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* Class action settlement requires U.S. judge's approval
* Judge certified investor class in December
* Investors contended misstatements caused stock price drop
By Nate Raymond
Feb 20 (Reuters) - Lockheed Martin Corp has agreed to pay $19.5 million to settle a securities fraud class-action lawsuit accusing the company of misleading investors about the prospects for its information technology division, according to court papers.
The settlement, which requires a judge's approval, was detailed by the plaintiffs in papers filed in U.S. District Court in New York on Tuesday.
The accord would resolve more than two years of litigation by shareholders who blamed alleged misstatements by Lockheed for a decline in its stock price.
Spokeswoman Jennifer Allen said in a statement Wednesday Lockheed agreed to the accord to "to avoid the expense and distraction of litigation."
"We continue to believe that our disclosures were legal and appropriate and that we would have prevailed in the litigation," she said.
Samuel Rudman, a lawyer for the plaintiffs at Robbins Geller Rudman & Dowd, declined comment.
The lawsuit was filed in July 2011 by the City of Pontiac General Employees' Retirement System, the public employees' pension fund for Pontiac, Michigan. It named as defendants Lockheed and company executives, including Chief Executive Robert Stevens.
The plaintiffs alleged that Lockheed overstated the financial projections for its information systems and global services division for 2009.
After the company announced disappointing results for the division in July 2009, shares dropped 8 percent to $75.13, the complaint said. The lawsuit said the decline was due to the alleged fraud coming to light.
The company denied the allegations. Lockheed last year sought to dismiss the lawsuit after saying six former employees who were not identified by name in the complaint recanted statements supporting the securities fraud allegations when the company learned their identities.
The judge held a hearing in October in which five of the witnesses testified to what they told a private investigator hired by the plaintiffs' law firm.
After that testimony, Senior U.S. Judge Jed Rakoff said he questioned the credibility of three of the witnesses. In December, the judge denied Lockheed's bid to dismiss the lawsuit and certified the case as a class action.
Lawyers for the lead plaintiff at the law firm Robbins Geller plan to ask Rakoff to award them as much as a third of the settlement as fees as well as reimbursement of up to $1 million in expenses, according to papers filed Tuesday.
The case is City of Pontiac General Employees' Retirement System v. Lockheed Martin Corporation, et al., U.S. District Court, Southern District of New York, 11-05026.