“Mutual-fund companies that have agreed to pay $2.5 billion to settle regulators’ allegations that they allowed improper trading that cheated long-term investors are talking with investors’ lawyers about settling the massive private lawsuits that were filed,” writes Tom Lauricella in today’s Wall Street Journal.

“The discussions are preliminary and don’t guarantee an early resolution to the roughly 300 lawsuits against at least 18 fund companies that have been consolidated in federal court in Baltimore. But lawyers for both sides say the talks are on a fast track, speeded by a new twist in the regulatory settlements: Nearly all of the $2.5 billion that the firms agreed to pay so far will go to mutual-fund investors, rather than into government coffers.”

“The large, already-existing pool of money signals to some observers that fund companies might not have to pay big additional sums to resolve the private litigation.”

“In fact, the judge overseeing the mutual-fund shareholder suits, J. Frederick Motz, warned lawyers on both sides not to expect a bonanza from the mutual-fund trading scandal, citing the restitution available under the regulatory settlements. “Nobody should expect to get rich off this case,” he said at the first hearing in the case on April 2.”

“The plaintiffs’ lawyers ‘are going to be more amenable to the idea of settling with the companies for perhaps not very much more additional compensation,’ says Randall Thomas, a law professor at Vanderbilt University, who follows securities litigation. ‘For the companies, it’s a question of “we want to get this over with, out of the newspaper, and stop having our people deposed.” ‘ “

“The talks show how securities litigation can take a very different course in the wake of the Sabanes-Oxley Act of 2002. The law allows the Securities and Exchange Commission to distribute penalties — and not just ill-gotten gains known as ‘disgorgement’ — to injured investors. In the past, such penalties were required to be paid to the U.S. government, even though investors’ losses often far exceeded the amounts paid in disgorgement.”

“Investors in mutual funds managed by the nine companies that have settled with the SEC and state regulators without admitting or denying wrongdoing will receive about $1.6 billion in the form of cash payments and fee rebates. Investors won’t have to prove that they were harmed directly by improper mutual-fund trading but merely that they owned a fund when improper trading took place. An additional $855 million in restitution will come in the form of fee reductions negotiated with New York Attorney General Eliot Spitzer, who kicked off the scandal last fall with allegations that mutual funds allowed favored investors to trade frequently in violation of their own policies and, in some cases, to trade illegally after the 4 p.m. Eastern time close of regular-hours stock trading.”