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Sprint Settles Lawsuit; Agrees to Pay $131 Million

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By Christopher Coble, Esq. on April 03, 2015 10:55 AM

I'm not saying I did anything wrong, but here's some money.

A group of investors sued Sprint in a class action lawsuit accusing the company of lying to investors about Sprint's merger with Nextel Communications. Sprint recently agreed to settle the lawsuit and pay $131 million, cash, but denied all liability.

The Fraud

In the lawsuit, investors alleged that Sprint inflated its stock and bond prices from October 2006 to February 2008. Sprint allegedly falsely claimed that it was making billions of dollars from the merger and getting more subscribers.

Instead, the plaintiffs claim that Sprint was losing hundreds of thousands of subscriber, and nearly $30 billion in goodwill. Goodwill is the intangible value of a business' prestige or reputation. This value is in excess of the company's actual assets.

The plaintiffs claim that the estimated damages exceed $1 billion. With that in mind, $131 million doesn't seem to be very generous, but the plaintiffs' lawyers seem to be happy with the settlement.

Denying Liability

Even though Sprint agreed to settle the lawsuit, they are not admitting to any fault. This happens often in settlements. Defendants will often strenuously maintain that a settlement does not mean that they are admitting to any wrongdoing or liability. This prevents the settlement from being used as evidence of fault against the defendant in another lawsuit.

For example, Lacy rides her bike down the street and accidentally ran into a lemonade stand, hurting Tommy and Tammy. Tammy sues Lacy for her injuries. Lacy agrees to settle with Tammy and pay her $100, but denies liability. This means, when Tommy sues Lacy he has to provide evidence that Lacy is liable. He can't just point to the settlement with Tammy as proof of Lacy's culpability.

Can't Keep It All

While $131 million is a great windfall for the plaintiffs, they won't be pocketing the whole amount.

The plaintiffs' attorneys are seeking up to 22 percent of the settlement to pay for legal fees and up to $4 million to pay for expenses. This may be based off a contingency fee or other fee agreement set up by the plaintiffs and their attorneys. Sometimes, contingency fees can be as high as 40 percent if the case went to trial instead of settling.

The settlement agreement is not final until it receives final approval from the court.

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