Class Action Gone Bad? - You Be The Judge
Class Action law suits have been around for quite some time. In theory, a class action enables justice to be served where there are many people are involved. Class actions can be brought at the state level, or at the federal level. This 6 part story is about class action lawsuits, and specifically about a class action suit that was brought about during the proposed merger of Sirius and XM. This series does not accuse any party of doing anything beyond the scope of law, but does delve into a side of class action suits that many may find distasteful. In many, if not most ways, this series deals with conjecture, theory, and circumstantial evidence. I am not laying down an accusation, or alleging any specific illegal activity, but am painting a broad brushed picture that could have readers doing a bit of their own version of “connect-the-dots”.
When most people think of class action lawsuits, they picture a company that produced a product that caused “harm” to many people. A “harmed” person gains representation of an attorney, and file suit. If it is determined that the “harm” is widespread, a class of “harmed” parties can be formed, and the suit becomes a Class Action. Such cases are litigated, a settlement or judgment is made, and the case is resolved. “Harm” was caused, a solution was decided upon, and the class all participate in the fruits of the decision.
In theory, this all seems workable, but all too often, the only real winners are the attorneys. Many, if not most settlements often boil down to credits on future purchases, vouchers, or coupons. Where cash is involved, the settlements are typically quite small. Regardless, to participate in the settlement, there are often several hoops to jump through that can make participation cumbersome. The class gets a small benefit from the suit, and the attorneys often get millions. While the system may indeed have flaws, the theory behind it is sound. A group of similarly affected parties joins in one suit.
As with anything, people sometimes find a way to use the system to their own advantage. Class action attorneys often seek out suits, and even go so far as to find plaintiffs to bring about the action. What would it mean to a law firm if a class action suit could be brought out of virtually thin air? It would mean billable hours, fees, and a constant slate of work for the firm to keep the cash flow rolling. It is sad to say that all too often it is less expensive for the defendant to settle a case than to fight in court. A law firm that can find that sweet spot, of cases that will garner a settlement, and is willing to exploit it can get settlements and go for years without getting to the point where a judge makes the decision.
With publicly traded companies, there is a huge potential for what could well be termed an abuse of the class action lawsuit. For example, an airline company has a large percentage of their fleet go down for repairs all at the same time causing a huge loss of revenue. A plaintiff (someone who holds shares of stock) could argue that management breached their responsibility by not doing regular maintenance on the fleet. OR…Let’s say a company decides to make a business move such as a merger, and a plaintiff (again, a shareholder) challenges that the Board of Directors breached their fiduciary responsibility somehow in the process. A class action suit could be brought.
A breach of fiduciary responsibly. How is this proven? How is it argued? Where are the facts? Many of the arguments in such a case are subjective and boil down to conjecture. Herein is a problem that allows a class action law firm to virtually pull a suit out of thin air. The arguments are subjective and opinionated. There is little factual information for either side to go on, and more often than not, a judge would rather err in caution by letting a suit proceed than to dismiss it out of hand. At least if it is allowed to proceed, the “harm”, if it exists at all, can have remedy. Thus, a class action suit is born. In many cases such as this, the suit is brought by an investor who then seeks class action status on behalf of all investors. The problem is that the company, and by extension the shareholders, tend to foot the bill for the suit, and thus harm their own bottom line or investment. In theory, the lead plaintiff in a case participates equally in the settlement with the other members of the class.
Now, knowing that the settlements are often quite small, there would seem to be a natural hurdle that would dictate whether something is egregious enough to bring a suit in the first place. If the reward of the suit is only nominal in nature, a person becomes less likely to go through the trouble of filing a suit. This creates a natural hurdle.
Here is where things get interesting. What if a person were to become a “professional plaintiff”? What if a person were to work regularly with class action law firms bring suit after suit, and then getting “consulting fees” through a third part law firm? What if filing class action lawsuits was a profitable activity?
The concept is actually pretty simple. Buy a small stake in several publicly traded companies, and wait for something to happen. A bad quarter, a merger or a buyout are all activities that can happen that can allow the allegation of poor decision making by management. The key ingredient is that the facts can not be readily determined on one side or another. The case centers on the idea that the company can not prove one way or the other that their actions were indeed responsible. This creates a lot of dialogue, requests for documents which must be reviewed, filings, delays, and by extension, a lot of billable hours for the law firm filing the suit.
