April 23, 2014

All The CLE You Could Possibly Want

It is not too late to sign up for PLI's Handling a Securities Case 2014: From Investigation to Trial and Everything in Between. The program takes place on Thursday, April 24 in New York and via webcast (and, shortly thereafter, on demand). The details can be found here.

Lyle Roberts of Cooley LLP (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, all while following a hypothetical case from the initial investigation through trial. There even will be a panel on ethical issues, for those in need of ethics credits.

Posted by Lyle Roberts at 3:05 PM | TrackBack

June 21, 2013

Around The Web

A couple of interesting items from around the web.

(1) The New York Law Journal (June 10) has a column on the potential impact of the recent GAMCO v. Vivendi decision (a discussion of a related, earlier decision in that case can be found here). In GAMCO, the court found that the plaintiff was not entitled to a fraud-on-the-market presumption of reliance because its trading strategy did not rely on the market price of Vivendi's stock as an accurate measure of its value. The column's authors suggest that in light of this decision, "defendants going forward should delve deeply into a plaintiff-investor's decision-making process in an attempt to sever the link with market price."

(2) The D&O Diary has a guest post from two Stanford professors who have studied the outcomes of securities class actions. Their findings, for the period from 2000 to 2010, include: (a) during that period there was no statistically significant change in the overall dismissal rate, (b) half of all settlements occured before a final ruling on a motion to dismiss and half occured after the motion to dismiss had been denied and the case had moved to discovery, and (c) the insurer contribution to settlements was higher among cases filed in the second half of the past decade than in the first half.

Posted by Lyle Roberts at 5:55 PM | TrackBack

April 19, 2013

All The CLE You Could Possibly Want

It is not too late to sign up for PLI's Handling a Securities Case 2013: From Investigation to Trial and Everything in Between. The program takes place on Thursday, April 25 in New York and via webcast. The details can be found here.

Lyle Roberts of Cooley LLP (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, all while following a hypothetical case from the initial investigation through trial. There even will be a panel on ethical issues, for those in need of ethics credits.

Hope to see you there.

Posted by Lyle Roberts at 6:32 PM | TrackBack

October 19, 2012

Who Knew The Truth?

Should a securities class action defendant be able to get discovery from absent class members to support its defenses? In Garden City Employees' Retirement System v. Psychiatric Solutions, Inc., 2012 WL 4829802 (M.D. Tenn. Oct. 10, 2012), the defendants issued subpoenas to 14 institutional investors in a case where the class had already been certified. In their motion for leave to conduct this discovery, the defendants contended that the discovery was necessary on "individual issues" and to further their "truth on the market defense."

The court noted that, as a general matter, discovery of absent class members is disfavored. The defendants "bear the burden of showing necessity and the absence of any motive to take undue advantage of the class members." In the instant case, the court concluded that mere "speculation" that absent class members might have invested even knowing of the alleged misstatements was insufficient to satisfy the defendants' burden. Moreover, any discovery related to individual reliance on the alleged misstatements could be done after a trial on the common issues.

Holding: Motion for leave to conduct discovery of absent class members denied.

Posted by Lyle Roberts at 8:32 PM | TrackBack

August 24, 2012

Defining Domestic

The New York Law Journal has a column (Aug. 17 edition - subscrip. req'd) on the application of the Morrison decision. In Morrison, the Supreme Court held that Section 10(b) liability for securities fraud is limited to "transactions in securities listed on our domestic exchanges, and domestic transactions in other securities." What constitutes a "domestic transaction," however, was not clarified.

As a result, the authors note, lower courts have adopted at least three different approaches for determining whether a non-exchange transaction is "domestic." Some courts have looked at whether the "critical steps of the transaction," including the offer and acceptance, occurred in the United States. Other courts limit potential liability to transactions in which the parties agreed to be bound to each other in the United States. The strictest approach is to insist that the actual transfer of the securities must have taken place in the United States. The authors argue that all of these approaches are broader than what the Supreme Court intended.

Quote of note: "When any of these approaches is applied to Morrison, it becomes clear that the lower courts' applications of Morrison are inconsistent with the Supreme Court's ruling and do not end extraterritorial application of the 34 Act. If [the Morrison corporate defendant] had hypothetically transferred its stocks to the investors in New York, for example, the 34 Act arguably would have applied under all three approaches. Ironically, under the prior conduct and effects tests, the same hypothetical would likely not have triggered the application of the 34 Act."

Posted by Lyle Roberts at 9:47 PM | TrackBack

June 15, 2012

Supreme Court To Address Fraud-On-The-Market Theory

A key development this week was the Supreme Court's decision to hear the Amgen Inc. v. Connecticut Retirement Plans and Trust Funds case on appeal from the Ninth Circuit. Pursuant to the fraud-on-the-market theory, reliance by investors on a misstatement is presumed if the company's shares were traded on an efficient market that would have incorporated the information into the stock price. The fraud-on-the-market presumption is routinely invoked in securities class actions to justify the grant of class certification because it removes the potential need for individual evaluations of reliance.

At issue in the Amgen case is a circuit split over whether a plaintiff must prove that the misstatement was material to invoke the fraud-on-the-market theory in support of class certification. Three circuit courts (Second, Fifth and, to a lesser extent, the Third) previously have held that this is a required part of the fraud-on-the-market analysis when evaluating whether a class should be certified. The Ninth Circuit joined a decision from the Seventh Circuit, however, in rejecting that position. The court held that materiality is a merits question that does not affect whether class certification is appropriate.

