Visa’s Litigation Escrow: Why It Reworked the Shareholder Structure Behind Its Legacy Lawsuits

The structure behind the numbers

On September 18, 2026, Visa made a $405 million deposit into its U.S. litigation escrow account. Twelve days later, its fiscal year ended with $628 million remaining in the account. At the end of the previous fiscal year, the balance had been $2.99 billion.

The difference was largely explained by payments to merchants. During fiscal 2026, Visa deposited $1.28 billion into the escrow and paid $3.642 billion, net of interest earned, to merchants in the opt-out and injunctive-relief classes. The September deposit was part of the $1.28 billion annual total, not an additional payment.

Those figures reveal more than the movement of money through a legal account. The escrow is part of a financial structure Visa created around its 2008 initial public offering. That structure was designed to manage specified legacy U.S. litigation through restricted cash, indemnification arrangements and a separate class of shares held predominantly by U.S. financial institutions and their affiliates.

But the arrangement did not remain unchanged. Visa adjusted its funding structure within months of the IPO. Years later, it introduced a staged exchange program that allowed participating Class B shareholders to obtain some liquidity without simply removing their connection to future litigation funding.

The decision is significant because it addresses a difficult corporate problem: how can a company provide liquidity to shareholders whose stock remains restricted because of unresolved legal exposure, while preserving the financial arrangements designed to manage that exposure?

The shield Visa built around its IPO

When Visa went public in March 2008, it was facing merchant litigation involving interchange fees and the rules governing its payment network. Merchants challenged the costs and conditions associated with accepting Visa cards. The potential financial consequences were uncertain, and several cases had begun before the company’s public listing.

Visa established a retrospective responsibility plan to address specified litigation. As part of the IPO structure, it deposited $3 billion of offering proceeds into a U.S. litigation escrow account. The account was intended to fund settlements and judgments in covered U.S. litigation.

The plan also included indemnification obligations involving Visa’s U.S. financial institution members and a separate class of Class B common stock issued to those institutions and their affiliates.

The Class B shares were subject to transfer restrictions. Their conversion into Class A shares was linked to the cost of resolving covered litigation. When Visa added money to the escrow, the conversion rates could be reduced, lowering the number of Class A shares represented by the Class B holdings.

That mechanism placed an economic cost on the institutions holding the restricted shares. It also connected the amount of money placed into the escrow with the eventual value of their Class B stock.

The distinction between this arrangement and a conventional share repurchase is important. Visa did not purchase Class A shares in the market when it funded the escrow. Instead, it reduced the conversion rates applicable to Class B shares. Visa has explained that the resulting reduction in the as-converted Class A share count has the same economic effect on earnings per share as a Class A share repurchase.

The cash, however, served a different purpose. It was restricted for covered litigation payments rather than being returned to shareholders.

Nor did the plan eliminate every legal risk facing Visa. It applied to specified U.S. covered litigation under defined agreements. Other lawsuits, regulatory proceedings and matters outside that scope remained separate.

The first redesign came quickly

The original funding structure contemplated using proceeds from additional Class A share offerings if more money was required. By late 2008, Visa sought greater flexibility.

On December 16, 2008, shareholders approved a charter amendment allowing the company to use operating cash to fund the escrow. Three days later, Visa deposited another $1.1 billion into the account.

The additional funding reduced the Class B conversion rate from 0.7143 to 0.6296. Then-chief executive Joseph Saunders described the transaction as having an effect similar to a $1.1 billion Class B share repurchase program.

The comparison illustrated the economic effect on Class B holders. It did not change the purpose of the deposit: the money was being reserved for covered litigation.

Further funding followed. In March 2011, Visa deposited $400 million and reduced the Class B conversion rate from 0.5102 to 0.4881. The repeated adjustments demonstrated how the original structure was intended to respond when litigation funding requirements changed.

The litigation itself proved more complicated than a single settlement or escrow payment could resolve.

In 2012, Visa and other defendants reached a settlement agreement with merchant class plaintiffs. Visa deposited approximately $4 billion from the U.S. litigation escrow, together with approximately $500 million attributable to interchange reductions over an eight-month period, into court-authorized settlement accounts.

That agreement did not bring the dispute to a final conclusion. On June 30, 2016, the U.S. Court of Appeals for the Second Circuit vacated the merchant class certification, reversed approval of the settlement and sent the case back for further proceedings.

Visa subsequently received approximately $1.1 billion in takedown payments from the district court and redeposited that money into its U.S. litigation escrow account.

A later settlement followed. In 2018, Visa and other defendants reached another agreement involving $900 million, including $600 million from Visa’s escrow. The district court approved the settlement in December 2019, and the Second Circuit affirmed it in March 2023.

Meanwhile, merchants that had opted out of the class settlement continued to pursue individual claims. Visa’s disclosures show that these cases remained an important part of the litigation exposure the company was managing.

The history matters because it demonstrates why the escrow could not be treated as a fixed liability with a predictable end date. Settlements, appeals, opt-outs and new claims changed the timing and amount of funding required. The structure could accommodate payments, but the underlying litigation continued to evolve.

