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NEW YORK (CNN/Money) -
Citigroup's deal to pay $2 billion to Enron Corp. investors may not be a record, but it is the latest signal that something unusual is going on in the world of securities lawsuits.
Institutional Shareholder Services (ISS), which tracks investor lawsuits, estimates that more than $10 billion worth of securities class-action settlements have been announced in which the deadline for eligible investors to submit claims hasn't passed.
The megabucks are startling given that, a decade ago, Congress passed a law that many thought would protect companies against so-called "stock drop" lawsuits.
What's striking -- aside from the fact that the number of these cases filed and the settlements later reached continues unabated -- is that companies are shelling out more money than ever before, without admitting they did anything wrong, to put these cases behind them.
Since May 2004, there have been three securities class-action settlements in which a single company has agreed to pay investors $2 billion or more -- a phenomenon unseen until now. Citigroup alone is responsible for two of those, including a $2.6 billion deal in a case brought on behalf of WorldCom investors.
The $10 billion pool covers investments from the late 1990s and on, when companies such as WorldCom (now MCI (Research)), Enron, Qwest Communications (Research), and McKesson were allegedly breaking laws and harming investors as a result.
"We've never seen the sums of money that are going into this pool before," said Bruce Carton, the vice president of the Securities Class-Action Services subsidiary operated by ISS. "And it's not like we're seeing twice as many cases or twice as many settlements. Those numbers are staying pretty constant."
The record for the single largest securities settlement is Cendant, which agreed to pay disgruntled investors close to $2.9 billion in 2000. Citigroup's $2.6 billion WorldCom settlement ranks second.
Explaining the recent spate of big payouts, Carton said the cases were "high-profile, ugly cases that the general public is aware of. The settlements in these cases where the damages were enormous are themselves going to be enormous."
Nell Minow, a shareholder activist and co-founder of The Corporate Library, points to the controversial 1995 securities reform law which, instead of protecting companies from shareholder lawsuits, actually gave investors more leverage to pursue companies for alleged wrongdoing.
The Private Securities Reform Act of 1995, passed over President Clinton's veto, "has made a huge difference," said Minow.
A long road ahead
Still, both Carton and Minow say the settlement dollars pale in comparison to the losses that investors suffered.
And while the money piles up, experts say it's going to be a long time before investors who were hurt are compensated.
Take, for instance, the Citigroup settlement announced Friday in the Enron case. The deal still needs the approval from the boards of both Citigroup and the University of California, the lead investor, as well as from the Texas federal judge overseeing the case.
Once those parties sign off, a lengthy process begins of identifying eligible investors who owned Enron stock between 1997 and 2001, a period that is longer than usual in these cases. Then investors have to be notified, individually or through their mutual or pension fund, after which they have three to six months to file claims.
It can take another 18 months after the deadline has passed for checks to be cut and mailed. "We may be two years away from people getting money from this settlement," said Carton.
There have been four other settlements in the Enron shareholder litigation, totaling about $490 million. The first of those, a $40 million deal in 2003 with Andersen Worldwide, is still in the claims process, according to Carton.
William Lerach, lead lawyer for Enron shareholders and perhaps the country's best-known lawyer in securities class-action cases, estimated that some 50,000 Enron institutional and individual investors would be eligible to recover money.
It's difficult, if not impossible, to know how much the average return to investors will be until the number of claimants are known and other factors like attorneys fees are factored in. But conventional wisdom in the past has held that the lawsuits return pennies for every dollar investors lost.
"Yes, it's meaningful money," said Minow. "But it's still a fraction of what was lost."
About to grow more?
The $10 billion-plus settlement pool could get even bigger. For one thing, it does not include the hefty sums that federal and state officials have recovered on behalf of investors from the mutual fund and other regulatory scandals.
Factor in those government cases and the money due to investors tops $12 billion, according to Carton's estimates.
What's more, many more investor lawsuits remain, including cases against HealthSouth (Research) and Tyco International (Research), to name a few.
The Enron litigation, with nearly $2.5 billion in settlements as of Friday, is far from over. Many defendants remain, including Merrill Lynch, J.P. Morgan Chase, Credit Suisse First Boston, and ex-Enron executives like Kenneth Lay, Jeffrey Skilling and Andrew Fastow.
For the latest on Tyco and other corporate scandals, click here.
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