make a recovery for the persons harmed by the wrongdoing. For more discussion, I refer you to this latest entry in my blog.
In my view, these three class action lawsuits are among perhaps hundreds every year that absorb huge amounts of corporate resources and that undermine the advancement of ethics and compliance. I have detailed my explication of that for you ad nauseum in previous communications, and this email is not to give any repetition of that.
I just want to show you the confusion (or games playing) about deterring corporate wrongdoing that exists in the realm of private class action lawsuits and hope your organizations will come to view this as significantly as I do.
Thank you.
Sincerely,
Rob Shattuck
Birmingham, AL

C. State attorneys general, securities regulators

From: RDShatt@aol.com
To: chris.rhodes@asc.alabama.gov, ConstitutentAffairs@ago.state.al.us, asc@asc.alabama.gov, communications@rsa-al.gov, legislative@rsa-al.gov, ri@nasaa.org, jmcpherson@naag.org
Sent: 4/13/2013 6:38:05 A.M. Central Daylight Time
Subj: State attorneys general; securities regulators; RSA
To: Alabama Attorney General
      Alabama Securities Commission
      National Association of Attorneys General
      North American Securities Administrators Association
      Retirement Systems of Alabama
I am wrapping up my work on the three private class action lawsuits I have told you about. See my entry Commentary on response of Former Judge Phillips.
I think the work I have done is work the Alabama Attorney General and the Alabama Securities Commission should be doing on behalf of the citizens and investors in Alabama. I think state attorneys general and securities regulators in other states should be doing similarly on behalf of their citizens and investors.
In 2008, the Retirement Systems of Alabama sent me this reply when I raised this subject with the RSA then. What the RSA said in 2008 is similar to what the lead plaintiff pension funds in the Bank of America case said in their press release about the settlement they achieved.
I have spent the past couple of months trying to point out that selling shareholders are walking away with windfall gains that correspond to losses experienced by purchasers, and the litigation fails in making recovery of the windfall gains and only reallocates losses, which losses get increased by attorneys fees. No one I have contacted has contradicted me on this or even responded to the effect, "yes, you are right, there is basically no recovery of the windfall gains and there is only reallocation of losses, and such and such are the reasons this should be done."
Regarding deterrence purpose or effect, I consider that a very important matter and have done extensive communicating and asking questions about that. Just about everyone I have contacted has punted on the issue. Former Judge Phillips, in his Declaration in the Citigroup case, indicates that a deterrence purpose or effect of such litigation is irrelevant to the amount plaintiffs are entitled to recover or to the amount of any settlement and attorneys fees that the Court approves. If that is the case, the judge should say so, but there seems to be only confusion or, worse, games playing going on, relative to deterrence purpose and effect. It seems very legitimate for a citizen and investor such as myself to want answers here.
I will continue with my work after the three cases in question are over. I hope your offices and organizations have found my communications enlightening and even helpful.
Thank you.
Sincerely,
Rob Shattuck
Birmingham, AL

D. Academics

From: RDShatt@aol.com
To: jfisch@law.upenn.edu, langevdc@law.georgetown.edu, grundfest@stanford.edu, Cox@law.duke.edu, klacroix@oakbridgeins.com, jcoffee@law.columbia.edu
Sent: 4/13/2013 7:35:44 A.M. Central Daylight Time
Subj: I did the best I could in Citigroup, Bank of America and Morgan Keegan cases
Dear Professors,
I did the best I could, in the above three cases I have been writing to you about, to try to get the Court, the parties, the lawyers, and Former United States District Judge Layn R. Phillips to focus on and address that selling shareholders are walking away with windfall gains that correspond to losses experienced by purchasers, and the litigation (in Citigroup and Bank of America) fails in making recovery of the windfall gains and only reallocates losses, which losses get increased by attorneys fees. For more information, see my entry Commentary on response of Former Judge Phillips.
Thank you very much for receiving my email communications about these cases.
Sincerely,
Rob Shattuck