The decision: a staged exchange program

Visa’s next major change focused on the restricted shares themselves.

In September 2023, the company outlined a proposed exchange program for Class B shareholders. The necessary charter amendments were approved by shareholders on January 23, 2024.

The revised structure renamed the existing shares Class B-1 and established a framework for issuing additional share classes through successive exchange offers. Eligible holders could exchange portions of their restricted Class B stock for a combination that included new restricted Class B shares and Class C shares.

The Class C shares provided a route to liquidity, while the replacement Class B shares remained connected to the litigation funding structure.

The exchange program was staged rather than designed as a single release of all restricted shares. The original framework contemplated offers covering up to half of the applicable class, with further offers subject to specified conditions.

This sequencing mattered. A structure that simply removed all restrictions at once could have changed the relationship between the participating institutions and the future costs of covered litigation. Visa instead created a process through which holders could obtain some liquidity while retaining part of their exposure through replacement shares and contractual commitments.

The first exchange offer expired on May 3, 2024. Visa accepted 240,677,470 Class B-1 shares. In exchange, it issued 120,338,683 Class B-2 shares and 47,759,832 Class C shares, with cash paid in place of fractional shares.

The accepted shares represented approximately 98 percent of the outstanding Class B-1 stock.

Class B-2 remained restricted. Class C shares, by contrast, were designed to become freely transferable after the applicable staged-transfer restrictions. Each Class C share was convertible into four Class A shares.

The exchange changed the form of the participating institutions’ holdings, but it did not simply remove the financial connection between those holders and future escrow deposits. The new Class B shares remained subject to conversion-rate adjustments, and participating holders entered into makewhole agreements.

The second exchange and the makewhole obligation

Visa used the exchange framework again in 2026.

Its May 2026 offer accepted approximately 2.7 million Class B-1 shares and 119.8 million Class B-2 shares. In exchange, Visa issued approximately 60.6 million Class B-3 shares and 23.3 million Class C shares, with cash paid in lieu of fractional shares.

Participation differed between the two classes. More than 99 percent of the outstanding Class B-2 shares were tendered, compared with roughly 55 percent of Class B-1 shares.

The new Class B-3 shares continued the structure of linking future escrow funding to conversion-rate adjustments. The different Class B classes had different conversion-rate mechanics, meaning the same deposit could affect their as-converted share counts differently.

The September 18, 2026 deposit illustrated this. Following the $405 million deposit, the Class B-1 conversion rate moved from 1.5445 to 1.5400. Class B-2 moved from 1.5014 to 1.4924, while Class B-3 moved from 1.4953 to 1.4773.

The more significant contractual feature of the exchange program was the makewhole agreement.

Participating shareholders in both the 2024 and 2026 exchanges entered into separate agreements under which they could be required to reimburse Visa in cash for certain future deposits into the U.S. litigation escrow. The purpose was to preserve the portion of the economic burden that would otherwise have been reflected in the conversion-rate reductions on the shares they exchanged.

The agreements are conditional. They do not mean that participating banks have already paid additional money, or that every future escrow deposit automatically creates a cash payment obligation.

Under the 2026 makewhole agreement, an obligation can arise when a deposit reduces the Class B-3 conversion rate below zero while the conversion rate for the Class B-1 or Class B-2 shares tendered by the participating holder remains above zero.

The agreement also specifies when additional obligations stop. For holders who tendered Class B-1 shares, no further payment obligations arise under the 2026 agreement after the relevant Class B-1 conversion rate reaches zero. For holders who tendered Class B-2 shares, the corresponding limit is reached when the relevant Class B-2 conversion rate reaches zero.

The 2024 agreement has a different trigger. Payments can arise when the Class B-2 conversion rate falls below zero while the Class B-1 conversion rate remains above zero. No additional payment obligations arise under that agreement after the Class B-1 conversion rate reaches zero.

The distinction between the two agreements is important. They are related parts of the same broader structure, but their triggers are not identical. Visa also states that a holder subject to multiple makewhole agreements for different classes of Class B shares would be obligated under only the agreement corresponding to one class at a given time.

The agreements do not state a fixed overall dollar cap. That makes the contractual conditions and conversion-rate mechanics important to understanding the potential exposure. But an uncapped contractual obligation is not the same as an amount already due or a prediction that the trigger will be reached.

The exchange program therefore did more than change the names of Visa’s share classes. It created a route to liquidity while retaining a conditional contractual connection between participating holders and future litigation funding. Class C purchasers are not parties to those makewhole agreements.

What fiscal 2026 reveals

Visa’s fiscal 2026 escrow figures show the scale of the payments moving through the structure.

The account began the year with $2.99 billion. Visa deposited $1.28 billion during the year and paid $3.642 billion to opt-out and injunctive-relief class merchants, net of interest earned. The closing balance was $628 million.

Across fiscal 2022 through fiscal 2026, payments from the escrow totaled approximately $5.8 billion. Fiscal 2026 alone accounted for roughly 63 percent of that five-year amount.