The Amgen case picks up threads from two other recent Supreme Court decisions. In Matrixx, the Court addressed the issue of materiality, but only in the context of what must be plead to survive a motion to dismiss. Meanwhile, in Halliburton, the Court found that a plaintiff does not have to prove loss causation to invoke the fraud-on-the-market presumption, but left open the question of whether the plaintiff must demonstrate that the misstatement had a stock "price impact" (which is often used as a proxy for determining whether the misstatement was material). As a practical matter, if the Court were to find that lower courts should be evaluating whether the misstatement was material in determining whether to grant class certification, it obviously would reinvigorate class certification as a meaningful hurdle in prosecuting securities class actions.

Scotusblog has all of the relevant links, including to the amicus briefs filed in conjunction with the cert petition. The case will be heard next term.

Posted by Lyle Roberts at 10:55 PM | TrackBack

May 3, 2012

Mr. Roberts Heads Across Town

On a personal note, Lyle Roberts (the author of The 10b-5 Daily) has joined the Washington, DC office of Cooley LLP. The firm's press release can be found here. Posting has been correspondingly light, but will pick up shortly.

Posted by Lyle Roberts at 10:47 AM | TrackBack

April 16, 2012

A CLE Program You Will Definitely Want To Attend

With that bold claim, do you have some availability on Thursday, April 26 to participate in a continuing legal education (CLE) program in New York or view a live webcast? It is not too late to sign up for PLI's Handling a Securities Case: From Investigation to Trial and Everything in Between. All of the details can be found here.

Lyle Roberts of Dewey & LeBoeuf (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, all while following a hypothetical case from the initial investigation through trial. There will even be a panel on ethical issues, for those in need of ethics credits.

Hope to see you there.

Posted by Lyle Roberts at 5:01 PM | TrackBack

April 12, 2012

The SEC Speaks (About Private Litigation and Transnational Securities Frauds)

As part of the Dodd-Frank Act, the Securities and Exchange Commission (SEC) was asked to solicit public comment and evaluate whether private litigants should be permitted to bring actions in the United States based on transnational securities frauds. In practical terms, the SEC was charged with examining whether the Supreme Court's Morrison decision, which limits Section 10(b) claims to domestic securities transactions, should be legislatively overturned or modified.

The SEC's study has been released and it contains a number of interesting items, including an analysis of the post-Morrison case law, a detailed review of the public comments, and a summary of the studies that have examined the capital markets impact of the Morrison decision. The SEC's overall conclusion, perhaps not surprisingly, is that the position it took in Morrison was correct as a matter of public policy (even if the Court rejected it on legal grounds). In Morrison, the SEC argued that the court should retain the preexisting conduct and effects tests for extending Section 10(b) private actions to transnational securities frauds, but limit the conduct test to situations where the plaintiff can demonstrate "that the plaintiff’s injury resulted directly from conduct within the United States." The SEC's approach arguably would have the benefit of "serv[ing] as a filter to exclude those claims that have a closer connection to another jurisdiction and, thus, are more appropriately pursued elsewhere." That said, the SEC also concedes that a more limited "conduct test" would still have the disadvantages of permitting "foreign investors [to] receive remedies that their governments have determined not to provide" and possibly "requiring a fact-intensive inquiry involving burdensome discovery. . . to determine if the alleged U.S. conduct constituted a direct cause of the overseas injury."

In response to these concerns, the SEC proposes a tweak and suggests alternatives for Congress to consider. The tweak is to make the conduct and effects tests available only to U.S. investors. While that still might require costly discovery to determine the scope and impact of the U.S. conduct, it alleviates some of the international comity problems created by allowing foreign investors, who engaged in foreign securities transactions, to bring suit in the U.S.

Alternatively, the SEC proposes that Congress "supplement and clarify" the Supreme Court's domestic transaction test in one or more of the following ways:

(1) Permit investors to bring Section 10(b) private actions based on transactions in any security that is of the same class of securities as those registered in the U.S., irrespective as to where the transaction took place. The idea is that companies who have registered shares in the U.S. have chosen to expose themselves to Section 10(b) liability, although the proposal also would have the obvious effect "of a return to U.S. courts of so-called “foreign-cubed” class actions – i.e., private class actions brought by foreign investors suing foreign issuers involving transactions on foreign exchanges."

(2) Create a Section 10(b) right of private action that can be brought "against: (i) securities intermediaries located within the United States when they defraud a client in connection with any securities transaction (i.e., foreign or domestic); and (ii) foreign securities intermediaries when they are reaching into the United States to provide securities investment services for a U.S. client and commit fraud against that client in connection with any securities transaction." The proposal is designed to close a "void" created by the domestic transaction test, wherein investment advisors can defraud their clients in connection with foreign securities transactions without fear of Section 10(b) liability.

(3) Create a "fraud-in-the-inducement" exception to the domestic transaction test, wherein investors can bring a Section 10(b) private action if they can demonstrate they were in the U.S. at the time they were induced to purchase or sell securities in reliance on a false or misleading statement, even if the transaction took place outside of the U.S. This proposal is another version of limiting the conduct test to U.S. investors, although the SEC suggests that it is narrower because the investors would need to demonstrate actual reliance, as opposed to basing their claims on a presumption of reliance created by the "fraud-on-the-market" theory.

(4) The Second Circuit recently clarified that a domestic securities transaction is one where "irrevocable liability was incurred or title was transferred within the United States." The SEC criticizes that approach, arguing that it may "serve as a roadmap for overseas fraudsters to structure transactions to avoid Section 10(b) private liability" by ensuring that key actions are taken outside of the country. Instead, the SEC suggests, Congress could "clarify that, in the case of off-exchange transactions, a domestic securities transaction occurs if a party to the transaction is in the United States either at the time that party made the offer to sell or purchase, or accepted the offer to sell or purchase."

