The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Class Actions

  • From Vol. 9 No.3 (Jan. 21, 2016)

    Hedge Funds and Others May Be Eligible to Collect Proceeds From $1.86 Billion CDS Antitrust Settlement

    On January 11, 2016, Quinn Emanuel announced the $1.86 billion settlement of a class action lawsuit alleging that, since 2008, major banks had conspired with the International Swaps and Derivatives Association and financial information services firm Markit Group to limit transparency and competition in the credit default swaps (CDS) market by thwarting attempts to create an exchange for trading CDS. The plaintiffs estimated that the defendants’ conduct inflated bid/ask spreads on CDS by 20% on average, amounting to damages between eight and twelve billion dollars. The U.S. District Court for the Southern District of New York has issued an order establishing a class of plaintiffs, identifying covered CDS transactions and preliminarily approving the settlement. Market participants covered by the class action plaintiffs – including hedge funds, pension funds, asset managers and other institutional investors that purchased certain CDS – have a limited time to opt out of the settlement class before final approval of the settlement. This article documents the history of the litigation and the plaintiffs’ claims, and summarizes the settlement terms. For coverage of another antitrust suit involving financial market participants, see “Federal Antitrust Suit Against Ten Prominent Private Equity Firms Based on Allegations of ‘Club Etiquette’ Not to Jump Announced Deals Survives Summary Judgment Motion” (Apr. 11, 2013).

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  • From Vol. 8 No.47 (Dec. 3, 2015)

    Court Ruling Facilitates Investor Class Actions Against Hedge Fund Managers

    In 2014, Valeant Pharmaceuticals, in cooperation with one of William Ackman’s Pershing Square funds, launched an ultimately unsuccessful tender offer to take over Allergan, Inc.  In December 2014, Valeant and its CEO, Michael Pearson, together with Ackman and several Pershing Square entities, were named as defendants in a private class action lawsuit that seeks to recover damages from them on behalf of Allergan shareholders who sold Allergan stock while the tender offer was pending.  The suit claims that, in violation of federal tender offer rules, the defendants failed to disclose material information about the Allergan tender offer while the Pershing Square fund was acquiring a substantial position in Allergan.  The court recently ruled on the defendants’ motion to dismiss the complaint.  This article summarizes the key factual allegations and legal claims in the plaintiffs’ complaint and the court’s reasoning.  Separately, Allergan had commenced an action against Valeant and the other defendants to challenge the takeover.  That action became moot when Valeant withdrew its bid.  For more on the Allergan-Valeant litigation, see “Top SEC Officials, Law Firm Partners and In-House Counsel Discuss Private Fund Enforcement Priorities, Tender Offer Rules Applicable to Activist Investing, Valuation Challenges, Personal Trade Monitoring and Compliance Testing (Part Four of Four),” The Hedge Fund Law Report, Vol. 8, No. 3 (Jan. 22, 2015); and “Did Pershing Square and Valeant Violate Insider Trading, Antitrust or Tender Offer Rules in Their Pursuit of Allergan?,” The Hedge Fund Law Report, Vol. 7, No. 17 (May 2, 2014).

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  • From Vol. 8 No.44 (Nov. 12, 2015)

    Class Action Lawsuit May Affect Retirement Plan Allocations to Hedge Funds

    Following the 2008 financial crisis, pension managers looked to hedge funds as one way of making up performance losses.  That approach may have backfired for one large corporation whose alternative pension investments stand accused of poor performance.  A former employee is the named plaintiff and class representative in a putative class action against the corporate committees and their members that were responsible for the corporation’s pension investments.  The suit charges that, by investing heavily in “risky and high-cost hedge funds and private equity investments,” and by eschewing more widely accepted pension allocation models, the defendants breached their fiduciary duties to the pension plans, which sustained “massive losses and enormous excess fees.”  This article summarizes the key allegations against the ERISA fiduciaries who elected to invest in hedge funds and other alternative investments.  For more on ERISA fiduciary duties, see the first two parts of our series entitled “Happily Ever After? – Investment Funds that Live with ERISA, For Better and For Worse”: Part One, Vol. 7, No. 33 (Sep. 4, 2014); and Part Two, Vol. 7, No. 34 (Sep. 11, 2014).

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  • From Vol. 7 No.34 (Sep. 11, 2014)

    U.S. District Court Denies Class Certification for Investors in Defunct Hedge Fund Parkcentral Global

    The 2008 collapse of hedge fund Parkcentral Global, L.P., which was managed by H. Ross Perot’s money management team, spawned a great deal of litigation.  In one branch of that litigation, certain investors sought certification of a class action in the U.S. District Court for the Northern District of Texas to pursue claims of breach of fiduciary duty against the fund’s investment managers on behalf of all affected investors.  See “Can Hedge Fund Managers Contract Out Of Default Fiduciary Duties When Drafting Delaware Hedge Fund and Management Company Documents?,” The Hedge Fund Law Report, Vol. 6, No. 14 (Apr. 4, 2013).  In a recent decision, the District Court refused to certify a class because it was not impractical for the individual fund investors who suffered losses to join the suit and because common issues of law or fact did not predominate in the case.  This article describes the decision, and is relevant to those on either side of the bar – disgruntled hedge fund investors and their counsel, and those defending or managing the defense of such actions.

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  • From Vol. 6 No.3 (Jan. 17, 2013)

    When Can a Hedge Fund Shareholder Opt Out of a Class Action Settlement to Pursue Its Own Remedies When a Court Has Certified the Class as a Non-Opt-Out Class?

    Companies are often reluctant to settle class action lawsuits with a group of shareholders unless they have some assurance that shareholders will not be permitted to opt out of the settlement to pursue their own remedies against the company.  As such, proposed settlements are sometimes conditioned upon the certification of a class by a court as a non-opt-out class, meaning that shareholders may not opt out of the class action settlement without court approval.  Nonetheless, in some circumstances, shareholders may object to a negotiated settlement for various reasons and may wish to opt out of the settlement to prosecute their own claims against the company.  The Delaware Supreme Court recently issued an opinion in a case in which it considered whether and when a shareholder (in this case a hedge fund) should be permitted to opt out of the class action settlement under these circumstances.  This article provides the factual and legal background of the case; discusses the court’s holding and analysis; and discusses the implications of the decision for hedge fund shareholders engaged in class action litigation.

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