Lawyers to get $60M in GM investor suit

Lawyers are happy they settled before GM’s financial crisis hit.

DETROIT (AP) — General Motors Corp. shareholders won’t get rich from a $303 million settlement that could be finalized this month, but the lawyers stand to reap millions.

A judge in Detroit is overseeing the lawsuit, which involves investors who held GM stock or bonds over a six-year period when common shares crashed 75 percent.

Anyone who owned stock would get roughly 25 cents per share, if every eligible shareholder files a claim. If fewer claims are filed, the payment would rise.

Attorneys, meanwhile, want 19 percent of the cash pool for their work — nearly $60 million.

The deal was struck in the summer before GM went to Washington seeking billions in federal loans to stay alive. U.S. District Judge Gerald Rosen, who has granted preliminary approval, will hold a final hearing Dec. 22.

“Call it a combination of luck and good judgment,” said James Sabella of New York, a lead lawyer for investors. “If we hadn’t settled when we did there’s no way we’d be settling now. There’s no way they’d be giving us this kind of money.”

But not everyone is pleased with the millions in fees sought by lawyers. The Pennsylvania State Employees’ Retirement System filed an objection this week.

Glenn Brewer and wife Elise Fitzgerald of Weems, Va., who hold 1,500 GM shares, call it “windfall profits” for attorneys.

“This case typifies a proliferation of class-action claims against large corporations wherein the defendant agrees to a nuisance settlement to avoid further litigation and the shareholders reap minimal benefit,” they wrote in a Dec. 1 letter to the judge.

Brewer and Fitzgerald said their slice of the settlement is “obviously insignificant.” They paid an average of about $40 each for their shares, which are now trading at less than $5.

The case began with lawsuits in 2005 accusing GM and its directors of major accounting mistakes, especially when reporting revenue, and misleading investors.

The lawsuits were consolidated in Detroit in 2006 and turned into a class-action case involving investors who owned stock or bonds between April 13, 2000, and March 30, 2006.

GM has agreed to pay $277 million — nearly 40 percent coming from insurance — and its auditor, Deloitte & Touche LLP, will pay $26 million. Investors’ losses were estimated at $3.5 billion.

“We settled to avoid the uncertainties and distraction of continued litigation and avoid further litigation costs,” said Renee Rashid-Merem, a GM spokeswoman.

Layn Phillips, a former federal judge in Oklahoma who served as mediator, said the settlement is an “excellent recovery” for investors. Sabella said criticism over the lawyers’ cut is wrong.

“This is cash, not coupons, not stock. It was extracted from a company in a very bad financial position,” Sabella said. “We worked on this case for three years with the prospect we’d end up with nothing.”

The Pennsylvania State Employees’ Retirement System did the math and said lawyers are asking for the equivalent of $2,310 an hour, based on 24,920 hours reported by Sabella, co-counsel Jonathan Plasse and five law firms.

Adam Pritchard, who teaches securities law at the University of Michigan law school, said 19 percent could be considered high, but legal fees in other investor lawsuits have exceeded 20 percent.

In June, another federal judge approved a $37.5 million settlement for certain GM employees who purchased stock for retirement between March 1999 and May 2006. Lawyers were awarded 30 percent in that case.

A lawsuit against Ford Motor Co. on behalf of nonunion employees who bought company stock for retirement accounts is pending.