If the plaintiff prevails, these billable hours and fees will most often be paid by the defendant as part of the settlement. More often than not, it becomes less expensive for a defendant to simply settle the case and admit no wrong doing than to fight the case, causing delays and fees that may become overly burdensome. Not a bad gig for the class action law firm involved or the “professional plaintiff”.
As if that was not enough, consider this. Often when a suit is settled, the terms of the settlement offer indemnification to the company on the issue that brought the original suit. In effect, it strips away the ability for such a suit to be brought again in the future, and in essence protects the company from being sued again for the same issue. For the company being sued, this can sometimes represent a silver lining in an otherwise frustrating situation.
If the settlement gives shareholders virtually nothing, gives the law firm a ton of billable hours and fees, and give the company some indemnification, what are you as a shareholder left with? A voucher, coupon, or small cash reward that you have to jump through hoops for, and the loss of all of your rights should there have been a real issue that was somehow not brought out in the original case.
Frustrated yet? The rest of this series boils down many possibilities that will have you the shareholder thinking twice about investing in the markets, as well as how class action lawsuits work. This issue is not specific to only to Sirius. Class action suits happen all of the time. Where you the investor may want to be real concerned is that the same players, law firms and plaintiffs, tend to turn up again and again. If a company you are invested in becomes the target of a class action firm or a plaintiff that seems to have a habit of entering into such litigious actions what are you as a shareholder to do?
In the proposed merger between Sirius Satellite Radio and XM Satellite Radio, a class action lawsuit arose. The class action suit alleged a breach of fiduciary responsibility, among other things, on the part of the management and Board of Directors of Sirius Satellite Radio. The suit was brought forward by Greg Brockwell and Terry Johnson. This series will center on first Greg Brockwell, who became Lead Plaintiff in the case.
Mr. Brockwell is an interesting person to say the least. He seems to have had shares in many companies, and also often seems to express “concern” in the court system, via class action suits, over the actions of those companies. Is Mr. Brockwell a profession plaintiff? I have no direct evidence to say that he is. For all I know, he simply has an uncanny ability to be invested into companies that he ultimately becomes “concerned” about and decides to sue. Stop back to Sirius Buzz for segment 2 of this story detailing the “Beginnings Of The Suit.”
Class Action Gone Bad? - The Beginnings Of The Suit
On February 19, 2007 it was announced that Sirius Satellite Radio and XM satellite Radio intended to merge. On March 14, 2007 Greg Brockwell, described in legal filings as a long time shareholder of Sirius, filed suit alleging in part that there was not enough information provided by the company for shareholders to make a fully informed decision as to whether or not to vote to approve the merger. The merger requires shareholder approval, and ultimately, information would be given to shareholders in the form of a proxy. It is this proxy, in part, that shareholders would base their merger vote upon.
The Timeline:
Sirius filed an 8K on February 20, 2007 detailing the February 19th press release that announced the proposed merger. This included information about a conference call to be held on February 20. 2007.
On February 21, 2007, Sirius filed an 8K with the SEC outlining that they were entering into a material agreement with XM satellite Radio.
On February 27, 2007, Sirius announced the operations results from their fourth quarter 2006 operating results. This filing and call was not merger specific, but some merger related information was discussed.
On March 1, 2007 Sirius filed their 10K with the SEC outlining their operational results for the year 2006. Again, this was not merger specific, but there was some merger related information discussed.
On March 13, 2007 Sirius filed an 8K with the SEC outlining that they had filed a Notification and Report Form pursuant to the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, with respect to the transactions contemplated by the Agreement and Plan of Merger, dated as of February 19, 2007, between Sirius and XM Satellite Radio Holdings Inc. The filing is effective as of March 13, 2007. In this filing Sirius in bold print stated the following:
“INVESTORS AND SECURITY HOLDERS OF SIRIUS AND XM ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.”