A falling balance does not, by itself, mean the plan has failed. The purpose of an escrow account is to make payments when covered claims are resolved. But the size and timing of the outflows show why a single balance cannot explain the full financial exposure.

The unresolved-claims estimate provides another part of the picture. Visa reported that interchange reimbursement fees at issue in unresolved claims for damages in U.S. covered litigation were approximately $15.9 billion as of October 1, 2026. The estimate had been approximately $17.4 billion on May 11, 2026, and $49.6 billion on October 1, 2023.

These figures require careful interpretation. They are not amounts Visa has been ordered to pay. They are not confirmed damages, a final liability or a measure of the escrow shortfall. They represent the estimated interchange fees at issue in unresolved claims within Visa’s defined calculation. The amount can change as claims are resolved or new claims are filed.

The accounting accrual is a separate measure.

Visa’s fiscal 2026 Form 10-K reported an ending accrual of $623 million for U.S. covered litigation. The company’s disclosures say that the substantial majority of this accrual relates to individual merchant actions brought by merchants that opted out of the damages class settlement.

During fiscal 2026, Visa recorded approximately $1.602 billion in additional provisions for interchange multidistrict litigation. The ending accrual and the escrow balance were close in size, at $623 million and $628 million respectively, but the two figures are not interchangeable.

The accrual is an accounting estimate of probable and reasonably estimable loss. The escrow balance is restricted cash available for payments relating to covered litigation. Visa explicitly cautions that the accrual may be higher or lower than the escrow balance.

For investors, that distinction matters. The escrow balance does not reveal every potential loss, and the accounting accrual does not show how much cash is immediately available in the account. Visa also says that the ultimate loss could differ materially from its current estimate as the litigation develops.

Who controls the funding decision?

The governance arrangements add another dimension to the structure.

Visa’s board decides whether to add money to the U.S. litigation escrow account following a request from the company’s litigation committee. Visa’s annual report states that all members of the committee are affiliated with, or act for, certain Visa U.S.A. members.

Those institutions are not distant observers. U.S. financial institutions and their affiliates hold the restricted Class B shares and are connected to the indemnification arrangements supporting the retrospective responsibility plan.

Their representation on a committee that can request additional funding is a feature of the governance design. It does not, by itself, establish improper conduct. But it is relevant to understanding how the arrangement operates: institutions with an economic connection to the funding structure also have a formal role in the process that can lead to further deposits.

For outside investors, the important question is whether the agreements, disclosures and board oversight continue to allocate the risk as intended.

The plan also has defined limits. It covers specified U.S. litigation, not every lawsuit involving Visa. The company maintains a separate retrospective responsibility plan for certain European matters. The U.S. Department of Justice’s debit-network monopolization case, filed in September 2024, is a separate proceeding and should not be confused with the legacy interchange litigation covered by this escrow.

Visa’s annual report warns that if its retrospective responsibility plans fail to insulate the company adequately from covered litigation, the consequences could materially affect its financial condition and cash flows and could even threaten its ability to continue as a going concern.

That is a risk disclosure, not a prediction that such an outcome is likely. It does underline that the structure is not an absolute guarantee.

The executive lesson

Visa treated a long-running legal exposure as a funding and capital-structure problem when it went public in 2008. The plan paired escrow cash with indemnification arrangements and a share-conversion mechanism that placed a substantial part of the economic burden on member institutions.

The litigation lasted long enough to require repeated funding, charter changes and a new route to liquidity for restricted shareholders.

The exchange program is the key adaptation. Rather than simply lifting restrictions on Class B shares, Visa created a staged path to tradable Class C shares and attached conditional makewhole obligations to participating holders.

For executives managing long-tail liabilities, the lesson is not that an escrow account can eliminate uncertainty. Legal design, funding sources, ownership structures and the incentives of the parties must remain aligned as circumstances change. An indemnity can preserve an obligation after an asset has been transferred, but only if its triggers, valuation method and enforcement mechanics are clearly documented.

Liquidity can be provided without immediately removing every underlying obligation. But doing so may require a more complicated structure, with multiple share classes, different conversion rates and contractual conditions that investors must understand.

Visa’s next possible exchange offer is also subject to conditions, not a guaranteed timetable. Following the May 2026 exchange, the company disclosed that it may conduct another successive offer only after at least one year has passed and the estimated interchange fees at issue in unresolved U.S. covered claims have fallen by at least 50 percent from the level used for the May 2026 offer, as determined by Visa. The company is under no obligation to conduct another offer.

The escrow balance, unresolved-claims estimate and makewhole agreements therefore remain separate indicators. One shows restricted cash available for covered payments. Another measures fees still at issue in unresolved claims under Visa’s calculation. The agreements describe a conditional route for recovering certain future funding from participating holders if specified conversion-rate triggers are reached.

Nearly two decades after its IPO, Visa is still managing a legal exposure that outlasted the original structure. Its staged exchange program has made some restricted shares more liquid without simply severing participating institutions’ connection to future funding.

The shield built in 2008 has not disappeared. It has become a more elaborate part of Visa’s capital structure.