Toronto-based Manulife Financial Corp. has reached a settlement of $69 million — one of the largest securities settlements in Canadian history — in class action lawsuits involving allegations that the firm failed to disclose the extent of its exposure to equities market and interest rate risks to its shareholders between 2004 and early 2009.
The class action lawsuits, which were filed in the Ontario Superior Court of Justice and the Quebec Superior Court, allege, among other things, that Manulife misrepresented the adequacy of its risk-management practices and failed to meet its disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products.
The claims are unproven, and the settlement is made without any admission of liability. The class members include individuals who acquired Manulife common shares between Apr. 1, 2004 and Feb. 12, 2009, and continued to hold the common shares until Feb. 12, 2009.
The members claim that, contrary to documents Manulife filed during the relevant period, the firm failed to have appropriate risk-management systems for its seg funds and variable annuities. These products are backed by baskets of securities and provide investors with guaranteed minimum returns, regardless of the performance of underlying securities.
When the stock market crashed in 2008, Manulife was forced to increase its reserves for future payments under its variable annuity guarantees by almost $5 billion, according to the plaintiffs. They argued that this caused a dramatic decline in Manulife’s stock price, resulting in damages to investors who purchased Manulife’s securities during the specified time frame.
The plaintiffs argued that Manulife should have hedged or reinsured the risk of a market downturn.
Under the settlement agreement, which is subject to court approval, a total settlement payment of $69 million will be distributed to eligible class members in accordance with a plan of allocation, less court-approved fees for class counsel and other expenses.
The entire settlement amount will be fully funded by insurance, according to Manulife.
“We are proud to have obtained such a substantial settlement on behalf of Manulife investors,” says Daniel Bach, a partner with Toronto-based Siskinds LLP’s class-action department and co-counsel to the plaintiffs, in a statement. “This settlement will deliver immediate and meaningful compensation to class members.”
The settlement agreement avoids the potential cost of two separate trials and provides a “fair, reasonable” outcome for the class, Manulife says in a statement.
“Manulife continues to firmly believe that its disclosure satisfied applicable disclosure requirements and defended itself vigorously in these actions,” the statement says. “Even if Manulife was wholly successful in the litigation, which it believes it would be, it is the nature of large class action litigation that the company would incur substantial legal and other out-of-pocket costs, a significant portion of which we anticipate would not be recoverable even with a successful outcome.”
Manulife notes that the U.S. Federal Court for the Southern District of New York dismissed a proposed class action against Manulife involving allegations similar to those asserted in the Ontario and Quebec proceedings.
Photo copyright: belchonock/123RF