On March 14, 2007 Greg Brockwell filed suit and made his allegations against Sirius Satellite Radio. Mr. Brockwell, as a “concerned shareholder” decided, at this point in time, PRIOR TO THE PROXY STATEMENT BEING ISSUED, that he already had enough information to bring forth his suit.
Mr. Brockwell brought his suit in State Court instead of Federal Court. Some may wonder why this matters. Well, Federal laws frown upon plaintiffs that seem to have a habit of bringing forth class action law suits. In point of fact, repeat plaintiffs are often barred from bringing forth any future litigation in federal court over a specified period of time. Having had 13 such suits where Mr. Brockwell is named as a plaintiff (I have been able to verify 13 cases); it is likely that this suit would never have made it to the first step in Federal Court given that Mr. Brockwell already has several class action suits to his credit.
One would imagine that Mr. Brockwell must have a pretty large stake in the company to be so “concerned” to have obtained council and brought a suit only three weeks into the merger process, without having even seen the proxy statement which would not be published until April 23, 2007 (5 weeks later). I have learned on good authority (as this process has continued) that Mr. Brockwell’s stake was/is 1,000 shares. Now, to be fair, even one share gives you rights as a shareholder, but consider that at most the 1,000 share investment of Mr. Brockwell cost him under $10,000 (unless he bought before the recapitalization) and likely could well have been under $5,000.
Does it strike you the reader as odd that such a small stake in a company would generate such grave “concern”? Does it strike the reader as odd that a 1,000 share investment is enough to gain lead plaintiff status? To be fair, perhaps $5,000 is a lot of money to Mr. Brockwell. After all, when you live in a $1,300,000 home, you likely have a sizable mortgage. Stop back to Sirius Buzz for more with our third segment of this series, The Plaintiff, Mr. Greg Brockwell. 
Class Action Gone Bad? The Plaintiff Mr. Brockwell
So far we have a shareholder, Greg Brockwell that is “concerned” about the proposed merger of Sirius and XM. So grave was his concern that in a 24 day period, he conducted his analysis of the recorded documents surrounding the merger, sought out legal council, shared his opinions and conferred with this council, and decided to file suit.
Being from Massachusetts, one would think that Boston would have many attorneys for Mr. Brockwell to discuss such concerns with. A shareholder with 1,000 shares in his account that is gravely “concerned” may even open up the local phone book to locate an attorney that specializes in class action suits. Somehow though, Greg Brockwell found himself speaking to an attorney across the country in San Diego, California. Jeffery P. Fink of Robbins, Umeda, and Fink LLP would somehow become the attorney for Greg Brockwell.
Now, there is likely a good reason that Mr. Brockwell obtained the council he did. He has experience in class action suits. Let me clarify….Mr. Brockwell as well as the firm he hired BOTH have experience in class action suits.
To be clear, it is quite possible that Mr. Brockwell indeed had concerns. There were investors in both equities that felt that the company they were invested in (be it Sirius or XM) should have gotten a better deal. BUT, given Mr. Brockwell’ penchant for litigious action, one may have some pause as to the motives of Mr. Brockwell.
Why sue now? If Brockwell has been a “long time shareholder”, could he not have expressed “concerns” over the cost of the Howard Stern deal? The Stern bonuses? Could he not have expressed concerns over management professing to be fully funded in the years prior to Mel Karmazin, and then diluting shares quite a few times? How is it that the move that generates the biggest news in SDARS and offers the potential synergies that this merger does suddenly generate “concern”? There are many questions, so it may be best to better understand the parties involved.
So who is Greg Brockwell?
Greg Brockwell is a married man with kids and resides in the upscale community of Duxbury Massachusetts, about a thirty minute drive to Boston. His home is in a cul-de-sac, and has an assessed value of $1,300,000. He and his family live comfortably in a modern 10 room colonial with 5 bedrooms, and 4.5 bathrooms constructed in 1997. The living area is 4,036 square feet, and they have finished 1,568 out of the 1,968 square foot basement. The home boasts a three car garage and sits on a quiet 1.3 acres of land. Driving through the neighborhood, I noted clean and attractive houses in the cul-de-sac, and also noted that the home is in a desirable location being only a few miles from Route 3, the highway into Boston. The family drives nice upscale vehicles, and seems to be living the life of the upper class tax brackets.