But will Congress have any interest in pursuing a legislative reversal or modification of the domestic transaction test for Section 10(b) private action liability? Stay tuned.

Posted by Lyle Roberts at 9:26 PM | TrackBack

December 28, 2011

Where's Waldo?

To what extent can a plaintiff protect the identity of his confidential witnesses once discovery in the case has commenced? Courts have tended to be skeptical of claims that the identity of these witnesses are attorney work product or should be kept secret to avoid possible employer retaliation (see here and here).

In Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund v. Arbitron, 2011 WL 5519840 (S.D.N.Y. Nov. 14, 2011), the court addressed these issues in a case where the complaint relied heavily on alleged statements from 11 former Arbitron employees. In discovery, the plaintiffs identified 83 people who were likely to possess discoverable information, but refused to specifically identify the 11 confidential witnesses from among that list. The court concluded that the names of the confidential witnesses were entitled to little, if any, work product protection, noting that "[i]t is difficult to see how syncing up the 11 [confidential witnesses] with these already disclosed names would reveal Plaintiff's counsel's mental impressions, opinions, or trial strategy." Moreover, the plaintiffs had "utilized the [confidential witnesses] offensively" and failing to identify them could require the defendants to take dozens of unnecessary depositions. As for possible retaliation, the court declined to accept any generic assertions that the confidential witnesses faced a risk of retaliation, but did give the plaintiffs' counsel a week to submit an affidavit setting forth any particularized facts it had on that subject.

Holding: Motion to compel disclosure of confidential witness names granted (subject to review of the requested affidavit).

Quote of note: "On the facts before it, the Court, balancing the relevant considerations, does not believe the work product doctrine compels Arbitron (or, derivatively, its shareholders) to bear these costs. The discovery rules 'should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.' Fed. R. Civ. P. 1. These goals are disserved by forcing a party, in the name of an opponent's evanescent work product interest, to play a high-cost game of 'Where's Waldo?'."

Posted by Lyle Roberts at 4:45 PM | TrackBack

October 21, 2011

Around the Web

A few items from around the web.

(1) The first dismissal in the current wave of China-related securities class actions has occured, but it is difficult to read too much into the decision. In In Re China North East Petroleum Holdings Ltd. Sec. Litig., 2011 WL 4801515 (S.D.N.Y. Oct. 6, 2011), the court concluded that the lead plaintiff had not suffered any economic loss. Within a couple of months after the "final allegedly corrective disclosure" was made, the company's stock price rose above the lead plaintiff's average purchase price. The court held that a "plaintiff who foregoes a chance to sell at a profit following a corrective disclosure cannot logically ascribe a later loss to devaluation caused by the disclosure." The New York Law Journal has an article (subscrip. req'd) on the decision.

(2) The National Law Journal has an interesting interview (free regist. req'd) with the lead defense counsel in a recent civil securities fraud trial. The case was brought by investors against the former CEO of Homestore.com, who had previously plead guilty to related criminal charges. Although the jury found that the former CEO was liable for certain misstatements that caused $46 million in losses, he was not required to pay any damages because other defendants had already paid more than that amount to settle the claims against them.

(3) The D&O Diary has an informative roundup of the U.S. securities class action filing activity through the third quarter of 2011. At the present pace, there will be 205 filings this year, which is just slightly above the post-PSLRA average.

Posted by Lyle Roberts at 6:01 PM | TrackBack

September 30, 2011

Who's The Dummy?

Section 20(b) of the Exchange Act makes it unlawful for a person to effect a securities fraud through another person. Sometimes referred to as the "ventriloquist dummy" statute, it has rarely been invoked in securities cases. In the Supreme Court's recent Janus decision, however, the Court limited Section 10(b) securities fraud liability to persons who had "ultmate authority" over the alleged false statement. Not surprisingly, Janus has revived interest in Section 20(b) as a potential vehicle for claims against secondary actors.

The New York Law Journal has an interesting column (Sept. 29 - subscrip. req'd) on the potential application of Section 20(b). As a threshold matter, the authors note that "[t]here is so little authority on Section 20(b) that is is not even definitive that it affords a private right of action." Even assuming that a private right of action exists, plaintiffs will have to demonstrate both the existence of any underlying violation and that "the controlling person 'knowingly used' the controlled entity to violate the securities laws."

Posted by Lyle Roberts at 4:56 PM | TrackBack

July 22, 2011

Janus Interpreted

The Janus decision holds that for purposes of primary securities fraud liability under Section 10(b) and Rule 10b-5, the "maker" of a statement is the person or entity with "ultimate authority" over the statement. Practicioners have begun to debate over the significance of that holding, including in two recent New York Law Journal columns.

(1) In "Janus Capital and Underwriter Liability Under Section 10(b) and Rule 10b-5" (July 12 - subscrip. req'd), the authors note that pre-Janus there were conflicting lower court decisions over whether underwriters could have primary liability for misstatements in offering documents. The Janus decision, however, "undercut[s] any private right of action as against underwriters" because "the ultimate decision as to whether an offering will proceed, whether to disseminate an offering document, and what the offering document will say rest with the issuer."

(2) In "U.S. Supreme Court and Securities Litigation" (July 21 - regist. req'd), Professor John Coffee argues that the "ultimate authority" standard may not be as sweeping as it seems. The Janus decision also notes that "in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement is made by, and only by, the party to whom it is attributed." According to Coffee, this language suggests that "implicit attribution" is sufficient to find someone has primary liability for a false statement. Relying on this part of Janus creates another conundrum, however, because it "suggest[s] that the attributed statement creates liability 'only' for the person quoted and not the issuer that may knowingly incorporate his false statement."

