Major investors opting out of a $624-million class-action settlement with Countrywide Financial Corp. said they would have recouped less than 5% of their losses on the mortgage lender's stock had they accepted the agreement.
"A settlement on behalf of my clients would have to be a material multiple of that amount," said Blair Nicholas of San Diego, a lawyer for the California Public Employees' Retirement System and 15 other institutional investors. Altogether, 33 institutional investors have opted out.
The agreement was approved Friday by U.S. District Judge Mariana Pfaelzer in Los Angeles, who described the settlement as reasonable and substantial given the complexities of the case and the uncertainties of what a jury might decide.
It requires Countrywide and its parent company, Bank of America Corp., to provide $600 million for former Countrywide shareholders remaining in the case. The lender's outside accounting firm, KPMG, added $24 million.
Countrywide and Bank of America, which bought the Calabasas mortgage lender as it skirted bankruptcy in 2008, contended the near-collapse and the investors' losses were the unforeseeable result of the broader financial crisis. BofA acquired Countrywide, whose stock was once valued at $25 billion, for $2.5 billion in BofA stock.
The lawsuits contended that Countrywide, once America's biggest home lender, fraudulently concealed its mounting risks as it loosened lending standards to build its market share during the housing boom.
Pfaelzer gave tentative approval in October to the settlement of combined class-action lawsuits. The final settlement Friday contains a new provision: $22.5 million of the Countrywide and KPMG funds will be set aside for payments to those that opted out.
Underscoring the risks the opt-outs are running, court filings said they would have received more than $40million had they joined in the class-action settlement.
Bank of America said Countrywide settled the case "to avoid the additional expense and uncertainty" of litigation. The bank said it was pleased that Pfaelzer approved the settlement as "fair and reasonable."
The "information that plaintiffs contended was not disclosed to investors had in fact been disclosed in multiple ways, including through regular investor forums … and in disclosures filed with the SEC about the credit-risk attributes of the loans it originated and later securitized," the bank said.
It added that any declines in the prices of Countrywide securities had resulted from the collapse of national home prices and the crisis in the U.S. capital markets in late 2007, especially disarray in the secondary markets where Countrywide customarily had sold most of its loans.
Joel Bernstein, the lead attorney for the plaintiffs, said he was "thrilled" with the outcome given the risks of going to trial.
"I think it's an excellent and appropriate resolution to what we always believed was one of the biggest frauds ever conceived in the securities market," Bernstein said.
Those opting out disagreed.
Tony Green, spokesman for Oregon's attorney general, said Friday that the state believes it can do far better in court or in separate settlement talks than the $500,000 that the settlement would have provided to cover $14 million in investments lost by Oregon's pension and workers' compensation funds.
Atty. Gen. John Kroger said in December when the state filed its lawsuit against Countrywide that "Oregon will not accept pennies on the dollar when Wall Street defrauds Oregonians."