From: RDShatt@aol.com
To: [BEQ contributor list]
Sent: 4/13/2013 10:46:41 A.M. Central Daylight Time
Subj: Fwd: Update to BEQ authors re deterrence in Citigroup and Bank of America cases
Dear Professors,
I am wrapping up my work on the Citigroup and Bank of America cases. See my entry Commentary on response of Former Judge Phillips. I am sorry I have not heard from any of you evidencing an interest in this subject. I will keep on trucking.
Sincerely,
Rob Shattuck

E. Defense lawyer, corporate counsel, ABA class action committee

From: RDShatt@aol.com
To: sarwal@acc.com, jludlam@dri.org, jlarkin@impactfund.org, lburke@lfblaw.com, gardner@sackstierney.com
Sent: 4/14/2013 8:29:23 A.M. Central Daylight Time
Subj: For defense lawyers, corporate counsel, and CADS
To: Defense Research Institute
      Association of Corporate Counsel
      ABA Class Action & Derivative Suits Committee
I am wrapping up my work on the Citigroup, Bank of America and Regions Morgan Keegan class action lawsuits I have previously written you about.
I pass along the following to the DRI, the ACC, and the CADS for what it is worth relative to the defense of these lawsuits and their defects.
I think what is most noteworthy from the perspective of your groups is the seeming failure or inability of the defendants to make argument that, in Citigroup and Bank of America, there is no, or virtually no, recovery being made on behalf of the plaintiff class ,and there is basically only reallocation of losses. Also, there is a failure or inability to grapple with a faux deterrent purpose or effect of the lawsuits, and that falsity could be availed of to resist the lawsuits.
For more information, see my entry Commentary on response of Former Judge Phillips.
Thank you.
Sincerely,
Rob Shattuck
Birmingham, AL

F. Management

From: RDShatt@aol.com
To: Education@nacdonline.org, Resources@nacdonline.org
Sent: 4/14/2013 8:57:06 A.M. Central Daylight Time
Subj: Fwd: To NACD: Directors and business ethics
Dear Ms. Gruss and Ms. Meyer,
I am following up on the below email I sent to you in September 2011.
During the past couple of months I have undertaken a fair amount of work relative to three securities class action lawsuits involving Citigroup, Bank of America and Regions Morgan Keegan. Full information on my work can be found starting at this blog entry of mine Commentary on response of Former Judge Phillips, and following links to other entries
I think both of the two main points of my work should be important from the perspective of the National Association of Corporate Directors.
First is the seeming failure or inability of the defendants to make argument that, in Citigroup and Bank of America, there is no, or virtually no, recovery being made on behalf of the plaintiff class ,and there is basically only reallocation of losses.
Second is the failure or inability of the Court, the parties, and the experts to grapple with a faux deterrent purpose or effect of the lawsuits.
If the NACD would like to discuss anything with me about this, I would be more than happy to oblige.
Thank you.
Sincerely,
Rob Shattuck
Birmingham, AL

From: RDShatt@aol.com
To: rconrad@uschamber.com, lrickard@uschamber.com, MoriartyB@darden.virginia.edu
Sent: 4/14/2013 10:01:34 A.M. Central Daylight Time
Subj: Wrap up on Citigroup, Bank of America, and Regions Morgan Keegan
To: United States Chamber of Commerce
       Institute for Legal Reform
       Business Roundtable Institute for Corporate Ethics
Dear Ms. Conrad, Ms. Rickard, and Mr. Moriarty,
I am wrapping up the work I have undertaken relative to the three private securities class action lawsuits involving Citigroup, Bank of America and Regions Morgan Keegan that I have previously communicated to you about. (My wrap up is digested at my blog entry Commentary on response of Former Judge Phillips.)
Your organizations have the perspective of corporate management, and, in wrapping up, I wish to state again to you the two main points, which I think should have importance from the management viewpoint.
First is the seeming failure or inability of the defendants to make argument that, in Citigroup and Bank of America, there is no, or virtually no, recovery being made on behalf of the plaintiff class, and there is basically only reallocation of losses.
Second is the failure or inability of the Court, the parties, and the experts to grapple with a faux deterrent purpose or effect of the lawsuits.
Thank you for receiving my communications about these cases.
Sincerely,
Rob Shattuck
Birmingham, AL

