A few items from around the web.
(1) Section 929Y of the Dodd-Frank Act directs the SEC to solicit public comments and thereafter conduct a study to determine the extent to which private rights of action under the antifraud provisions of the federal securities laws should be extended to cover transnational securities fraud. In other words, to what extent is the Supreme Court's National Australia Bank decision a problem and what, if anything, should Congress do about it? The SEC has issued its request for comments, which are due by February 18, 2011.
(2) The New York Law Journal has a column (Oct. 27 - subscrip. req'd) on a recent Second Circuit securities decision. In MF Global, the court evaluated the scope of the bespeaks caution and loss causation defenses. The 10b-5 Daily's summary of the decision can be found here.
(3) Good news - the plaintiffs firms in the Gildan Activewear case are sufficiently diverse to settle the matter. Last month, the judge issued an unusual order (after a preliminary settlement had already been reached) requesting that the firms make every effort to assign a diverse team to the case. The WSJ Law Blog reports that the judge has issued a new order clarifying that he "did not mean to be critical of the firmsí diversity efforts or staffing of the case."
Earlier this month, Apple entered into a settlement of the securities class action pending against it in the N.D. of Cal. The case was originally filed in 2006 and relates to alleged options backdating at the company.
According to a press release from the New York City Employees' Retirement System (the lead plaintiff in the case), the settlement is valued at over $20 million and consists of a $14 million settlement fund, the payment of about $4 million in expenses and legal fees, and a $2.5 million contribution to corporate governance programs at a dozen universities around the country. The court granted preliminary approval of the settlement on October 7 and the universities have not been shy about announcing their pending good fortune.
But have they jumped the gun? Securities class action settlements rarely draw a lot of attention from the blogosphere, but this one is an exception. Ira Stoll, formerly of the New York Sun and a blogger at Future of Capitalism, wrote a scathing assessment of the merits of the case and settlement. Meanwhile, Ted Frank at the Center for Class Action Fairness believes that the contribution to corporate governance programs violates Ninth Circuit law and plans to file an objection on behalf of class members. (See also this post from CNBC's business blog.) Stay tuned.
In the Adelphia securities class action, a law firm that did not act as lead counsel in the case moved for a third (about $17 million) of the aggregate fee award. The law firm argued that it had provided "an independent and substantial benefit" for the class by initiating and preserving the Section 11 and Section 12 claims that ultimately were asserted against two of Adelphia's underwriters. The district court found no evidence, however, "that the use of those statutes, or their use against [the two underwriters], represents ground-breaking legal or factual analysis." The law firm was awarded the amount that had been allocated by lead counsel - $155,610, or the time the law firm had invested in the case, at its normal hourly rates, up to the appointment of lead plaintiffs and counsel. The law firm appealed the decision.
In Victor v. Argent Classic Convertible Arbitrage Fund L.P., 2010 WL 4008744 (2d Cir. Oct. 14, 2010), the Second Circuit considered whether the district court had abused its discretion in failing to increase the law firm's allocation. The court noted that securities class actions "are often an entrepreneurial exercise in which multiple attorneys file complaints" and it is "common practice for lead counsel to borrow legal principles from the complaints filed to the appointment of lead counsel." While work completed by non-lead counsel can confer substantial benefits upon the class, as it did in this case, a district court has "wide discretion" in determining whether the awarded fee is reasonable. The law firm was requesting a fee amounting to $45,000 an hour. The court found that it was "well within the District Court's discretion to determine that a fee application containing a lodestar multiplier of 110 is, prima facie, 'simply not reasonable.'"
Quote of note: "Although [lead counsel] were no doubt on the stingy side when it came to compensating their brethern, we have not been convinced that the District Court abused its discretion in approving class counsel's allocation."
As the U.S. Supreme Court begins its October term, a securities litigator's fancy naturally turns to what cases the court might take next. A leading indicator is cert petitions where the Court has asked the government to provide its input. On Monday, the Court made this request in two separate cases: Halliburton (5th Cir.) and Omnicare (6th Cir.).
(1) The question presented in Halliburton is to what extent plaintiffs must demonstrate the existence of loss causation as part of the class certification process. The 10b-5 Daily's summary of the 5th Circuit's decision can be found here. SCOTUSblog has all of the cert petition materials.
(2) The question presented in Omnicare is whether the heightened pleading standard of FRCP 9(b) should be applied to '33 Act claims (i.e., strict liability/negligence claims based on misstatements in a prospectus or registration statement) that "sound in fraud." The 10b-5 Daily's summary of the Sixth Circuit's decision can be found here. SCOTUSblog has all of the cert petition materials.
Stay tuned for the governments' responses.
Disclosure: The author of The 10b-5 Daily's firm - Dewey & LeBoeuf - represents Omnicare in this case.
While defendants have had the better of the post-NAB decisions to date, a court in the S.D.N.Y. may have gone a step too far this week. In In re Societe Generale Sec. Litig., 08 Civ. 2495 (S.D.N.Y. Sept. 29, 2010), the court found that NAB's prohibition on claims based on the purchase of securities on foreign exchanges also extends to claims based on the purchase of American Depository Receipts in the U.S. Because Societe Generale's ADRs "were not traded on an official American securities exchange," the court held that trading in them was a "predominately foreign securities transaction" and Section 10(b) was inapplicable. The D&O Diary has a lengthy post on the decision and expresses some skepticism about the court's reasoning.
It has been several years since the Second Circuit has addressed the scope of the bespeaks caution doctrine. The bespeaks caution doctrine holds that a "forward-looking statement accompanied by sufficient cautionary language is not actionable because no reasonable investor could have found the statement materially misleading." In Iowa Public Employees' Retirement System v. MF Global, Ltd., 2010 WL 3547602 (2d Cir. Sept. 14, 2010), the Second Circuit found that the district court had failed to properly sever the forward-looking and non-forward-looking aspects of the alleged misstatements. Accordingly, the case was remanded for further analysis.
Quote of note: "A forward-looking statement (accompanied by cautionary language) expresses the issuer's inherently contingent prediction of risk or future cash flow; a non-forward-looking statement provides an ascertainable or verifiable basis for the investor to make his own prediction. The line can be hard to draw, and we do not now undertake to draw one. However, a statement specifying the risk of default is distinct from a statement of present or historical financial instability, even though they both bear upon the same risk. And a statement of confidence in a firm's operations may be forward-looking - and thus insulated by the bespeaks-caution doctrine - even while statements or omissions as to the operations in place (and present intentions as to future operations) are not."