There seems to be no end to General Motors' (GM) troubles in recent times. After declaring a massive quarterly loss in the face of the slowest American auto sales in a decade and half, the beleaguered Detroit-based major has now agreed to pay $277 million to settle a shareholder lawsuit contending the automaker made false and misleading statements, according to the company and lawyers for the plaintiffs.
On the other hand, to mitigate matters, the company said that the settlement was one of the many reasons behind its record loss. (See: General Motors announces massive $15.5 billion quarterly loss)
GM's auditor, Deloitte & Touche, is also part of the settlement and will pay $26 million, bringing the total payout to $303 million. The deal is awaiting approval from US District Judge Gerald Rosen of the Eastern District of Michigan.
GM will be required to pay one-half of the money into an escrow account within 30 days of preliminary court approval of the settlement, and the other half into an escrow account in January 2009.
The two-year-old class-action lawsuit claimed that GM misstated and mischaracterized its revenue, earnings and cash flow, artificially inflating the company's stock price and debt securities.
The case "confirms the importance of allowing international investors access to U.S. courts when they've been harmed by securities fraud," said Eric Belfi, an attorney with Labaton Sucharow, which represented two units of Germany's DekaBank as the lead plaintiffs in the case.
"This is an important recovery for investors," Belfi added. "The combined settlement of over $300 million is impressive just by its size, and also by the fact that we were able to accomplish this is just 2 1/2 years of litigation. ... Some of these cases can go on for many years."
GM said in a Securities and Exchange Commission filing Thursday that the settlement was reached in July and the automaker recorded the $277 million charge in its second quarter, when it posted a $15.5 billion net loss.
GM also said in the filing that it expects to receive about $200 million in the current quarter from insurance covering the legal costs it incurred. "GM is pleased with the settlement and we look forward to it being resolved," GM spokeswoman Renee Rashid-Merem said Friday.
Deloitte spokeswoman Deborah Harrington said in an e-mailed statement the company was happy with the outcome. "Although it has strong defenses to these claims, Deloitte concluded that it was in the best interests of the firm and its clients to settle this matter now rather than face the burden, expense and uncertainty of continued litigation," Harrington said.