Monday, April 8, 2013

Response of Former Judge Phillips in Citigroup

From: RDShatt@aol.com
To: bkarp@paulweiss.com, plinden@kmllp.com
CC: kwhitehouse@nypost.com
Sent: 4/8/2013 5:34:17 P.M. Central Daylight Time
Subj: In re Citigroup Securities Litigation Master File No. 07 MDL CIV 9901 (SHS)

BY US MAIL [mailed 4/15/12]

United States District Court
Southern District of New York
Daniel Patrick Moynihan United States Courthouse
500 Pearl Street
New York, NY 10007-1312

IN RE CITIGROUP SECURITIES Master File No. 07 MDL CIV 9901 (SHS)
LITIGATION
:::::
ECF CASE


RESPONSE OF FORMER UNITED STATES DISTRICT JUDGE LAYN R. PHILLIPS
TO MY EMAIL SERVED ON THE PARTIES PER HIS INSTRUCTION

To the Honorable United States District Court of the Southern District of New York:

I am an amicus curiae objector and have previously submitted my objection to the Court.

As I said in a supplemental letter to the Court dated March 25, 2013, I sent an email to Former United States District Judge Layn R. Phillips regarding his Declaration to the Court, dated November 19, 2012, and Mr. Phillips sent me a reply email that said I should serve my email on the parties to give them an opportunity to comment before Mr. Phillips responded. I proceeded to make this service as recited in my March 25th letter to the Court (which includes the complete text of my email to Mr. Phillips and of Mr. Phillips' email to me).

This morning I emailed Mr. Phillips saying I had not seen any comments from the parties or a response from Mr. Phillips. Mr. Phillips sent me the following email back:

From: LPhillips@irell.com
To: RDShatt@aol.com
CC: bkarp@paulweiss.com, plinden@kmllp.com, kwhitehouse@nypost.com
Sent: 4/8/2013 3:59:41 P.M. Central Daylight Time
Subj: RE: You Citigroup declaration; my email; no comments or response yet

Dear Mr. Shattuck:

I cannot respond to any inquiries about the content of mediation briefs or about the nature of caucus sessions during the mediation process. As was set forth in my filed declaration, based upon my experience, I believe the settlement was fair and achieved at arm’s length. I have not been presented with any law or precedent where individuals who unknowingly benefit from artificial stock inflation are liable or where the reasonableness of a settlement of this nature is related to the potential effect it might have on other possible wrongdoers. My perspective remains unchanged by your email, and I will not modify my declaration.

Furthermore, I cannot address how the Court might view the underlying litigation. I encourage you to direct future communications to the Court and counsel of record, as I am neither the judge nor an advocate in this this matter.

Thank you.

Layn R. Phillips

Former District Judge.

I consider Mr. Phillips' response very inadequate. This may be because Mr. Phillips is legally constrained from giving an adequate response or it may be for other reasons.

If Mr. Phillips' understanding of the law is correct, I think, if the Honorable Court approves the settlement and attorneys fees, the Court's order should expressly state that, under the law, the amount of any recovery to which the plaintiffs are entitled is entirely independent of any deterrent purpose or deterrent effect of the litigation (i.e, if there was a jury trial, the jury would be instructed that it should give no consideration to whether the litigation serves to deter others), and that the reasonableness of the settlement (and the appropriateness and reasonableness of attorneys fees) are evaluated and judged independently of the deterrent effect (or lack of deterrent effect) of the settlement. (The Court might be interested in how the lead plaintiffs and their attorneys in the Bank of America case tout in their press release the deterrence effect of the Bank of America class action and settlement.)

Also, my email asked Mr. Phillips the following:
Am I correct that it was entirely unknown at the time of the settlement (and will never be known), the extent to which selling shareholders who sold during the artificially inflated period will walk away with windfall gains that are beyond the reach of the Court (if the shareholders completely sold out) or the amounts of windfall gains that they are allowed to keep will be kept in disregard of the relative amounts of their respective windfall gains, and the extent to which there is any "recovery" of those windfall gains will is unknown, and instead of "recovery" of windfall gains, there is effectively a reallocation of losses among purchasers who had losses or to shareholders who had no gain or loss from the alleged wrongdoing?
Mr. Phillips' response says that no recovery of the windfall gains in the pockets of selling shareholders may be possible under the law. That is hardly an answer to the criticism that, in this lawsuit, where the windfall gains are not being, and/or cannot be, recovered from the pockets of those who received the windfall gains, it is not doing justice to, in substance, reallocate losses among those who incurred losses, and no answer to the argument that the same should be considered in what recovery should be allowed under the law and whether the settlement is fair and reasonable.