I give these details, because they illustrate the lifestyle of Mr. Brockwell. This information is important because it contrasts so deeply with a “concerned” shareholder with 1,000 shares of Sirius Satellite Radio. Something simply strikes me as odd here.
Now, I have no idea what Mr. Brockwell does for a living to obtain the lifestyle he does. I do know that he is active in class action lawsuit arena, with involvement in suits with various companies and law firms, and that some of the players in this arena have principal partners serving federal prison time for felonies (Milberg Weiss – The Milberg Weiss case is still being tried but some players have already plead guilty). The suits that Mr. Brockwell can be tied to include:
Brockwell vs. Sirius
Brockwell vs. Yahoo
Brockell vs. JDS Uniphase
Brockwell vs. Guidant
And others.
All of these suits were brought on in part by Mr. Greg Brockwell. Why? In theory, he can not participate in the reward to any degree higher than the rest of the class. Why does someone with an upper class lifestyle buy a small stake in a company and then file suit? Why does someone who seems to have had numerous bad experiences investing in the marlket continue to invest in it? Does Mr. Brockwell simply have an uncanny ability to do this?
Why would someone with a primary residence worth over $1,300,000 go through such trouble over an investment that was likely less than $5,000? How much was he realistically expecting Sirius stock to go to? Even at $20 the stock would only have a value of $20,000. Does Greg Brockwell have the interests of the class in mind? Readers will have to come to their own conclusion. I simply have trouble making the level of Brockwell’s “concern”, the size of his investment, Mr. Brockwell’s lifestyle, and the agreed upon settlement fit together. There seems to be a missing piece here. I do not know what it is, but I can tell you that given the history of the players involved that it makes me uncomfortable.
Now, given the history of Mr. Brockwell to file class action lawsuits, I myself have real questions as to whether or not he was indeed acting in the interest of Sirius shareholders. After all, shareholders who had concern about the share exchange ratio could have simply vote against the merger. Realistically though, the shareholder approval of the merger was essentially a foregone conclusion, and most who follow the sector (In theory this would include Brockewell) were well aware of this. Both Sirius and XM were still losing money, and the merger offers a potential that SDARS could reach viable profits sooner rather than later. Shareholders and the street alike were seeking a merger.
Given the level of “concern” outlined by Mr. Brockwell, and the frustration that the merger did not bring maximum value, what was he asking for? A ratio of 4 Sirius shares for each XM share instead of the agreed upon 4.6? Surely he would demand something of true “value” as the lead plaintiff representing a class of ALL SHAREHOLDERS. The sad answer is no. He did not seek a new ratio. He instead sought additional disclosures regarding the merger, and did so even before the proxy about the merger was published. What are these disclosures? Readers can learn more about what was sought in segment 4 “The Settlement”.
Position - Long Sirius, Long XM
Class Action Gone Bad? The Proposed Settlement
After all of the “hard work”, expedited discovery, depositions, etc. the settlement must be huge, right? Well, to be frank, I do not consider this settlement to be worth the paper it is written on. The plaintiff was not seeking money, he was seeking additional information. In a cursory overview the fact that the plaintiff was not seeking money would seem to make his goals more noble. Seeking additional information to be supplied to shareholders so that they could have a fully informed vote on the merger seems reasonable and just. However, the thought that a case such as this had pure intentions would be much more believable if the parties involved did not demonstrate a history of litigious action.
The settlement boiled down to an 8K being filed with the SEC that provided about eight paragraphs of additional information for investors to consider prior to the shareholder vote. The information below is the proposed remedy for the “concern” that Mr. Brockwell had:
EXCERPTS FROM THE 8K SURROUNDING THE SETTLEMENT: Link To Additional Disclosures
Solely to avoid the costs, risks and uncertainties inherent in litigation and to allow stockholders to vote on the proposals required in connection with the merger at the scheduled meeting, Sirius and the other defendants have entered into a memorandum of understanding with plaintiffs’ counsel in the Brockwell and Johnson lawsuits (the “Memorandum of Understanding”) pursuant to which Sirius, the other named defendants and the plaintiffs have agreed to settle the lawsuits subject to court approval. If the court approves the settlement, the lawsuits will be dismissed with prejudice.
