What would I do with $400 million?
Duke law professor Francis McGovern is currently in the lucky position to be asking himself this exact question.
McGovern, a national expert in mass settlements, was selected early last month by the Securities and Exchange Commission to dole out $400 million to aggrieved investor, who complained of being misinformed by excessively bullish market analysts.
In order to create and direct a plan to allocate the funds, U.S. District Judge William Pauly confirmed McGovern as Distribution Fund Administrator. The $400 million are part of a larger $1.4 billion settlement between the federal government, nine Wall Street firms and two former research analysts, who were accused of biasing their research to increase investment.
McGovern hopes to present the court with the proposed distribution plan in six months and the funds will be distributed to the investors nine months after the court approves his allocation model. Despite this tight time frame, he will continue teaching full-time at the law school.
Because the process is currently active, McGovern could not comment.
The settlement covers investors who bought certain stocks between the late-1990s market highs and the lows of the dot-com crash, and an extremely large number of investors were affected by the tainted research. Several issues arise due to the large amount of investors who claim to have been aggrieved by the Wall Street firms.
Professor of Corporate and Securities Law James Cox said distributing the funds from this case could be difficult.
"[McGovern] has to set up a machinery and apparatus for dealing with literally thousands of claims in doling out this money," he said. "This is obviously not going to be an easy task."
Cox also highlighted another problem: proving the validity of individual investors' claims.
"The issue is that when the individual customers of Merrill Lynch come before Francis McGovern's tribunal," Cox said, "how do they prove that the investor suffered a economic loss as a result of the firms compromising the analysts' independence, or as a result of laddering, or another abusive behavior?"
Despite the intricacies of the fund distribution, Cox is confident McGovern is highly qualified to handle this case.
McGovern has a long and prestigious history working with mass settlement cases, which was the main reason for his appointed to the case. He has been a special master in 40 cases involving over 30 federal and state judges. He was involved in many recent prominent U.S. mass claim litigations, featuring the Dalkon-Shield case, silicon gel breast implant litigation, DDT toxic exposure cases and the asbestos-related bankruptcies of W.R. Grace and Co., Owens Corning and USG Corp.
"Being in that many cases and appointed by that many judges, I think indicates the level of experience that I have in these sorts of cases," McGovern said of his qualifications.
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