Questions and Answers Regarding the Distribution Funds in the Analysts Cases
As explained more fully below, the settlement provides that the Commission will recommend to the Court, and the Court will appoint, a Distribution Fund Administrator. This individual will prepare distribution plans that contain the complete and final terms for distribution of funds to investors. Those plans will be subject to the approval of the Court. Until the distribution plans are developed and approved, the Commission thought it would be helpful to provide investors with preliminary information concerning the Distribution Funds.
Q: What are the Distribution Funds?
A: The Distribution Funds are the repositories for the payments to be made by the investment firms to the Federal Court hearing the cases brought by the SEC. The creation and administration of these Funds are subject to the Court's approval.
Q: What is the purpose of the Distribution Funds?
A: To provide for the equitable, cost-effective distribution of funds to those who are determined to be eligible to receive them. The settlements are intended to ensure that there will be an equitable but not necessarily equal distribution of funds and that those who are allocated funds receive meaningful payments.
Q: How many Distribution Funds are there?
A: All told, there will be 10 Distribution Funds, one for each of the 9 settling firms other than Merrill Lynch, and one for Henry Blodget, who used to work for Merrill Lynch. Merrill Lynch will not have its own Distribution Fund because it previously paid $100 million in penalties to the states. The money that Jack Grubman pays to the Court will be put into the Distribution Fund for Citigroup Global Markets Inc., formerly known as Salomon Smith Barney Inc., for which Grubman used to work.
Q: How much money is in the Distribution Funds?
A: All told, the Distribution Funds will start with $399 million, and they will be in interest-bearing accounts. The specific breakdown is as follows:
Q: Will all of this money be available to investors?
A: Yes. The only amounts from the Distribution Funds that will not be paid to investors are income taxes on the interest earned by the Distribution Funds and an additional amount, also payable from the interest earned by the Distribution Funds, to be paid to the Court. Both of these payments are required by law.
Q: Who will administer the Distribution Funds?
A: As soon as is practicable, the SEC will recommend to the Court and the Court will appoint a Distribution Fund Administrator. The name of that person has not yet been determined.
Q: Will there be 10 different Distribution Fund Administrators?
A: The settlement agreements contemplate, subject to the Court's approval, the appointment of a single Distribution Fund Administrator for the Distribution Funds of all nine settling firms. This is for reasons of efficiency and economy. The method of administration of the Blodget fund has not yet been determined.
Q: Who will pay the Distribution Fund Administrator?
A: The firms will pay all of the Distribution Fund Administrator's fees, costs, and expenses, including all the fees, costs, and expenses of people the Distribution Fund Administrator hires to assist him or her. Investors will not have to bear any of this expense.
Q: How is it going to be decided who will receive money from the Distribution Funds?
A: The Distribution Fund Administrator will devise Distribution Fund Plans and Distribution Fund Reports. There will be a separate Plan and Report for each of the 10 Distribution Funds. These Plans and Reports will identify those who are to receive payments from the Distribution Funds, the amount that each person will receive, and the procedures for distributing funds to the recipients. The Distribution Fund Administrator will initially submit his or her Distribution Fund Plans and Reports to the SEC staff and then to the Court. The Court must approve all of the Distribution Fund Plans and Reports.
Q: I think I may be entitled to receive money from the Distribution Funds. How do I make this known to the Distribution Fund Administrator?
A: There is nothing you need to do at this time. Under the terms of the settlements, the firms are obligated to provide the Distribution Fund Administrator with all the documents and information necessary to enable the Distribution Fund Administrator to identify those who may be eligible to receive a payment from the Distribution Funds.
Q: How will the Distribution Fund Administrator know how to get in touch with me?
A: There is nothing you need to do at this time. Under the terms of the settlements, the firms must take all actions the Distribution Fund Administrator may require including providing notices to their present or former customers to ensure proper implementation of the Distribution Fund Plans.
Q: What criteria will the Distribution Fund Administrator and the Court apply in determining who should receive a payment from the Distribution Funds?
A: There are certain minimum requirements that a person must meet before (s)he may receive money from the Distribution Funds. They are:
Q: If I meet all of the requirements described in the bullet points above, will I receive money from the Distribution Funds?
A: Not necessarily. The Distribution Fund Administrator must come up with Distribution Fund Plans that attempt to ensure an equitable (but not necessarily equal) distribution of funds and the receipt of meaningful payments by those who are allocated funds. In doing so, the Distribution Fund Administrator may consider the nature of the firm's conduct with respect to the stocks in question, whether the investor was a retail or institutional customer (most individuals are considered "retail" customers), and how soon the investor bought stock in the company after the publication of the research in question regarding that company (the purchase must have been made after the publication or receipt of such research and, in general, the shorter the time period, the more likely the Distribution Fund Administrator will conclude that the investor suffered a loss as a result of conduct alleged in the SEC's complaint). In attempting an equitable and meaningful distribution of funds, the Distribution Fund Administrator may not necessarily allocate funds to every purchaser of securities referenced in the SEC's complaints. Moreover, the Plans may not necessarily cover securities of each of the companies referenced in the complaints. And, for each of the Distribution Funds, purchasers of the stock of one or some referenced companies may receive all or a greater proportion of the Fund than purchasers of stock of another or other referenced companies.
Q: What if I bought the stock of one of the companies identified in one of the SEC's complaints, but not through the firm in whose complaint the company's name is referenced?
A: In that case, you will not be eligible to receive a payment from the Distribution Fund for that transaction.
Q: How long will the process take?
A: The process is as follows:
Q: Can I pursue other remedies I may have against my brokerage firm(s)?
A: Yes. The settlement papers expressly provide that investors who are eligible to receive payments from the Distribution Funds are not precluded from pursuing, to the extent otherwise available, any other remedy or recourse they may have. However, to take advantage of the legal rights that you may have to pursue any other remedy, you must take legal action promptly or you may lose the right to seek a remedy or recover funds. Time restrictions, called "statutes of limitations," will apply and can vary in length depending upon the claim involved and the forum (court or arbitration) in which you pursue your claim. For example, federal securities laws generally require that you bring a court action within two years of the date that you should have reasonably discovered the wrongdoing, but in no case later than five years from the date the wrongdoing actually occurred. To learn more, please read our information on arbitration. And if you need help in finding a lawyer who specializes in securities complaints, read our information on how to find a lawyer specializing in securities arbitration.
Q: How can I get a copy of the SEC documents that were filed in Court?
A: The SEC's complaint and proposed Final Judgment against each firm, Grubman and Blodget, as well as each firm's, Grubman's and Blodget's Consent to the entry of the Final Judgment, are available on the SEC's website at www.sec.gov. Click on "Global Settlement Joint Press Release" on the left side of the page, then click on the link for the firm(s) in which you are interested, then at the bottom of the page click on the link for the document(s) in which you are interested. (The papers regarding Grubman are included in the Citigroup Global Markets set of documents, and the papers regarding Blodget are included in the Merrill Lynch set of documents.)