Chicago Clearing Kicks Off with BMW M5 Litigation case

by Jennifer Kwon

In 1991, a class action lawsuit was filed against BMW by the purchasers of 1988 M5 BMW automobile (model E28 M5) who claimed that the company produced more than it had originally stated. They alleged that the overproduction of vehicles caused a diminution of value of the limited edition model.

BMW settled the litigation by issuing transferable discount certificates worth of $4,000 each to eligible class members that could be applied towards the purchase or lease of a new BMW. If class members did not wish to use their certificates, they could sell them instead.

At around the same time, Chicago Board Options Exchange market maker named James Tharin received a call from the defense attorney representing BMW in the class action lawsuit. The plaintiff’s attorney In the case demanded BMW find a market maker to bring value to the class members who chose not to redeem their coupons on the purchase of a new BMW. The defense counsel knew Jim’s reputation as an expert market maker, called Jim, and an industry was born.

Following the Court’s instruction, Jim founded Certificate Clearing Corporation (CCC) and created the first market for transferable class action coupons.

As the designated market maker of the settlement, CCC worked to optimize the coupon market by buying BMW certificates that class members did not want to use and reselling them to customers planning to purchase or lease of a BMW vehicle.

CCC facilitated the buying and selling of BMW certificates and by doing so, increased the efficiency of the overall market and redemption rate of the coupons.

As a result, CCC bought and sold over 630 certificates and effectuated a 60% redemption rate. Since only 7% of the BMW M5 Litigation class members used their own coupon to purchase or lease a new BMW, CCC played a crucial role in increasing the usage and value of these certificates.

Chicago Clearing was off to a great start with the BMW M5 Litigation, paving the way for the continued success of over 20 settlements in the next two decade. To this day, CCC remains to be the only entity that has created a successful class action coupon market more than once.

This article was written during my internship at Chicago Clearing Corporation (CCC) in 2015.