Posted by Lyle Roberts at 9:10 PM | TrackBack

April 1, 2011

Two From The NYLJ

The New York Law Journal has two securities litigation columns this week.

(1) In Lower Courts Divided on Standard for Pleading Loss Causation Post-Dura (3/31/11 - subscrip. req'd), the authors discuss the split over whether loss causation is merely subject to notice pleading (FRCP 8(a)(2)) or must be plead with particularity (FRCP 9(b)). The Supreme Court, in its Dura decision, left the issue open and no subsequent judicial consensus has emerged.

(2) In Most ARS Suits Tripped Up By Difficult Pleading Hurdles (3/31/11 - subscrip. req'd), the author examines what has happened to the flurry of securities class actions that were filed in the wake of the 2008 disruption in the market for auction rate securities. Most of the cases have been dismissed for failing to adequately plead various elements of a securities fraud claim, including scienter, loss causation or reliance.

Posted by Lyle Roberts at 10:23 PM | TrackBack

March 4, 2011

The Comments Are In

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 solicited comments back in October and the results are now available on the SEC's website. They make for interesting reading. The commentators include current litigants in cases with extraterritoriality issues, forty-two law professors, the U.S. Chamber of Commerce, the governments of Australia and France, and an individual foreign investor who states that he has "been duped of huge sum of my life long savings by so called private bankers who are affiliates outside USA of US banks."

Quote of note (Comments by Forty-Two Law Professors): "We differ in our views of private rights of action: some of us have significant doubts about the efficacy of securities class actions, while others believe shareholder litigation rights should be strengthened. Nevertheless, as a group we believe reform efforts should be applied consistently and logically to both domestic and affected foreign issuers, and we therefore support extending the test set forth in Section 929P of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to private plaintiffs."

Posted by Lyle Roberts at 8:55 PM | TrackBack

February 4, 2011

Around the Web

A couple of items from around the web.

(1) Professor John Coffee has a New York Law Journal column (Jan. 20 - subscrip. req'd) on the upcoming year in securities litigation. The column discusses the Halliburton and Matrixx cases pending in the U.S. Supreme Court, as well as the New York AG's suit against E&Y for "allegedly assisting Lehman to cosmetically redecorate its balance sheet."

Quote of note: "[T]he [Matrixx] case poses the first opportunity in over 20 years for the Court to reconsider or rephrase its basic standard for materiality. Even a modest redefinition of that standard will destroy forests to print the law review articles and practitioner commentaries that will predictably follow. The road to Hell is paved with good intentions and law review articles."

(2) Whether securities class actions benefit shareholders is a perennial debate. In a recent study published in the Financial Analysts Journal, two professors from Maastricht University (Netherlands) conclude that it is a mixed picture, depending on whether the case is based on a violation of the duty of loyalty (e.g., illegal insider trading) or the duty of care (e.g., known lack of internal controls). While in the short run "the filing of a class-action lawsuit is a materially adverse corporate event," the authors conclude that cases based on violations of the duty of loyalty are more likely over the long run to lead to positive management and governance changes and a higher stock price.

Quote of note: [Perhaps predictably, commentators chose to read the study's mixed results in different ways, which led to an amusing post from Bruce Carton.] "I saw the follow headlines about a week apart: 1. 'Study Shows Benefits of Securities Class Actions' (January 7, 2011); 2. 'Securities Class Actions Mostly Punish Shareholders, Study Finds' (November 30, 2010). Sure, different studies can reasonably reach different conclusions about the benefits or harm of securities class actions ... but these articles are about the same study!!! As the fellas say on ESPN's Monday Night Countdown, 'C'Mon Man!'"

Posted by Lyle Roberts at 10:24 PM | TrackBack

November 24, 2010

Lotta Ins, Lotta Outs, Lotta What-Have-Yous

(1) If you are not willing to walk away, you are not negotiating effectively. Charles Schwab appears to have proven that adage correct in its settlement of the securities class action pending against the company in the N.D. of California. On November 8, Charles Schwab announced that it was terminating the deal because it would allow federal securities class members residing outside of California to bring certain state law claims against the company. On November 18, however, the parties informed the court that the deal was back on. Charles Schwab will continue to pay $235 million, as had been contemplated all along, but the federal securities class members residing outside of California will have to opt out of the settlement if they want to pursue related claims. The court reportedly is close to approving the new deal.

(2) San Diego State may want to issue a revised press release. As it turns out, the university did jump the gun when it announced that it would be the recipient of funds from a cy pres award in the Apple options backdating settlement. Ted Frank, at the Center for Class Action Fairness, has successfully pressured the parties into making those funds available, at least in the first instance, to class members. He is now pushing the court to refuse preliminary approval until the settlement guarantees that the class gets all of the settlement funds.

Posted by Lyle Roberts at 10:06 PM | TrackBack

November 12, 2010

Counting Your Chickens

A couple of cases have taken an unexpected turn.

(1) Last April, Charles Schwab Corporation announced the preliminary settlement of the securities class action pending against the company in the N.D. of California. The case relates to the marketing and sale of a bond fund. Just as the settlement was headed for final approval, however, Schwab has decided to invoke the termination provision in the settlement agreement and proceed to trial. The issue is whether the settlement, despite Schwab's belief that it provided a global resolution, allows federal securities class members residing outside of California to bring certain state law claims against the company. The D&O Diary has a post with all the details.

