Sadly, major securities litigation is fairly commonplace. Despite the best efforts of financial regulators, publicly traded companies routinely violate the public trust — and the trust of their investors. Worse, these breaches of trust often result from the negligence or even complicity of the third-party auditing firms that exist largely to curtail such behavior.
For a variety of reasons, securities fraud litigation is often settled before the civil trial phase, allowing defendants to save some face and plaintiffs to get on with their lives (and recover some or all of their losses). These five securities fraud settlements are the largest to date.
1. Enron Corporation Securities Litigation, $7.3 billion
The largest securities fraud settlement to date pitted numerous individual and institutional plaintiffs against several financial institutions involved in the early-2000s collapse of the Enron Corporation. As one of the most complex major securities litigation cases ever undertaken, this action saw plaintiffs represented by a number of highly respected law firms, including California-based Robbins Geller and New York-based Bernstein Liebhard. Filed in late 2001, shortly after the full extent of Enron’s collapse and subsequent cover-up became apparent, the case took more than a decade to resolve.
2. WorldCom Inc. Securities Litigation, $6.1 billion
The massive litigation sparked by the death of former telecom giant WorldCom Inc. takes second place on this list. It’s almost poetic that WorldCom and Enron should share space on such an ignominious roster: The two unrelated conglomerates collapsed, almost simultaneously and under similar circumstances, during the early 2000s, destined to be forever held up as twin examples of the dangers of unmitigated corporate greed.
WorldCom’s case was nearly as complex and contentious as Enron’s, though it did resolve slightly faster. It covered individuals and institutions who invested in the company between April 30, 1999 and April 29, 2002.
3. Tyco International LTD Securities Litigation, $3.2 billion
At the time of its announcement in late 2007, Tyco International’s $3.2 billion settlement represented the largest payout to settle any class-action securities fraud litigation. (The Enron and WorldCom actions hadn’t yet been settled.) The case centered around a pattern of deceptive, and more importantly undisclosed, practices by Tyco’s executives, including interest-free loans made to key employees, the company’s purchase of a private residence from one of its own directors, and the company’s pattern of gifting real estate to key employees.
4. Cendant Corporation Securities Litigation, $3.2 billion
This case hinges on a host of “accounting irregularities” on Cendant Corporation’s books. First discovered in the late 1990s, said irregularities ran the gamut from overstated income (more than $100 million, all told) to artificial stock price manipulation. More than 70 individual suits were filed over the misrepresentation, precipitating a decade-long legal battle that culminated in a settlement worth many times the initial value of the fraud itself.
5. Nortel Networks Corporation (I and II) Securities Litigation, $2.9 billion
Who said all Canadians were polite? In the early 2000s, Canada-based Nortel Networks became the focus of an international investigation into allegations that it altered shareholder reports, public statements and other materials to significantly overstate demand and sales for its telecommunications devices. To be fair, Nortel admitted to the fabrication in a press release issued as soon as it became impossible to conceal any longer. But that didn’t stop its stock price from collapsing overnight, destroying millions in shareholder wealth along the way.