The original Complaint alleges that Merrill Lynch Pierce Fenner & Smith, Incorporated ("Merrill Lynch", an American multinational investment management and financial services company) and Phua Young engaged in a scheme to defraud Tyco investors in violation of SEC Rule 10b-5. According to the Complaint, filed in Manhattan federal court (03cv4080)(Sweet, J.), Young issued numerous misleading research reports on Tyco while supposedly working as an "independent" Merrill Lynch managing director. Young voiced opinions in his research reports on Tyco that were flatly contradicted in his own private emails, where he expressed his true outlook on Tyco. For example, Young's emails, which turned up in the NASD's investigation of him, show that he didn't believe his own publicly issued research reports concluding that Tyco's subsidiary, CIT Group, could be sold for as high as $7-8 billion. Young privately expressed his true view that CIT would fetch much less, if a buyer could be found at all. In other emails, Young made it plain that Tyco "effectively bought and paid for" him as the Complaint alleges (paragraph 3), when he candidly described himself in a private email as "LOYAL TYCO EMPLOYEE." Young routinely sent his draft Tyco research reports to Tyco's Investor Relations Department for review, comment and editing. And with respect to one of his reports, Young asked Tyco: "did I not sound pumped up enough?" Young is also accused of passing insider tips to his institutional clients in advance of at least one Tyco deal involving Siemens and accepting unlawful gifts from Tyco.
Plaintiffs filed a Consolidated Amended Complaint on September 25, 2003.
In a press release dated February 19, 2004, Judge Milton Pollack of United States District Court in New York threw out the suit. The investors "failed to assert any causal relationship between the 'fraud' alleged and the decline in the trading price of Tyco's securities,'' Judge Pollack said in a ruling. The ruling ends the litigation in the trial court. Lawyers for the investors can appeal to the United States Court of Appeals for the Second Circuit in New York.
On March 10, 2004, the Plaintiffs appealed the dismissal of the action. The Plaintiffs amended their appeal on March 16, 2004. The appeal was then pending in the United States Court of Appeals for the Second Circuit.
By the Notice of Pendency dated August 7, 2007, lead Plaintiffs appealed the dismissal. The appeal was fully briefed and awaiting calendaring of oral argument at the time lead Plaintiffs and Defendants reached an agreement in principle to settle the Action. On June 19, 2007, the Parties presented to the District Court a proposed Stipulation of Settlement between lead Plaintiffs and Defendants. The action was preliminarily certified as a class action and a settlement for $4,900,000 in cash was proposed. A hearing was scheduled before the Honorable John F. Keenan, United States District Court, Southern District of New York for January 9, 2008 (the “Settlement Fairness Hearing”), to determine whether the proposed settlement of this class action should be approved by the Court as fair, reasonable, and adequate, and to consider the application of Plaintiffs’ Counsel for attorneys’ fees and reimbursement of expenses.
According to the Opinion and Order signed by U.S. District Court Judge John F. Keenan, dated April 16, 2008, for the foregoing reasons, the Court grants certification to the settlement classes and approves the Settlement and Plan of Allocation as fair and reasonable. Plaintiffs' remaining claims are dismissed with prejudice. Counsel are awarded attorneys' fees in the amount of 22.5% of the Settlement Fund and reimbursement of costs and expenses in the amount of $38,139.88.