In the Memorandum of Understanding, Sirius agreed to provide certain additional information to stockholders through publicly available filings. Without admitting in any way that the disclosures below are material or otherwise required by law, Sirius makes the following supplemental disclosures:
Supplemental Disclosures Concerning Background of the Merger
On October 24, 2006, Mr. Karmazin briefed the Sirius board of directors on his discussions with XM regarding a possible business combination, summarizing his discussions with Messrs. Parsons and Panero over the past month. Among other things, Mr. Karmazin discussed with the Sirius board of directors regulatory issues involved with a merger, the likely market reaction, and the value creation and synergies that would arise from a business combination. The Sirius board of directors engaged in an extensive discussion of the potential cost savings, including savings in cost centers, research and development and general and other expenses. The board further discussed XM’s assets, its relationships with automakers, whether there were other potential bidders for XM, and XM’s capital structure. Following this discussion, the Sirius board authorized Mr. Karmazin to continue discussions with XM.
In connection with their due diligence reviews, Sirius and XM instituted procedures to ensure that competitive information that was not legally appropriate to disclose was not exchanged by the management of the companies. In certain cases, management of each company reviewed documents provided by the other company that did not include competitive information; and, in other instances, outside counsel to each company reviewed materials but was not permitted to share competitively sensitive information with their clients. Sirius and Sirius’ advisors reviewed, among other things, XM’s agreements with automakers (Toyota, Hyundai, Nissan, General Motors, Honda), sports leagues and conferences (MLB, NHL, ACC, Big East, Pac-10), retailers (Wal-Mart, Circuit City, Best Buy), news providers (CNN, Fox News), entertainment content providers (Oprah, Opie & Anthony, Starbucks, ABC/ESPN), technical service providers (Loral, Sea Launch) and radio manufacturers (Delphi).
Sirius’ advisors also conducted a due diligence review of XM’s litigation and regulatory matters, including but not limited to: (i) the purported stockholder class action captioned In re XM Satellite Radio Sec. Litig., Civ. Act. No. 06-00802 (ESH) (D.C.), which has since been dismissed with prejudice; (ii) an action by members of the recording industry captioned Atlantic Recording Corp., et al., v. XM Satellite Radio, Inc., No. 06-3733 (DAB) (GWG) (S.D.N.Y.); (iii) a purported consumer class action captioned Enderlin v. XM Satellite Radio Holdings, Inc., et al., (E. Dist. Ark.); (iv) proceedings before the Copyright Royalty Board; (v) an arbitration concerning satellite insurance matters; and (vi) various FCC, FTC and SEC inquiries. In connection with these matters, Sirius’ advisors reviewed pleadings and court filings, conducted research and received briefings from XM’s in-house and outside counsel.
Supplemental Disclosure Concerning Reasons for the Merger
Sirius believes that the merger will result in significant cost synergies. Wall Street equity analysts have published estimates of the present value of cost synergies ranging from $3 billion to $9 billion. Sirius expects operating cost savings to be achievable in almost every cost item on the companies’ income statement, including:
• sales and marketing (through, among other things, lower brand advertising expense, cost reductions in retail relationship management, sales training, retail placement monitoring, and ad sales);
• subscriber acquisition (through areas such as lower radio production costs driven by enhanced scale);
• research and development (including through the possible elimination of duplicative R&D efforts with the adoption of technological developments across platforms, and the elimination of overlapping R&D resources);
• general and administrative expenses (through the elimination of redundant staff);
• product development;
• content (through potential improvement in margins given broader audience reach and lower internal programming costs by elimination of certain channel overlap); and
• programming operating infrastructure (as a result of the potential to rationalize maintenance and administrative capital expenditures, and avoid the duplication of disaster recovery expenses).
Moreover, over the long-term, Sirius believes the combined company will derive significant additional value by procuring its future generation satellites and terrestrial repeaters as a single entity and by potentially reducing satellite, engineering and support requirements.
