Over the last five years, direct payment settlements have become the default settlement model for shareholder litigations. Such litigations typically occur in state court and concern a merger or other corporate action event. The claims administrator allocates settlement awards to eligible class members using Depository Trust & Clearing Corporation (DTCC) records from the event. No claim form is required to participate.

This process contrasts with a typical securities class action settlement, where a proof of claim form is required to receive money. These still dominate the securities class action recovery world, but in Delaware state court and elsewhere, direct payments have become a preferred method for settlements pertaining to corporate actions.

Within the last few months, a new payout structure in shareholder litigations has emerged: the hybrid model. The first was the Latch shareholder settlement. The Fusion Acquisitionand InterPrivate hybrid settlements soon followed. (Each settling company is a special purpose acquisition company, or SPAC.)

As implied, these are securities settlements that contain both a direct payment portion and a proof of claim portion. The direct payment portion consists of a nominal amount to be distributed to every class member via DTCC records, in line with the standard direct payment procedure. The proof of claim portion requires class members to provide trade data for an activity period to maximize their recovery in the settlement.

In practice, this means that the claimant has a recovery ceiling of $0.10 per share and must be proactive to exceed that. In other words, the claimant must find their trade data, fill out a form, and file in a timely manner. New model, but same old paperwork.

It is quite possible this model will continue. In the approval hearing for the Latch settlement, the judge praised the plan of allocation as “smart” and said it “makes sense” because stockholders are “selling or holding at different times... It’s a very thoughtful way to distribute proceeds fairly to class members in this case and address the delta between when they might have sold their stock, if they held their stock, and the [nominal] recovery that they’re getting here.” 

A part direct, part proactive settlement model means that investors active in mergers and acquisitions cannot rely on shareholder settlements to always be passive events requiring little attention.

Chicago Clearing Corporation (CCC) tracks and researches hundreds of shareholder litigations, from the date a complaint is filed through the resolution. We review dockets daily and flag developments like this for our claim filing team. As a result, our clients get a clear, concise, and real time portrait of every active shareholder litigation as well as coverage when one requires a claim form.

CCC’s robust securities and direct payment monitoring make us the preeminent source for class action recovery in hybrid cases. Our systems will ensure that every one of your claims is not only filed but maximized—for every securities litigation that arises, and even any novel settlement model that emerges.