(2) Last month, the U.S. Supreme Court asked the government for its views on the Omnicare cert petition. The question presented was 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 plaintiffs, however, did not wait to find out the government's position. They have dismissed the cert petition and evidently will pursue their remaining claims back in district court.

Posted by Lyle Roberts at 10:16 PM | TrackBack

October 29, 2010

Around the Web

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 firms diversity efforts or staffing of the case."

Posted by Lyle Roberts at 9:28 PM | TrackBack

September 24, 2010

Around the Web

A couple of items from around the web.

(1) Professor John Coffee has a New York Law Journal column (Sept. 17 - subscrip. req'd) on the impact of the National Australia Bank (NAB) decision on SEC and private actions. The column discusses a factual scenario in which a U.S.-based stock promoter defrauds U.S. investors in a transaction that is consummated overseas. Post-NAB, the U.S. investors cannot bring an action under Section 10(b)/Rule 10b-5, but "they could sue in the United States based on a cause of action under foreign law."

(2) The American Lawyer has an article on an unusual order (to say the least) issued in the Gildan Activewear securities class action. Although lead counsel was appointed two years ago and the parties have entered into a preliminary settlement, the court instructs the two plaintiffs firms to "make every effort" to assign at least one minority and one woman to the case. The order states that this is warranted because the class has thousands of members "arguably from diverse backgrounds" and it is "therefore important to all concerned" that lead counsel also be diverse.

Posted by Lyle Roberts at 10:10 PM | TrackBack

September 9, 2010

Satisfy Your CLE Requirements!

Do you have some availability on Tuesday, Sept. 21 in New York? It is not too late to sign up for PLI's Securities Litigation & Enforcement Institute 2010. All of the details can be found here.

Lyle Roberts of Dewey & LeBoeuf (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, including financial crisis litigation, the latest corporate governance litigation issues, case management and settlement techniques, SEC and DOJ trends, and practical advice on handling government investigations.

Hope to see you there.

Posted by Lyle Roberts at 6:14 PM | TrackBack

August 6, 2010

Around The Web

A couple of interesting items from around the web.

(1) A former Grant & Eisenhofer ("G&E") attorney has sued the firm on behalf of Tyco investors. The suit alleges that G&E collected excessive fees for its role as lead counsel in the Tyco securities class action. Tyco settled for nearly $3 billion. G&E subsequently requested and received (over the objections of three institutional investors) an attorneys' fees award of $464 million. The new suit alleges that G&E actually had a contract with the Teachers Retirement System of Louisiana, one of the co-lead plaintiffs, to limit its fee request to $210 million and to oppose anything higher. Bloomberg has an article on the suit, while Am Law Daily raises some questions about its validity.

(2) In the wake of the National Australia Bank ("NAB") decision, plaintiffs have argued that the Court's limitation on the extraterritorial reach of Section 10(b) does not apply to U.S. purchasers who purchase foreign securities on foreign exchanges. The early returns, however, favor the defendants. In the Credit Suisse securities class action, the court found that NAB precludes these "f-squared" claims. Meanwhile, according to a National Law Journal article, the judge in the Toyota securities class action has indicated that any "f-squared" claims may not be allowed to proceed. In light of that determination, the judge appointed a lead plaintiff based on which applicant had the greatest loss associated with trading in Toyota's American Depositary Shares (i.e., ignoring any trading in Toyota securities that did not take place on a U.S. exchange).

Posted by Lyle Roberts at 11:16 PM | TrackBack

July 8, 2010

PLI Briefing on National Australia Bank

The author of The 10b-5 Daily, Lyle Roberts (Dewey & LeBoeuf), is moderating a Practicing Law Institute audio webcast on the U.S. Supreme Court's recent National Australia Bank decision. The webcast will take place on Friday, July 9 at 1 p.m. ET and CLE credit is available. Click here to register.

Posted by Lyle Roberts at 3:51 PM | TrackBack

May 27, 2010

Around The Web

A couple of items from around the web.

(1) The D&O Diary has a helpful summary of the Senate Financial Reform Bill. For securities litigators, however, the bill is probably more notable for what it does not include. A proposed amendment that would have restored aiding-and-abetting liability for private securities fraud actions failed to make it to a vote. Moreover, a provision in the related House bill that addressed the extraterritorial application of the federal securities laws was not included in the Senate version (but could turn up in the reconciled legislation).

(2) Law.com has a column on the Second Circuit's recent Pacific Investment decision. (The 10b-5 Daily's write-up on the case can be found here.) The authors argue that Pacific Investment confirms how difficult it is for plaintiffs to charge "secondary actors with securities fraud liability when no allegedly misleading statements were attributed to those persons at the time the statements in question were made."

Posted by Lyle Roberts at 11:32 PM | TrackBack

May 14, 2010

Faulty Pleading

Two items about inaccurate complaints in securities class actions.

(1) The Harvard Law School Forum on Corporate Governance and Financial Regulation has a post on a recent Second Circuit decision concerning confidential witnesses. In Campo v. Sears Holdings Corp., 2010 WL 1292329 (2d Cir. Apr. 6, 2010) (summary order), the district court permitted the defendants, as part of the motion to dismiss, to depose the plaintiffs' confidential witnesses to determine if they had made the statements attributed to them in the complaint. On appeal, the Second Circuit approved of the district court's use of the deposition testimony, in which the witnesses disowned or contradicted many of their alleged statements.