I am sending a paper copy of this email by U.S. mail to the Court. I will send this email only electronically to the parties, per the above email addresses.

Respectfully submitted,
Robert Shattuck
3812 Spring Valley Circle
Birmingham, AL 25223
(205) 967-5586


From: RDShatt@aol.com
To: mwb@blbglaw.com, steven@blbglaw.com, rkaplan@kaplanfox.com, ffox@kaplanfox.com, dkessler@ktmc.com, gcastaldo@ktmc.com, bkarp@paulweiss.com, dkramer@paulweiss.com, asoloway@paulweiss.com, jbernstein@labaton.com, rcs@cabaniss.com, pfruin@maynardcooper.com, blatham@bassberry.com, larry.polk@sutherland.com, kevinlogue@paulhastings.com
Sent: 4/14/2013 10:21:26 A.M. Central Daylight Time
Subj: Response of FORMER UNITED STATES DISTRICT JUDGE LAYN R. PHILLIPS
BY US MAIL
United States District Court
Southern District of New York
Daniel Patrick Moynihan United States Courthouse
500 Pearl Street
New York, NY 10007-1312
Clerk of the Court
United States District Court for the Western District of Tennessee
Clifford Davis/Odell Horton Federal Building
167 North Main Street, Room 242
Memphis, Tennessee 38103
IN RE BANK OF AMERICA CORP. Master File No. 09 MDL 2058 (PKC)
SECURITIES, DERIVATIVE, AND
EMPLOYEE RETIREMENT INCOME
SECURITY ACT (ERISA) LITIGATION
(Southern District of New York)
In re Regions Morgan Keegan Closed-End Fund Litigation, No. 07-cv-02830 SHM dkv
(Western District of Tennessee)
RESPONSE OF FORMER UNITED STATES DISTRICT JUDGE LAYN R. PHILLIPS 
IN CITIGROUP CASE 
To the Honorable United States District Court of the Southern District of New York:
To the Honorable United States District Court of the Western District of Tennessee
I have previously advised the Honorable Courts of certain email communications between myself and Former United States District Judge Layn R. Phillips regarding his Declaration to the Court, dated November 19, 2012, filed in IN RE CITIGROUP SECURITIES LITIGATION Master File No. 07 MDL CIV 9901 (SHS), pending in the Southern District of New York.
Mr. Phillips has provided a further response regarding his Declaration, and I have written a letter to the Court in the aforesaid Citigroup case informing the Court about said further response.
I wish to provide the Honorable Court in the Bank of America case and the Honorable Court in the Regions Morgan Keegan case a copy of my aforesaid letter to the Court in the Citigroup case. Said letter is appended below.
I am sending a paper copy of this email by U.S. mail to the Honorable Courts. I will send this email only electronically to the parties in the Bank of America case and the Regions Morgan Keegan case, per the above email addresses.
Respectfully submitted,
Robert Shattuck
3812 Spring Valley Circle
Birmingham, AL 25223
(205) 967-5586
[see above for the appended letter in the US mail paper copy mailed to the Courts]

Saturday, April 6, 2013

Letter to Citigroup Chief Ethics Officer

From: RDShatt@aol.com
To: ethicsconcern@citi.com
CC: ______@theecoa.org, ______@regions.com, ______@shrm.org
Sent: 4/5/2013 1:10:14 P.M. Central Daylight Time
Subj: Judge questions fairness of Citigroup $590 million settlement

Via US mail and via email ethicsconcern@citi.com 
Ms. Maria C. Hermida
Chief Ethics Officer
Citigroup
Citi Ethics Office
1 Court Square, 24th floor
Long Island City, N.Y. 11101

Dear Ms. Hermida,

I am following up on previous communications I have sent to you.

On Monday Judge Sidney Stein questioned, in a way that has become news in the public domain, the fairness of Citigroup's settlement agreement. See Reuters article: Judge questions fairness of Citigroup $590 million settlement | Reuters.

