KeyCorp Reaches $6.85M Class Action Settlement over Madoff Scandal

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A group of pension and retirement trusts have agreed to a $6.85 million class action settlement to escape multidistrict litigation (MDL) related to their role in Bernie Madoff’s Ponzi scheme, according to court documents filed on Monday.

Cleveland-based KeyCorp and its subsidiaries along with a group of pension funds agreed to settle the MDL, which is titled In re: Austin Capital Management Ltd., Securities & Employee Retirement Income Security Act (ERISA) Litigation. Under the terms of the class action settlement, the defendants will distribute funds to four classes of investors.

News of the Madoff scandal broke in 2008 when Madoff admitted to operating the biggest Ponzi scheme through his wealth management business. Other firms were eventually implicated in the scandal. Earlier this year, JPMorgan agreed to pay a $218 million class action settlement to investors who lost millions of dollars due to the Madoff scandal. The plaintiffs accused JPMorgan of overlooking evidence that money was transferred to Madoff rather than the investment accounts.

The class action lawsuit was initially filed in February 2009, and was eventually consolidated into the MDL. The Madoff Ponzi scheme lawsuit alleged that the defendants either knew about, or should have known about, the true nature of Madoff’s scheme, and that they should have been aware that Madoff’s investment returns were too good to be true. Further, the plaintiffs claimed that the defendants breached their fiduciary duty to investors by failing to conduct due diligence with regard to investments tied to Madoff’s scheme. They asserted claims under federal and state securities law, ERISA and common law theories.

The defendants have denied any wrongdoing but agreed to settle the class action lawsuit to avoid the expense and uncertainty of continuing the MDL. According to the class action settlement documents, the plaintiffs believe that the MDL has merit, but they “recognize and acknowledge the expense and length of proceedings necessary to prosecute the MDL against Defendants through trial and through appeals. … Based on their evaluation, the Class Representatives and Co-Lead Counsel have determined that the settlement set forth in this Stipulation is in the best interests of the Classes.”

After pleading guilty to 11 felony charges in 2009, Madoff was sentenced to 150 years in federal prison. However, banks and investors are still struggling to recoup their losses in the aftermath of the massive scandal.

The plaintiffs are represented by Samuel H. Rudman, David A. Rosenfeld, Edward Y. Kroub, John K. Grant, Paul J. Geller and Douglas Wilens of Robbins Geller Rudman & Dowd LLP; Reed R. Kathrein and Lee M. Gordon of Hagens Berman Sobol Shapiro LLP; Thomas J. Hart and Marc Rifkind of Slevin & Hart PC; and Michelle C. Yau of Cohen Milstein Sellers & Toll PLLC.

The case is In re: Austin Capital Management Ltd., Securities & Employee Retirement Income Security Act Litigation,  Case No. 1:09-md-02075, in the U.S. District Court for the Southern District of New York.