Quote of note (opinion): "The anonymity of the sources of plaintiffs factual allegations concerning scienter frustrates the requirement, announced in Tellabs, [Inc. v. Makor Issues and Rights, Ltd., 551 U.S. 308, 314 (2007),] that a court weigh competing inferences to determine whether a complaint gives rise to an inference of scienter that is 'cogent and at least as compelling as any opposing inference of nonfraudulent intent.' . . . Because Fed. R. Civ. P. 11 requires that there be a good faith basis for the factual and legal contentions contained in a pleading, the district courts use of the confidential witnesses testimony to test the good faith basis of plaintiffs compliance with Tellabs was permissible."

(2) The New York Law Journal has an article on a recent sanctions decision. In the Australia and New Zealand Banking Group case, a key scienter allegation concerned a set of internal e-mails that supposedly were sent in March 2007. The consolidated complaint dropped the allegation and, upon later examination by the court, plaintiffs' counsel admitted that the March 2007 date had been based on a misreading of a news article about the company. Judge Cote (S.D.N.Y.) found that the allegation "was not an isolated misstatement concerning a collateral or trivial fact, but rather, a material allegation central to the viability of the entire pleading" and ordered plaintiffs' counsel to pay sanctions.

Quote of note (opinion): "Such indifference to the truth of the pleading's single most important factual allegation -- coming, ironically, in the context of initiating a lawsuit that accuses another party of making reckless misstatements of material fact -- is the sort of conduct that Rule 11 and the PSLRA seek to deter."

Posted by Lyle Roberts at 11:49 PM | TrackBack

March 12, 2010

Waiting On The Supreme Court

(1) The "group pleading" doctrine allows plaintiffs to rely on a presumption that statements in corporate documents are the collective work of individuals with direct involvement in the everyday business of the company. In its Tellabs decision, the U.S. Supreme Court declined to address whether this presumption is permissible under the PSLRA's heightened pleading standards, but noted that there is "a disagreement among the circuits" on the issue. The New York Law Journal has a column (March 12 - subscrip. req'd) discussing the circuit split and recent "group pleading" decisions.

Quote of note: "Ultimately, as is clear from Tellabs, [the issue] is likely to be resolved by the Supreme Court. As suggested by Tellabs, the odds are the Supreme Court will conclude that a generalized assumption based on a defendant's 'title' with no supporting evidence cannot constitute the particularity required by the PSLRA."

(2) While the U.S. Supreme Court considers the National Australia Bank case, decisions in foreign-cubed cases are still being issued. In Copeland v. Fortis, 2010 WL 569865 (S.D.N.Y. Feb. 18, 2010), the plaintiffs alleged that Fortis, a Belgium-based provider of banking and insurance services, mislead investors concerning its financial condition. The primary markets for Fortis securities, however, were overseas (the only alleged trading in the U.S. was American Depository Shares on the over-the-counter market). In apply the "conduct" and "effects" tests for subject matter jurisdiction, the court found: (a) that any U.S. conduct was "ancillary to the fraud committed in Belgium," and (b) the plaintiffs had failed to provide sufficient allegations about the number and percentage of U.S. investors to establish that the effect of the fraud on the U.S. was substantial. The court dismissed the complaint.

Quote of note: "I have no doubt that some Fortis investors are U.S. residents, and that Fortis's alleged fraud had some effect upon U.S. investors and the U.S. securities market. From the allegations in the complaint, however, I cannot determine that the effect was 'substantial.' Plaintiffs bear the burden of demonstrating that subject matter jurisdiction exists, and these plaintiffs have not met that burden."

Posted by Lyle Roberts at 9:42 PM | TrackBack

January 29, 2010

Vivendi Verdict

The big news today is the plaintiffs' victory in the Vivendi trial. A few key points about the verdict have already emerged:

(1) The jury agreed with the plaintiffs that Vivendi made 57 false or misleading statements concerning its financial status. As to damages, however, it found that the company's fraud was only responsible for half of the daily stock price inflation that plaintiffs had proposed.

(2) Counsel for the plaintiffs has stated that the overall damages in the case, depending on the number of shareholders who make claims and the amount of pre-judgement interest, could reach $9.3 billion.

(3) Perhaps surprisingly, the jury found that Vivendi's former CEO and CFO (i.e., the individual defendants) were not liable.

(4) Vivendi already has announced that it plans to appeal the jury's decision. Moreover, the release sets forth some of the proposed grounds, including "the Courts decision to include French shareholders in the class, its rulings on jurisdiction and the plaintiffs erroneous method of proving and calculating damages, as well as the numerous incorrect rulings made during the course of the trial."

Additional coverage can be found in Reuters, the Associated Press, and the WSJ Law Blog.

Posted by Lyle Roberts at 6:19 PM | TrackBack

January 15, 2010

Around The Web

A few items of interest from around the web.

(1) CFO.com examines whether the new year will bring regulatory reforms that could reverse the recent drop in securities class action filings.

(2) One entity that may have an effect on the world of securities litigation is the Financial Crisis Inquiry Commission, which started its work this week. The Wall Street Journal has an article (and related blog post) on the close ties between some of the Commission's members and the securities plaintiffs' bar.

(3) But the real action relating to the securities plaintiffs' bar was in Florida, where the State Board of Administration selected five firms for its securities class action panel. It was a hard fought contest, with the St. Petersburg Times reporting that "[i]n the previous 14 months, lawyers and others tied to 51 firms interested in representing the SBA have spent at least $850,000 on Florida politics." Moreover, the American Lawyer has obtained a number of the firms' responses to the SBA's detailed request for proposals. The responses include, among other things, information on billing, fees, settlements, portfolio monitoring, and disciplinary actions.