Supplemental Disclosure Concerning the Sirius Board of Directors’ Recommendation
The factors and risks considered by the Sirius board of directors in connection with its determination that the merger and entering into the merger agreement with XM are advisable and in the best interest of Sirius and its stockholders, and its approval thereof, also include the probability that other strategic alternatives would fail to provide Sirius’ stockholders with the same value, synergies and cost savings as would a business combination with XM.
Supplemental Disclosure Concerning Opinion of Financial Advisor to the Sirius Board of Directors
The table below lists premiums for the transactions reviewed in connection with this analysis:
Sirius paid Morgan Stanley $4,576,000 in connection with Morgan Stanley’s services rendered as the administrative and collateral agent under its $250 million senior secured term credit facility. In addition, in the five years preceding the execution of the merger agreement, Sirius paid Morgan Stanley an aggregate of approximately $28,000,000 in connection with the underwriting and placement of various issuances of convertible debt securities and debt securities.
Supplemental Disclosure Concerning Regulatory Approvals Required for the Merger
In response to a “Second Request” for information relating to the merger from the U.S. Department of Justice, Sirius has produced millions of pages of documents from the files of many of its executives. These documents include business planning documents, documents discussing competition in the audio entertainment industry, pricing documents, as well as documents covering numerous other categories. In response to the Second Request, Sirius has also produced data regarding its business operations, including information on revenues, sales, and prices which was requested by the Department of Justice. As part of its investigation and as is typical in Second Request investigations, the Department of Justice has taken deposition testimony and, Sirius understands, has requested information from some third parties, including from Sirius’ competitors in audio entertainment. On September 4, 2007, Sirius and XM each certified to the Department of Justice that they were in substantial compliance with the Second Request.
This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the benefits of the business combination involving Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc., including potential synergies and cost savings and the timing thereof, future financial and operating results, the combined company’s plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “will,” “should,” “may,” or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of Sirius’ and XM’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of Sirius and XM. Actual results may differ materially from the results anticipated in these forward-looking statements.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statement: general business and economic conditions; the performance of financial markets and interest rates; the ability to obtain governmental approvals of the transaction on a timely basis; the failure of Sirius and XM to obtain the required stockholder approvals; the failure to realize synergies and cost-savings from the transaction or delay in realization thereof; the businesses of Sirius and XM may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; and operating costs and business disruption following the merger, including adverse effects on employee retention and on our business relationships with third parties, including manufacturers of radios, retailers, automakers and programming providers. Additional factors that could cause Sirius’ and XM’s results to differ materially from those described in the forward-looking statements can be found in Sirius’ and XM’s Annual Reports on Form 10-K for the year ended December 31, 2006, and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007 which are filed with the Securities and Exchange Commission (the “SEC”) and available at the SEC’s Internet site (http://www.sec.gov). The information set forth herein speaks only as of the date hereof, and Sirius and XM disclaim any intention or obligation to update any forward looking statements as a result of developments occurring after the date of this communication.
Important Additional Information Has Been Filed with the SEC
This communication is being made in respect of the proposed business combination involving Sirius and XM. In connection with the proposed transaction, Sirius has filed with the SEC a Registration
Statement on Form S-4 containing a Joint Proxy Statement/Prospectus and each of Sirius and XM have filed with the SEC other documents regarding the proposed transaction. The definitive Joint Proxy Statement/Prospectus was mailed to stockholders of Sirius and XM on or about October 9, 2007. INVESTORS AND SECURITY HOLDERS OF SIRIUS AND XM ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders may obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC by Sirius and XM through the web site maintained by the SEC at www.sec.gov. Free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC can also be obtained by directing a request to Sirius Satellite Radio Inc., 1221 Avenue of the Americas, 36 th Floor, New York, NY 10020, Attention: Investor Relations or by directing a request to XM Satellite Radio Holdings Inc., 1500 Eckington Place, N.E., Washington, DC 20002, Attention: Investor Relations.
Sirius, XM and their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding Sirius’ directors and executive officers is available in its Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC on March 1, 2007, and its proxy statement for its 2007 annual meeting of stockholders, which was filed with the SEC on April 23, 2007, and information regarding XM’s directors and executive officers is available in XM’s Annual Report on Form 10-K, for the year ended December 31, 2006, which was filed with the SEC on March 1, 2007 and its proxy statement for its 2007 annual meeting of stockholders, which was filed with the SEC on April 17, 2007. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the Joint Proxy Statement/Prospectus and other relevant materials filed with the SEC.