Note particularly in the article the Judge's question to the parties: "Does the absence of any payments from the individual defendants render the settlement unfair to class members who still hold the Citigroup stock they purchased during the class period?"

At a minimum, I would think you, as Citigroup's Chief Ethics Officer and whose function is to help make Citigroup an ethical company, would be troubled by a Federal judge making the public news with questions about whether Citigroup has been fair and just in the settlement agreement it has entered into.

Beyond that, I would think that you, as a member of the Board of Directors of the Ethics & Compliance Officer Association, would wonder whether there are matters involved here that the ECOA should delve into.

Thank you.

Sincerely,
Rob Shattuck
3812 Spring Valley Circle
Birmingham, AL 35203
(205) 967-5586
rdshatt@aol.com

cc.
Ms. Andrea Smith (via US mail)
Bank of America
Global Human Resources Executive
100 North Tryon Street
Charlotte, NC 28202

Mr. Hugh Nickson (via email ________)
Ethics Program Manager
Regions Bank
1901 6th Avenue North
Birmingham AL 35203

Friday, April 5, 2013

BofA, Regions Suggestion of Judicial Notice


From: RDShatt@aol.com
To: mwb@blbglaw.com, steven@blbglaw.com, rkaplan@kaplanfox.com, ffox@kaplanfox.com, dkessler@ktmc.com, gcastaldo@ktmc.com, bkarp@paulweiss.com, dkramer@paulweiss.com, asoloway@paulweiss.com
Sent: 4/4/2013 8:49:47 A.M. Central Daylight Time
Subj: Bank of America Corp., SDNY Master File No. 09 MDL 2058 (PKC)

United States District Court
Southern District of New York
Daniel Patrick Moynihan United States Courthouse
500 Pearl Street
New York, NY 10007-1312
IN RE BANK OF AMERICA CORP. Master File No. 09 MDL 2058 (PKC)
SECURITIES, DERIVATIVE, AND
EMPLOYEE RETIREMENT INCOME
SECURITY ACT (ERISA) LITIGATION
:::::
ECF CASE

Suggestion of Judicial Notice
To the Honorable United States District Court of the Southern District of New York:
I am an amicus objector in this case and have previously sent to the Court by U.S. mail my amicus objection, which I have supplemented with a letter to the Court dated March 26, 2013.
I urge that the Court take judicial notice of the below Reuters news report to the effect that Judge Stein "questions [the] fairness" and will not "rubber-stamp" the settlement in In re Citigroup Securities Litigation Master File No. 07 MDL CIV 9901 (SHS), which is also pending in the Southern District of New York and has a fairness hearing scheduled for Monday, April 8, 2013.
Judge questions fairness of Citigroup $590 million settlement
Mon Apr 1, 2013 7:28pm EDT

(Reuters) - A Manhattan federal judge on Monday signaled he will not rubber-stamp Citigroup Inc's proposed $590 million settlement of a shareholder lawsuit accusing it of hiding tens of billions of dollars of toxic mortgage assets. 
U.S. District Judge Sidney Stein asked lawyers for the bank and its shareholders to address several issues at an April 8 fairness hearing, including requested legal fees and expenses of roughly $100 million, and the absence of payments by former Citigroup executives.

Citigroup spokesman Mark Costiglio declined to comment. Peter Linden, a partner at the law firm Kirby McInerney who represents the shareholders, did not immediately respond to requests for comment.

Stein joined other judges in recent years to question the fairness of large legal settlements in the financial industry.

Citigroup awaits a decision from the federal appeals court in New York on whether Stein's colleague Jed Rakoff properly rejected a $285 million settlement with the U.S. Securities and Exchange Commission over the alleged defrauding of investors.

On Thursday, U.S. District Judge Victor Marrero in Manhattan cited that case in delaying a decision to approve the SEC's $602 million insider trading settlement with a unit of Steven Cohen's hedge fund SAC Capital Advisors LP.

The $590 million settlement resolved claims by Citigroup shareholders from February 26, 2007 to April 18, 2008 that the bank failed in those years to properly write down risky debt, often backed by subprime mortgages, and concealed the risks.

