Legal News

Countrywide Deal Too Thin For Some Investors

By Michael Rothfeld

The class action settlement between shareholders of Countrywide Financial Corp. and its owners is up for approval this week.

But the deal, originally  for $624 million and the largest for shareholders who suffered losses in the meltdown, has already been rejected as by major institutional investors as too small, as the National Law Journal reports.

Some of those investors, including the mammoth California Public Employees Retirement System, are betting they can get a better deal by going it alone, according to the National Law Journal story here. According to the story:

Other funds that opted out of the deal have moved forward with their own suits, citing losses far greater than what they would have received in the proposed settlement. On Jan. 26, Oregon Attorney General John Kroger and state Treasurer Ted Wheeler sued Countrywide to recover $14 million in losses. In a press release, they said the settlement would have netted less than $500,000 to the state. “Oregon will not accept pennies on the dollar when Wall Street defrauds Oregonians,” Kroger said in a prepared statement.

The settlement stems from risky lending practices by the country’s largest housing loan originator during the real estate boom that led to the crash of its stock price during the bust, and eventual purchase by Bank of America Corp. Previous LB posts on Countrywide are here, here, here and here.

The institutional defections have led to some changes in the agreement, which is now $601.5 million and set for final federal court review in Los Angeles on Friday. The other $22.5 million that had been included has been set aside for settlements with those who’ve opted out.

The lead plaintiffs’ counsel, Labaton Sucharow, has reduced its request for fees by almost $1 million, to $46.5 million, or about 7.73% of the deal. And settlements between the Securities and Exchange Commission and Countrywide executives, including former chief Angelo Mozilo, have added another $48.1 million to the pot.

Countrywide could have pulled out of the settlement given the opt-outs, but it hasn’t.

A BofA spokeswoman called it “unfortunate” that some investors haven’t wanted to embrace what she called “a fair and equitable agreement.” And Joel Bernstein, a senior lawyer for the plaintiffs, said he still believed it was a “really excellent deal.” Bernstein said that if other investors who lost a lot of money want to hire their own lawyers and “take a different kind of risk than our clients want to take, they’re entitled to do that.”

Full post as published by Law Blog - WSJ.com on February 22, 2011 (boomark / email).