GM to pay $277 million to settle lawsuits
In order to settle a shareholder lawsuit, General Motors is planning to pay 277 million dollars pertaining to the fact that the automaker misled its investors which directly led to the inflation of its stock price.
The settlement also comprises of a 26 million dollar payment from Deloitte & Touche, which is the independent auditor for GM’s financial statements.
The cash-strapped automaker which is already involved in a number of cost cutting exercises wants to cover much of the charge through insurance. The automaker said in a filing with the Securities and Exchange Commission that it will cover $200 million of the charge by insurance. The charge of the lawsuit is more than half the $445 million profit, that the company made in its second quarter for its operations in Latin America.
As the booking was done in the second quarter, it is likely that the payment from the insurance will come in the third quarter.
The lawsuit was brought by two German bank units in the year 2006. They had complaints that they lost their money by purchasing their stocks and later debt them at a much higher price. They would have debt them a lower price if GM had followed proper accounting procedures.
"This is an extraordinary outcome for GM investors," plaintiffs’ attorney Jay Eisenhofer said in a statement. Eisenhofer is a partner at law firm Grant & Eisenhofer P.A., which represented the plaintiffs along with Labaton & Sucharow LLP.
"To secure this level of recovery from General Motors in the current environment for the company is very telling — we are extremely pleased with the settlement and the outcome of this case for shareholders."
If this settlement is approved in the court, then it will be the 25th-largest payment in a shareholder lawsuit, according to a report compiled by RiskMetrics Group, a risk management firm.
If we will go by the SEC filings, the automaker will pay half of the settlement within 30 days of a judge’s approval and the rest will be paid in January 2009.
"GM is pleased with the litigation settlement that has been reached," GM spokeswoman Renee Rashid-Merem said.
Delphi Corp., which was the former GM unit, paid 377 million dollars to settle a lawsuit which was concerned with the fact that it changed its books to make earnings look higher in the year 2007
