$7.4M Merrill Lynch settlement OK’d

A federal judge approved on Friday the $7.4 million that the NMI Retirement Fund’s former investment consultant, Merrill Lynch, has agreed to pay the Fund. Although it admits no wrongdoing, Merrill Lynch’s payment stems from a lawsuit filed against it for the drastic drop in the value of the Fund’s investment portfolio.

During Friday’s hearing, U.S. District Court for the NMI designated Judge Frances M. Tydingco-Gatewood said she carefully reviewed and considered CNMI Settlement Fund trustee Joyce C. H. Tang’s motion to approve the agreement and the proposed settlement reached in the Financial Industry Regulatory Authority arbitration.

Tydingco-Gatewood said she had reviewed the factors that have been argued by Settlement Fund counsel Dean Manglona regarding the probability of the claim, the delay and expense of litigation to be incurred and the amount of the settlement.

The judge deemed the settlement to be adequate and reasonable, and that she would approve the settlement.

Tydingco-Gatewood said the terms of the deal and the settlement amount of $7.35 million are fair, reasonable, and adequate, and in the best interests of all the class members in the Betty Johnson lawsuit.

She also found Tang’s request for payment of $1.84 million in attorney’s fees and reimbursement of $390,535.60 in costs is reasonable.

Minus the attorney’s fees and reimbursement of costs, this leaves $5.12 million in net proceeds that will go to the Settlement Fund.

Tydingco-Gatewood held the hearing via video teleconference from Guam because of a passing typhoon that prevented her from coming to Saipan.

At the hearing, Manglona, who argued via video teleconference in Guam, provided a brief background of the FINRA action settlement agreement and argued in support of Tang’s motion.

Tang also gave a brief background of the FINRA action settlement deal.

Attorney General Edward Manibusan, counsel for Gov. Eloy S. Inos and the CNMI government, did not object to the $7.4 million settlement.

In an interview after the hearing, attorney Michael Dotts said that Merrill Lynch is required to pay the $7.4 million within 30 days after the court’s approval.

Dotts is counsel for Mariano Taitano, Roman Tudela, and Patricia Guerrero in the original lawsuit against Merrill Lynch.

Dotts said the judge and Tang acknowledged that if not for the lawsuit filed by Taitano, Tudela, and Guerrero, they would not be in court and there would be no $7.4 million for the Settlement Fund.

Despite entering into a settlement agreement, Merrill Lynch is not admitting to anything, Dotts said.

When asked how much his clients were actually asking for damages in the lawsuit, Dotts said their case was “a moving target” and they saw at that time a possibility of $430 million in damages.

Dotts said in was believed in 2009 that the NMI Retirement Fund would be closed by 2011. If it was a total meltdown of the Retirement Fund, the damages would be $430 million, and $100 million if was a partial destruction, he said.

Dotts said both scenarios—total destruction or partial meltdown—did not happen.

He said his clients feel vindicated because too many people then were telling them that filing the lawsuit would just hurt the Fund as they have no case.

“The bottom line is we got $5.2 million for the retirees,” Dotts pointed out.

Merrill Lynch was the Retirement Fund’s consultant until 2010. During the time of the consultancy relationship, the value of the Fund’s assets reportedly declined substantially.

Taitano, Tudela, and Guerrero sued the Fund’s board, Merrill Lynch, and others in Superior Court, alleging various causes of action for damage relating to the decline in the Fund’s assets.

The case was submitted to arbitration before FINRA.

Taitano, Tudela, and Guerrero subsequently transferred their claims against Merrill Lynch to the Settlement Fund.

The parties in the claims against Merrill Lynch reached a settlement deal during a final attempt to mediate in Miami, Florida last July 31.

In the FINRA action, the Settlement Fund retained the Florida-based Levin law firm as lead counsel, while the O’Connor law firm on Saipan was the referral counsel. Dotts is a member of the O’Connor law firm. The Clay law firm in Hawaii was the associate counsel.

Of the $1.8 million in attorney’s fees, the Levin law firm will get $1,340,625; the O’Connor law firm will receive $357,500; and the Clay law firm will get $89,375.

The Levin law firm agreed to reimburse Betty Johnson’s counsel Bronster Hoshibata with $50,000 for legal services and expenses incurred in the arbitration.

Of the $390,535.60 in total costs, the Levin law firm will get $338,616.93; the O’Connor law firm will receive $30,897.24; and the Clay law firm will get $21,021.43.