Citigroup lost $27.68 billion in 2008, and by March 2009 its market value had sunk roughly $250 billion from the start of the class period. The shareholder settlement is separate from a $730 million accord with bondholders last month.

According to court papers, the shareholder settlement also resolved claims against several former top Citigroup officials, including Chief Executive Charles Prince and senior adviser Robert Rubin. Stein asked whether this was proper.
"Does the absence of any payments from the individual defendants render the settlement unfair to class members who still hold the Citigroup stock they purchased during the class period?" he asked both sides to address.
Stein also asked for more information, including how much a reasonable client would pay to justify fees for lead counsel and other lawyers equal to 16.5 percent of the settlement amount, or about $97.4 million, plus $2.8 million for expenses.
The judge asked both sides to address questions about how settlement funds would be allocated.
Lead plaintiffs included several former employees and directors of Automated Trading Desk Inc, which Citigroup bought in October 2007 for about $680 million.
The case is In re: Citigroup Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 07-09901.
(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)
I am sending paper copies of this email by US mail to the Court and to the counsel for the parties in this case as specified in the Notice, as well as sending this email electronically to such counsel per the above email addresses.
Respectfully submitted,
Robert Shattuck
3812 Spring Valley Circle
Birmingham, AL 25223
(205) 967-5586


From: RDShatt@aol.com
To: jbernstein@labaton.com, rcs@cabaniss.com, pfruin@maynardcooper.com, blatham@bassberry.com, larry.polk@sutherland.com, kevinlogue@paulhastings.com
Sent: 4/4/2013 8:55:31 A.M. Central Daylight Time
Subj: In re Regions Morgan Keegan Closed-End Fund Litigation, No. 07-cv-02830 SHM dkvVIA US MAIL
Clerk of the Court
United States District Court for the Western District of Tennessee
Clifford Davis/Odell Horton Federal Building
167 North Main Street, Room 242
Memphis, Tennessee 38103
Re: In re Regions Morgan Keegan Closed-End Fund Litigation, No. 07-cv-02830 SHM dkv
Suggestion of Judicial Notice
To the Honorable United States District Court for the Western District of Tennessee:
I am an amicus objector in this case and have previously sent to the Court by U.S. mail my amicus objection, which I have supplemented with a letter to the Court dated March 29, 2013.
I urge that the Court take judicial notice of the below Reuters news report to the effect that Judge Stein "questions [the] fairness" and will not "rubber-stamp" the settlement in In re Citigroup Securities Litigation Master File No. 07 MDL CIV 9901 (SHS), which is pending in the Southern District of New York and has a fairness hearing scheduled for Monday, April 8, 2013.

Judge questions fairness of Citigroup $590 million settlement
Mon Apr 1, 2013 7:28pm EDT

(Reuters) - A Manhattan federal judge on Monday signaled he will not rubber-stamp Citigroup Inc's proposed $590 million settlement of a shareholder lawsuit accusing it of hiding tens of billions of dollars of toxic mortgage assets.
U.S. District Judge Sidney Stein asked lawyers for the bank and its shareholders to address several issues at an April 8 fairness hearing, including requested legal fees and expenses of roughly $100 million, and the absence of payments by former Citigroup executives.

Citigroup spokesman Mark Costiglio declined to comment. Peter Linden, a partner at the law firm Kirby McInerney who represents the shareholders, did not immediately respond to requests for comment.

Stein joined other judges in recent years to question the fairness of large legal settlements in the financial industry.

Citigroup awaits a decision from the federal appeals court in New York on whether Stein's colleague Jed Rakoff properly rejected a $285 million settlement with the U.S. Securities and Exchange Commission over the alleged defrauding of investors.

On Thursday, U.S. District Judge Victor Marrero in Manhattan cited that case in delaying a decision to approve the SEC's $602 million insider trading settlement with a unit of Steven Cohen's hedge fund SAC Capital Advisors LP.

The $590 million settlement resolved claims by Citigroup shareholders from February 26, 2007 to April 18, 2008 that the bank failed in those years to properly write down risky debt, often backed by subprime mortgages, and concealed the risks.

Citigroup lost $27.68 billion in 2008, and by March 2009 its market value had sunk roughly $250 billion from the start of the class period. The shareholder settlement is separate from a $730 million accord with bondholders last month.

