Milwaukee's Security Capital Corp. has agreed to pay $12 million to settle a class-action lawsuit over its 1994 stock conversion.
In announcing the agreement, which is subject to court approval, the $3.3 billion-asset company, its Security Bank unit, and the boards of directors of both entities all denied wrongdoing or liability in the case.
But in establishing the $12 million settlement fund this quarter, Security Capital will take a $2.7 million hit to after-tax net income in its first fiscal nine months, ended March 31, including $1.9 million in the third quarter. Much of the money is expected to come from insurance, according to an analyst.
Lowell F. Argue, Security Capital's senior vice president, declined to comment on the reasons for the settlement.
"By resolving this matter now, we can again focus our time and energy on the efficient and profitable operation of the company," said William G. Schuett Sr., Security Capital's president and chief executive officer, in a prepared statement.
"We feel that resolution at this time is preferable to the expense of ongoing litigation and to the continued exposure of our shareholders to the uncertainty of burdensome, protracted, and complex litigation."
Jonah Orlofsky, an attorney with the Chicago law firm of Plotkin & Jacobs, which represents the plaintiffs, said, "We believe it's a very good settlement, and we're very hopeful it will be approved by the court."
No specific amount had been sought by the 2,300-person class, he said.
The 1994 lawsuit initially was filed by two Illinois residents who claimed damages from Security Capital's 1992 charter conversion, 1993 mutual-to-stock conversion, and 1994 proxy solicitation.
At the time, analyst John Snow, at Rodman & Renshaw in Chicago, called the lawsuit a "nuisance" in a research report, saying that Security Capital had complied with state and federal laws.
Now, he said, although the settlement amounts to more than a nuisance, with insurance coverage and previous provisions for legal costs, Security Capital's actual charges are "relatively minor," especially since it has been performing well.
Mr. Snow said there could be several factors motivating the settlement, such as preparation for merger talks.