The Southern District of New York has approved a $90 million cash settlement that confirms the distinctive role of class actions in compensating victims of the recent financial crisis. See Rubin v. MF Global, No. 1:08-cv-02233 (S.D.N.Y. Nov. 18, 2011) (final order and judgment) (available here). The settlement resolves claims against defendants, including MF Global, in connection with the company’s initial public offering. The plaintiffs alleged that defendants erroneously assured investors that MF Global’s system of risk controls would be capable of monitoring risk on a continuous, “real time” basis. See First Amended Class Action Complaint at ¶ 77, Rubin v. MF Global, No. 1:08-cv-02233 (S.D.N.Y. Nov. 5, 2010). In fact, MF Global had deactivated trading and margin controls on brokers’ computers to speed up transaction times. Id. at ¶¶ 14, 93. When a single trader subsequently lost $141 million speculating in wheat futures in overnight trading, MF Global was forced to absorb those losses, sending MF Global’s stock into a tailspin. Id. at ¶¶ 13-17. As a result, the company lost $1.1 billion in market capitalization over a two-day period. Id. at ¶¶ 114-115.
Owing to the unusually large settlement fund of $90 million, class counsel was awarded 18 percent of the settlement fund in fees, rather than the usual 33 percent. See Rubin v. MF Global, No. 1:08-cv-02233 (S.D.N.Y. Nov. 18, 2011) (order granting plaintiffs’ counsel’s petition for an award of attorneys’ fees). The settlement follows on the heels of MF Global’s October 31 bankruptcy filing, which was directly tied to an additional scandal in which MF Global failed to segregate its own funds from customer funds as required by the rules of the Chicago Mercantile Exchange and was unable to satisfy customer redemptions.