According to court papers, the shareholder settlement also resolved claims against several former top Citigroup officials, including Chief Executive Charles Prince and senior adviser Robert Rubin. Stein asked whether this was proper.
"Does the absence of any payments from the individual defendants render the settlement unfair to class members who still hold the Citigroup stock they purchased during the class period?" he asked both sides to address.
Stein also asked for more information, including how much a reasonable client would pay to justify fees for lead counsel and other lawyers equal to 16.5 percent of the settlement amount, or about $97.4 million, plus $2.8 million for expenses.
The judge asked both sides to address questions about how settlement funds would be allocated.
Lead plaintiffs included several former employees and directors of Automated Trading Desk Inc, which Citigroup bought in October 2007 for about $680 million.
The case is In re: Citigroup Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 07-09901.
(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)
I am sending paper copies of this email by US mail to the Court and to the counsel for the parties in this case as specified in the Notice, as well as sending this email electronically to such counsel per the above email addresses.
Respectfully submitted,
Robert Shattuck
3812 Spring Valley Circle
Birmingham, AL 25223
(205) 967-5586

Thursday, April 4, 2013

Judge questions fairness of Citigroup $590 million settlement


Reuters

Judge questions fairness of Citigroup $590 million settlement



A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid
A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012.
Credit: Reuters/Brendan McDermid

Mon Apr 1, 2013 7:28pm EDT
(Reuters) - A Manhattan federal judge on Monday signaled he will not rubber-stamp Citigroup Inc's proposed $590 million settlement of a shareholder lawsuit accusing it of hiding tens of billions of dollars of toxic mortgage assets. 

U.S. District Judge Sidney Stein asked lawyers for the bank and its shareholders to address several issues at an April 8 fairness hearing, including requested legal fees and expenses of roughly $100 million, and the absence of payments by former Citigroup executives.

Citigroup spokesman Mark Costiglio declined to comment. Peter Linden, a partner at the law firm Kirby McInerney who represents the shareholders, did not immediately respond to requests for comment.


Stein joined other judges in recent years to question the fairness of large legal settlements in the financial industry.


Citigroup awaits a decision from the federal appeals court in New York on whether Stein's colleague Jed Rakoff properly rejected a $285 million settlement with the U.S. Securities and Exchange Commission over the alleged defrauding of investors.

On Thursday, U.S. District Judge Victor Marrero in Manhattan cited that case in delaying a decision to approve the SEC's $602 million insider trading settlement with a unit of Steven Cohen's hedge fund SAC Capital Advisors LP.


The $590 million settlement resolved claims by Citigroup shareholders from February 26, 2007 to April 18, 2008 that the bank failed in those years to properly write down risky debt, often backed by subprime mortgages, and concealed the risks.

Citigroup lost $27.68 billion in 2008, and by March 2009 its market value had sunk roughly $250 billion from the start of the class period. The shareholder settlement is separate from a $730 million accord with bondholders last month.


According to court papers, the shareholder settlement also resolved claims against several former top Citigroup officials, including Chief Executive Charles Prince and senior adviser Robert Rubin. Stein asked whether this was proper.


"Does the absence of any payments from the individual defendants render the settlement unfair to class members who still hold the Citigroup stock they purchased during the class period?" he asked both sides to address.


Stein also asked for more information, including how much a reasonable client would pay to justify fees for lead counsel and other lawyers equal to 16.5 percent of the settlement amount, or about $97.4 million, plus $2.8 million for expenses.


The judge asked both sides to address questions about how settlement funds would be allocated.


Lead plaintiffs included several former employees and directors of Automated Trading Desk Inc, which Citigroup bought in October 2007 for about $680 million.


The case is In re: Citigroup Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 07-09901.


