Investor Paybacks Small and Slow

Walter, now 81 and living in a Seattle retirement center, said she has received just $4.27 in cash and ETS stock worth about $11,000 more -- a tiny slice of her initial $210,000 investment.

"I just kind of think it's a lost cause, but I wish it weren't," said Walter, who is still hoping for money out of a class-action lawsuit that was amended this week. "I'd like to just get out from under the whole mess."

The fund set up to distribute money to investors in the research settlement illustrates the difficulty of the restitution exercise.

In February, U.S. District Judge William H. Pauley III named Duke University law professor Francis McGovern to oversee the fund.

McGovern, a leading expert in the field of mass claims, is hiring staff to help him design complex algorithms to apply to each of the firms that paid into the settlement. The different formulas are intended to distinguish between firms such as Goldman Sachs Group Inc., which deals mainly with large institutions, and Morgan Stanley, which caters to individual investors.

All of the firms are required to provide McGovern with data on which of their customers bought and sold stocks named in the settlement in the time frame covered by the settlement.

Then McGovern must somehow determine which of those investors suffered losses directly attributable to individual analyst reports. He must also decide how to compensate small investors in proportion to hedge funds and other market professionals.

In addition, there is the matter of finding investors who owned shares of companies covered by the settlement through mutual funds. Asking the funds to identify such investors could wind up costing more money than would eventually go back to fund investors.

McGovern probably won't have his plan in place until summer. Then he must present it to the SEC and Pauley. There is no target date for returning money to investors. In the end, investors counting on the fund for significant payback are likely to be disappointed because there isn't nearly enough money to go around.

"Investors will probably be able to get a hamburger at McDonald's or a cup of coffee at Starbucks with their distribution," said Jacob H. Zamansky, a lawyer who represents individual investors in lawsuits and arbitration claims.