Posted by Lyle Roberts at 8:01 PM | TrackBack

January 6, 2010

Vivendi Alert

There have been only seven securities class actions tried to a verdict where the conduct at issue took place after the passage of the PLSRA in 1995. Are we about to see one more added to the list?

The American Lawyer reports that closing arguments have begun in the Vivendi securities class action trial, which started last October. (For more coverage on the trial, see these Reuters and Bloomberg articles from last year on the testimony of ex-Vivendi CEO Jean-Marie Messier.) The jury is scheduled to get the case later this week.

Quote of note: "The plaintiffs alleged, among other things, that Vivendi failed to disclose a liquidity crisis, but [counsel for the defendants] told the jury there was no such crisis to disclose. He said that his side had 'proved it in spades,' citing the testimony of Vivendi witnesses who said the company was able to meet its debt obligations."

Posted by Lyle Roberts at 7:42 PM | TrackBack

November 6, 2009

Around The Web

A couple of interesting items from around the web.

Pay To Play - In the context of securities litigation, "pay to play" is when lawyers compete to be selected as class counsel for public entities serving as lead plaintiffs in securities class actions by making political contributions to politicians that exercise control over the entities (typically public pension funds). It is a perennial subject of proposed reform, although it has proven difficult to regulate.

The Wall Street Journal had an editorial (subscrip. req'd) on "pay to play" this past weekend. The paper noted that the practice appears to be widespread and state attorneys general, who receive donations from the same plaintiffs law firms, may be reluctant to investigate. Senator Bob Bennett, however, is one politician who is interested in the topic. According to the New York Daily News, Bennett says that Congress may need to launch an investigation. On the other hand, not everyone is convinced that there is a lot of merit to the allegations of "pay to play." Securities Litigation Watch has two recent posts discussing the empirical counterarguments (here and here)

Extraterritorial Application - One of the government's stated reasons for urging the U.S. Supreme Court not to hear the National Australia Bank case was that Congress may soon address the issue of the extraterritorial application of the securities laws. The legislation that the government was referring to - the Investor Protection Act of 2009 - has been voted out of committee. The full House may take up the bill in December. The provisions on extraterritorial application (Section 215) grant jurisdiction in U.S. courts when (a) there is "conduct within the United States that constitutes significant steps in furtherance of the violation" or (b) there is "conduct occurring outside the United States that has a foreseeable substantial effect within the United States." Thanks to John Letteri for the tip.

Posted by Lyle Roberts at 11:32 PM | TrackBack

October 9, 2009

Vivendi On Trial

The big news this week was the commencement of the Vivendi securities class action trial in the S.D.N.Y. At issue in the case are alleged financial misstatements made by Vivendi from October 2000 to August 2002, when the company engaged in a period of significant growth through acquisitions. The American Litigation Daily has a report on the opening arguments.

The Vivendi case is unusual because it includes "foreign-cubed" claims by non-U.S. investors. The original subject matter jurisdiction decision in the case, which allowed the claims of the non-U.S. investors to move forward, found that there was sufficient U.S. conduct related to the fraud because Vivendi's CEO and CFO had "moved their operations to New York and spent at least half their time managing the company from the United States during a critical part of the class period." A long-running issue, however, has been exactly which non-U.S. investors should be included in the class. The court has certified a class that includes investors from France, England, and the Netherlands (but excludes German and Austrian investors).

The battle over whether French investors, who reportedly make up 60% of the certified class, should be included has been especially bitter. Earlier this year, the court declined to reconsider its decision to include French investors, while noting that another S.D.N.Y. court had come to the opposite conclusion in a different case. Meanwhile, foreign institutional investors excluded from the class have brought a series of individual suits against Vivendi in the U.S. courts. Securities Litigation Watch has a list of the institutional investors and the Telegraph has an article on the possibility of follow-on trials.

The trial reportedly will take several months (presuming that no settlement is reached in the interim). Stay tuned.

Posted by Lyle Roberts at 9:36 PM | TrackBack

October 2, 2009

Around The Web

Time to catch up on some items of interest from around the web.

(1) Business Week (Sept. 17) has a column on an enduring question about securities class actions - do they make any economic or practical sense? The author is skeptical, finding that "directors and officers need to be far more than just titular defendantsthey need to have skin in the game."

(2) The extraterritorial reach of the U.S. securities laws continues to be a subject of practicioner and academic commentary. California Lawyer (Oct. 1) has a column entitled "F-Cubed, or All F-d Up?" about the chances of the Supreme Court taking on the issue of f-cubed cases. Meanwhile, Prof. Hannah Buxbaum has a new article on personal jurisdiction over foreign directors.

(3) The D&O Diary looks at Senator Specter's aiding and abetting bill, discusses the recent subcommittee hearing, and speculates about the bill's potential impact if passed. Conclusion: "[I]t would not only greatly expand the potential securities liability exposure for companies outside professionals. It would also expand the potential securities liability exposure of all companies that transact business with public companies."

Posted by Lyle Roberts at 7:03 PM | TrackBack

September 28, 2009

Satisfy Your CLE Requirements!

Is Tuesday looking like it may be a slow day? It is not too late to sign up for the webcast of PLI's Securities Litigation & Enforcement Institute 2009 (New York edition). All of the details can be found here.

Lyle Roberts of Dewey & LeBoeuf (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, including financial crisis litigation, the latest corporate governance litigation issues, case management and settlement techniques, and SEC and DOJ trends. If you cannot make it tomorrow, there also are options for watching it later on the Web or on DVD.