(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)

http://www.reuters.com/article/2013/04/01/us-citigroup-settlement-idUSBRE9300MH20130401

Tuesday, April 2, 2013

BEQ authors re deterrence in Citigroup of BofA cases

From: RDShatt@aol.com
To:
Sent: 4/2/2013 4:41:32 P.M. Central Daylight Time
Subj: Update to BEQ authors re deterrence in Citigroup and Bank of America cases
Dear Professors,
I wish to provide you with an update to my November 4, 2012 email to you, in which I solicited citations of academic articles on the subject of the relative effectiveness of entity liability, versus individual officer and employee liability, for purposes of deterring corporate wrongdoing. The reason for my request was to be able to provide the articles to the Court as part of my amicus curiae objection in this Bank of America Securities Litigation pending in the Southern District of New York.
Since then, my objection has been extended to a similar class action lawsuit involving Citigroup, also pending in the Southern District of New York (link Citigroup Securities Litigation).
I wish to report that there may be forthcoming some judicial consideration of this deterrence issue in these cases.
In particular, in the Citigroup case, former United States District Court Judge Layn R. Phillips submitted to the Court this Declaration Regarding Approval Of Settlement. I sent an email to Mr. Phillips inquiring of him whether the parties made argument to him about whether the lawsuit had a deterrence value. Mr. Phillips replied that I should serve my email on the parties to give them an opportunity to comment, and then Mr. Phillips would respond. For further information about this, go here.
I do not know where academic research and publication currently stand related to this deterrence question. If Federal judges can be persuaded to think about the subject, I hope Business Ethics Quarterly and its contributors will take up the issue (if that is not already being done)
Thank you very much.
Sincerely,
Rob Shattuck

From: RDShatt@aol.com
To:
Sent: 11/4/2012 6:10:05 A.M. Central Standard Time
Subj: Fwd: To BEQ authors: re Citigroup mortgage fraud settlement
Dear Professors,
Following on from the below email to you in October 2011, I propose to file this amicus curiae objection in the settlement hearing that will be held in due course for the recently announced $2.4 billion settlement that Bank of America has agreed to regarding the Merrill Lynch acquisition that Bank of America made in 2008.
A main question raised in the objection is the effectiveness of entity liability, on the one hand, and individual officer and employee liability, on the other hand, for deterring corporate wrongdoing. The draft objection currently say, "It is further noted that there seems to be a lack of academic interest and a paucity of academic research."
I would very much appreciate any aid you can give me in making to the Court citations of academic articles on the subject that you think the Court should consider.
Please help me out if you can.
Thank you.
Sincerely,
Rob Shattuck

From: RDShatt@aol.com
To:
CC: francesco.guerrera@wsj.com, michael.siconolfi@wsj.com, ethicsconcern@citi.com
Sent: 10/28/2011 8:19:20 A.M. Central Standard Time
Subj: To BEQ authors: re Citigroup mortgage fraud settlement
Dear Professors,
This October 20 Wall Street Journal article on the Citigroup mortgage fraud settlement for $285 million against Citigroup also reports that the SEC has negligence civil charges against a Citigroup employee that it is pursuing. The lawyer for the Citigroup employee is quoted as saying, "He was not responsible for any alleged wrongdoing, he did not control or trade the position, did not prepare the disclosures and did not select the assets," and, "We will vigorously defend this lawsuit."
Here are some arguably compelling questions for business ethicists:
1. If there is wrongdoing for which Citigroup is called on to pay $285 million, shouldn't officers and employees who are responsible for the wrongdoing be held liable to some extent?
2. If responsible officers and employees are not held liable to some extent, is that not a signal to all officers and employees, "Go ahead, put your thinking caps on, and come up with your next idea for making the company money, don't worry too much about whether it is ethical or not, ideally the company will make some good money from it and be able to pay you additional compensation for the year, and no one will be the wiser, of, if your idea does come a cropper and a liability has to be paid, it will come out of the hides of the stockholders and not you, so again don't worry"?
3. If there is wrongdoing by Citigroup, are there legitimate reasons why responsible officers and employees should not be held personally liable?
4. Is it possible that the legal system works so badly that there is fact no wrongdoing but a $285 million payment still gets extracted from Citigroup? If so, and there is no wrongdoing, can that have any adverse effect on attitudes and efforts related to Citigroup and its officers and employees being more ethical?
5. Will a meaningful determination be in fact made of wrongdoing, or not, in this matter, which will provide guidance to other officers and employees of Citigroup and of other banks and corporations, relative to future decisions and actions of such officers and employees?
Rob Shattuck