In re OSG Sec. Litig.
Overseas Shipholding Group Senior Notes Purchasers Recover 93% of Damages in Securities Class Action; Class Obtains $34 Million Settlement
On December 2, 2015, United States District Court Judge Shira A. Scheindlin granted final approval of a $34 million settlement on behalf of class members in the securities class action In re OSG Sec. Litig. The settlement resolves allegations that defendants misled investors regarding Overseas Shipholding Group, Inc.’s (“OSG”) $463 million tax liability. The recovery represents 93% of the maximum Section 11 damages that purchasers of OSG’s 8.125% Senior Notes, Due 2018, issued or traceable to OSG’s $300 million public offering on March 24, 2010 (“Senior Notes”), could reasonably expect to recover at trial, and approximately 28% of the maximum Section 10(b) damages that purchasers of OSG common stock could reasonably expect to recover at trial. “These are phenomenal recoveries for class members, and well above the average recovery when compared to actual investor losses,” said Robbins Geller partner David A. Rosenfeld. The settlement is unique for the additional reason that OSG – a bankrupt entity – contributed $15.426 million to resolve the class’s claims. In addition to the monetary recovery from OSG, the class received a contingent right to 15% of the net proceeds of OSG’s pending professional liability action against its outside tax counsel, Proskauer Rose LLP. “We are very proud to have successfully negotiated a creative resolution of the class’s bankruptcy claim against OSG that provides substantial benefits to the class,” said Rosenfeld.
The case was filed on October 25, 2012, and was brought on behalf of purchasers of OSG Senior Notes and common stock during the October 29, 2007 to October 19, 2012 class period. Investors were represented by lead plaintiffs Stichting Pensioenfonds DSM Nederland, Indiana Treasurer of State, and Lloyd Crawford. The complaint names as defendants (1) OSG’s former CEO, Morten Arntzen; (2) OSG’s former CFO, Myles Itkin; (3) eleven non-management members of OSG’s Board of Directors; (4) PricewaterhouseCoopers LLP; (5) Ernst & Young LLP; and (6) seven underwriters of the Senior Notes offering. Because OSG filed a voluntary petition for bankruptcy relief, it was not named as a defendant.
The case alleged that from 2000 through 2011, OSG entered into $4.5 billion in credit agreements for which OSG’s foreign subsidiaries were jointly and severally liable. This joint-and-several liability arrangement resulted in OSG International, Inc., OSG’s wholly owned subsidiary, guaranteeing the loans to OSG. Consequently, pursuant to Section 956 of Subpart F of the Internal Revenue Code, the accumulated earnings from OSG’s foreign shipping income were deemed to have been distributed to OSG and were therefore subject to U.S. income taxation, subjecting the company to an enormous tax liability – in the amount of $463 million – that was not reported at the time. As a result, and as OSG has now acknowledged, there were material misstatements in OSG’s previously issued financial statements for each of the twelve calendar years in the twelve-year period ended December 31, 2011, and for the first two quarters of 2012. The complaint alleges that these risks were consciously recognized internally, and/or recklessly and/or negligently disregarded by the defendants at the time that each defendant made public statements to class members.
Lead plaintiffs and Robbins Geller aggressively litigated this action for three years. They defeated six motions to dismiss the Section 11 claims and two motions to dismiss the Section 10(b) claims. After resolution of the motions to dismiss, the attorneys from Robbins Geller engaged in expansive discovery, developing evidence that would demonstrate securities-law violations at trial. Robbins Geller analyzed more than two million pages of documents obtained from defendants, OSG, and 20 third parties, and deposed 10 fact witnesses to develop the evidence needed to prove the class’s claims at trial.
In re OSG Sec. Litig., No. 1:12-cv-07948-SAS (S.D.N.Y.).