The above is the settlement. At least the portion of the settlement that shareholders are made aware of, also included in the settlement are attorney’s fees for the law firm of Robbin’s Umeda and Fink LLP, as well as indemnification for Sirius Satellite Radio. Pretty simple stuff with, what is in my opinion, very little meaningful information.
Did the information above actually satisfy Mr. Brockwell’s “concerns”? It must have, otherwise he would not have settled.
Did the additional information change the way shareholders voted? In my opinion it did not. I would be shocked if 1/1,000th of 1% of shares voted were impacted by the additional information provided.
Did it change the ultimate result of the vote? In my opinion it did not. The votes to approve this merger were virtually a foregone conclusion. Investors, the street, and analysts wanted this merger.
Do you as an investor see value in the settlement disclosure? What value would you place on it?
Did Brockwell’s Council have enough time to look through the documents? Did they even prepare interrogatory questions? Did they have any follow-ups to depositions? Who did they depose aside from Mel Karmazin?
Those who read through the suit will see a picture of a process that was expedited and fast. They will see that there was limited time to request and review documents, limited time to develop interrogatories, and limited time to conduct depositions. In fact, in the settlement filing Mr. Fink, the attorney for Brockwell, actually pats himself on the back with self aggrandizing compliments as to his expertise and the speed at which he was able to handle this matter. Does this seem right? After all, we are dealing with a “concerned” shareholder who felt that there was additional information that needed to be considered. Then again, maybe I am just expecting something unrealistic. It seems that 24 days to decide to file a suit file the suit, and an expedited process to review everything is perfectly acceptable. Perhaps it is just me.
Eight paragraphs of information in exchange for legal fees and indemnifications for the company. Will the court even accept this settlement? I find this whole situation to be a sad commentary on business in America as well as the legal system. What exactly was the goal here? Does the proposed settlement at least equate in value to the costs of attorney fees? Readers will need to come to their own conclusion. What is being presented here is a very broad brushed picture of this process. Those that want more detail can find it with relative ease.
Position - Long Sirius, Long XM
Class Action Gone Bad? The Class Action Attorney
The attorney representing Greg Brockwell is Jeffery P. Fink. Jeffery Fink is a Partner in Robbins, Umeda, and Fink LLP. This firm specializes in class action suits and is located in San Diego California and brands themselves as RUF Law. They list specialties in
practice areas of Antitrust, Consumer, Corporate Mismanagement, Employee Pension Funds, False Claims Act Violations / Qui Tam Actions, Insurance, Mergers & Acquisitions, Privacy, and Securities.
This segment of the series is very brief. Those that want to know more can find many examples of the activities of this firm and judge the merits of the firm for themselves.
Now, to be fair here, i am sure that the players at this law firm are very capable at what they do. In fact, I will offer no real opinion of their capabilities. What I will offer is the fact that this attorney engaged in an expedited process on this class action suit, and readers will need to determine whether or not they personally feel that this attorney acted in the best interest of shareholders and obtained a settlement that equates to value for the class.
Remember, the proposed settlement was some additional information as outlined earlier in this series, the payment of attorney’s fees, and some broad indemnification for Sirius. Out of the three components of the settlement, only one, in my opinion, has any chance of being considered a benefit to shareholders and thus the class. Was the additional information worth it? You the reader need to be the judge.
I would encourage readers to conduct their own research on this law firm and attorney. Sometimes people, or companies are judged not by their finest moments, but their worst. There is some interesting information about cases in New Jersey and North Carolina that people may find interesting. RUF Law has many class action suits to their credit. Some have had what I would consider reasonable and fair results. Others in my opinion have not…..but my opinion is not what is important here. Members of the class must all arrive at their own opinions.
