The University of California yesterday (July 7) obtained final approval of the $474 million settlement in the Dynegy Inc. securities fraud class action suit from U.S. District Judge Sim Lake of the Southern District of Texas. UC served as lead plaintiff in the lawsuit.

In approving the settlement, Judge Lake found that its terms were "fair and reasonable," and commended the university for the "outstanding" job it performed as lead plaintiff for the class. He also complimented the work of the plaintiff's lead counsel, the firm of Lerach, Coughlin, Stoia, Geller, Rudman & Robbins.

"We are very pleased with the positive reaction of the class to the settlement, and are gratified that the court has approved it," said James E. Holst, the university's general counsel. "We look forward to the prompt distribution of the settlement proceeds to class members."

The parties announced the settlement, which was subject to final court approval, in April. Class members were notified of the settlement and entitled to submit objections to the court prior to yesterday's hearing. Although more than 80,000 notices were sent out to class member, not a single objection was filed.

The settlement includes a payment of $400 million in cash from Dynegy and its insurers as well as $68 million in Dynegy stock. Also, Citigroup Inc. agreed to pay $5 million in cash, and Dynegy's former auditor, Arthur Andersen LLP, paid $1.05 million.

The $474 million settlement amount is believed to be the eighth-largest securities fraud settlement since the passage of the Private Securities Litigation Reform Act in 1995.

Another provision of the settlement agreement provides that Dynegy will appoint to its board of directors two members who will be nominated by the class.

Judge Lake also approved an allocation formula under which the settlement proceeds will be distributed to members of the class. Class members received claim forms along with notice of the settlement. Those forms are due on Oct. 7, 2005. After receipt and review of the claim forms, settlement proceeds will be distributed to class members under the terms of the court-approved allocation formula.

The lawsuit claimed fraudulent conduct by Dynegy and its certain former executives under Section 10(b) of the 1934 Securities Act. The company and its directors also faced liability for a public stock offering under Section 11 of the 1933 Securities Act.

Dynegy investors suffered losses when the company's stock price crashed after it was disclosed that Dynegy engaged in a questionable set of transactions that allowed it to misrepresent its financial results. The transactions were known as Project Alpha, through which Dynegy mischaracterized the proceeds of borrowing as operational revenues and manipulated its reported tax liability. Several former Dynegy employees have pled guilty to or been convicted of criminal fraud in connection with the transaction.

The University of California was named lead plaintiff in October 2002. It purchased 4.16 million shares of Dynegy stock between Nov. 2, 2000, and May 7, 2002.

The current value of UC's diversified portfolio, which includes both pension and endowment funds, stands at approximately $62 billion.

Settlement announcement:

www.universityofcalifornia.edu/news/2005/apr15.html

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