Class Action Gone Bad? What Do Shareholders Do
First and foremost, each investor has to arrive at their individual respective decision. I am not a financial advisor, nor am I a legal advisor. I fully encourage investors to do their own research and consult with appropriate professionals prior to making a decision on this matter. My opinion is my own. Information pertaining to the parties in this case is available by general means either on the Internet, or via the courts. What I have published is simply a very broad overview of this particular case. There is enough depth here to write a book.
In looking at this situation, I have arrived at the following:
1. A merger was announced
2. Greg Brockwell filed suit only 24 days after the announcement, and prior to seeing the proxy statement.
3. The law firm hired by Brockwell specializes in class action suits, and has “recovered” many millions over the past years. Class actions is their expertise.
4. Some activities in the class action suit arena leave me wondering whether it is the class that is getting the benefit. Cases settle for minimal benefit, and plaintiffs that seem to have a litigious history leave me questioning the process and the benefit of class action suits as a whole.
5. This case was brought before a State court instead of Federal court. Federal Court likely could have rejected the case (in my opinion) because of the litigious history of the plaintiff.
6. The size of Brockwell’s investment, in my opinion, does not jive with the actions he took.
7. The settlement includes indemnifications for Sirius that take away some of my rights as a shareholder with respect to the merger value being proper. If it turns out that there is indeed something that would have materially impacted how I would have voted, I would lose that right if I remained a member of the class. Even opting out does not guarantee me my rights, but what type of choices do I have?
8. The settlement revealed what I consider to be useless information filed in an 8K by Sirius prior to the shareholder vote. There is no other “benefit” forthcoming from the settlement.
9. The settlement includes the payment of attorney fees to RUF Law. The amount of those fees are unknown.
Given what has transpired, the decision for me is an easy one. I plan on opting out of the suit should the settlement accepted by the court. I, as a shareholder saw no real value in the additional information that the Plaintiff was able to get as a result of his suit. As a shareholder, I consider it outrageous that Sirius will have to pay any fees to the attorney in this case.
Personally, I find the plaintiff in the case to be an individual who is prone to filing suits. I find it curious that someone who seems to have had such bad experiences in the stock market continues to invest in it. I find that the size of the plaintiff’s investment measured against the actions he has taken to not “gel” with what would normally be expected. I do not see the settlement disclosures as material enough to have satisfied the “concern” that was exhibited by Greg Brockwell.
I do not have a level of comfort and trust in Jeffery P. Fink, the attorney who worked this case, nor his firm. I find the activities surrounding this case to be opportunistic, but that is merely my opinion. Others may indeed see value in what has transpired.
I find that the actions that have happened cause me a great deal of concern as to how the equities markets operate, and how our legal system allows such activities to happen. I fully understand that “this is how it is”, but that does not make it “right” or “just”.
Whenever a person invests in a company, they need to place a certain amount of faith and trust in the management of that company. I have a level of faith and trust in Sirius as well as XM. However, that faith and trust is never 100%. I would much rather opt out of this suit and have a safety net than be included and get what I consider meaningless information. I feel that what I am being asked to give up has far more value to me than the few paragraphs that Brockwell and Fink propose as a settlement.
The goal of this series was to get information to investors so that they can make a fully informed decision about whether or not to be a member of the class. Ironically, it was the stated position of the plaintiff and his attorney that they wanted additional information published so as to allow investors to arrive at a fully informed decision on the merger vote. Given their stance in the very beginning, of allowing the class to be fully informed, they should not take any exception to what I have published.
I am invested in SDARS because I believe in the technology, the concept, and the long term business plan. I intend to hold onto my investment in this sector. The activities described in this article do not change my belief in SDARS.
It is my sincere hope that the all of the circumstances presented are a coincidence beyond what can be imagined. Realistically though, I do not trust that many pieces to simply fall into place by happenstance.
In the end, each individual needs to ask themselves whether the additional information supplied prior to the shareholder vote had value? You also need to consider that remaining in the class may not give you any new or relevant information going forward. If you have already seen the settlement, what more do you have to gain by being in the class? What do you have to lose? Only each individual can arrive at an answer to these questions.
Consider me as “opted out” in this suit. I must caution that readers and investors alike should do their own research and consult with financial and legal professionals prior to making their own decisions.
Position - Long Sirius, Long XM