Posted by Lyle Roberts at 10:01 AM | TrackBack

August 11, 2009

Restoring Aiding And Abetting Liability

The big news item from last week was the introduction of congressional legislation that would create a private action for the aiding and abetting of securities violations. The bill (which is being sponsored by Senator Specter) effectively would overturn the Central Bank and Stoneridge decisions. Investors would have an enhanced ability to bring claims against "secondary" actors in the securities markets - e.g., lawyers and investment banks.

The key provision in the bill amends Section 20(e) of the Securities Exchange Act of 1934 to include the following: "For purposes of any private civil action implied under this title, any person that knowingly or recklessly provides substantial assistance to another person in violation of this title, or of any rule or regulation issued under this title, shall be deemed to be in violation of this title to the same extent as the person to whom such assistance is provided."

Senator Specter's remarks upon introducing the bill can be found here. The public commentary on the bill includes a sharply critical Wall Street Journal editorial and academic assessments from Bainbridge and Smith.

Posted by Lyle Roberts at 7:54 PM | TrackBack

July 17, 2009

That Was Fast

The Securities and Exchange Commission had a ready answer to Senator Bennett's request that the agency look into pay-to-play allegations related to securities class actions: no thanks. Enforcement Action reports that Chairman Schapiro has sent a responsive letter noting, in effect, that the conduct at issue does not fall "squarely" within the agency's jurisdiction.

Posted by Lyle Roberts at 9:14 PM | TrackBack

July 16, 2009

Around The Web

A few interesting items from around the web.

(1) It is not often that outside directors are forced to contribute to the settlement of a securities class action out of their own pockets. In the Peregrine Systems case in the S.D. of California, however, six outside directors have settled for a total of $55.95 million. AmLaw Litigation Daily has a post on the settlement, but notes that the exact amount being paid by the directors themselves (and whether it is some kind of record) is disputed.

(2) Fox Business reports that the Securities and Exchange Commission has provided a legislative "wishlist" to Congress. Although most of the requests would only have an indirect impact on private securities litigation, the SEC does address the hot button issue of extraterritorial jurisdiction. As stated in the list (No. 15): "Clarify US extraterritorial jurisdiction under antifraud provisions of securities laws, overwriting disparate judicial tests by combining both (effects and conduct). US courts would have jurisdiction over 'conduct occurring outside the United States that has a foreseeable substantial effect within the United States.'"

(3) The Deseret News reports that U.S. Senator Bob Bennett (R - Utah) has sent a letter to the Securities and Exchange Commission asking the agency to widen its "pay to play" investigation to "include law firms and attorneys who end up selected to file securities class-action lawsuits for pension plans that could bring them millions of dollars in fees." Thanks to Securities Docket for the link.

Posted by Lyle Roberts at 9:30 PM | TrackBack

July 8, 2009

2009 Mid-Year Review

The author of The 10b-5 Daily (Lyle Roberts - Dewey & LeBoeuf) will be participating in a Securities Docket webcast entitled "2009 Mid-Year Review: Securities Litigation and Enforcement."

The webcast is tomorrow (June 9) at 2:00 p.m. ET and there is no cost to attend. The other panelists are Francine McKenna of re: The Auditors, Tom Gorman of SEC Actions, and Kevin LaCroix of The D&O Diary. Register here.

Posted by Lyle Roberts at 3:03 PM | TrackBack

June 26, 2009

Around The Web

A couple of interesting items from around the web.

(1) Will the government's role in the credit crisis limit the scope of private litigation? The Blog of the Legal Times has a post on the long-running securities class action against Fannie Mae pending in D.C. federal court. The defendants have asked to court to order mediation, arguing that the plaintiffs have refused "to acknowledge 'the drastically changed landscape' following Fannies government takeover."

(2) The 10b-5 Daily was an avid follower of South Korea's attempts to implement a securities class action system (see here, here, here, and here). As noted when the legislation passed in late 2003, however, the bill imposed significant phase-in and standing requirements that threatened to limit its use. But even a blind squirrel finds a nut once in a while. Securities Docket reports that the first South Korean securities class action is about to go forward.

Posted by Lyle Roberts at 9:34 PM | TrackBack

June 12, 2009

Two From The NYLJ

The New York Law Journal has had two recent columns on securities litigation topics.

(1) In "Revisiting the Limitations Period For Securities Fraud" (June 10 edition), the authors discuss the Supreme Court's decision to hear the Merck case.

Quote of note: "Doing away with inquiry notice entirely would solve much, if not all, of the existing confusion. However, the Supreme Court's view of the competing policy issues is likely to inform its decisions regarding whether to keep inquiry notice and, if so, in what form, and whether to impose upon investors an actual duty to investigate and if so, what consequences follow a failure to do so. Reading the tea leaves, the Court is likely to reaffirm that the limitations period commences only after actual or imputed discovery of the facts, and may well formulate broad guidance for inquiry notice that provides an incentive to investigate fraud at an early stage, and imposes a duty to investigate, failing which imputed knowledge would bar claims."

(2) In "Pay-to-Play Reform: What, How and Why?" (May 21 edition), the author examines alleged abuses in the retention of plaintiffs' counsel in securities class actions. Among other items, he notes the recent judicial criticism of "portfolio monitoring."

Quote of note: "Ultimately, the dividing line here probably should be between institutional investors that have an active in-house counsel and those that do not. In the latter case, the law firm effectively controls the client, and thus the problems that the PSLRA sought to end with its lead plaintiff reform resurface again. But when there is a competent house counsel who makes the litigation decisions, the provision of monitoring services should not be viewed as questionable or disqualifying."

Posted by Lyle Roberts at 6:15 PM | TrackBack

May 29, 2009

Around The Web

A few interesting items:

(1) What is Judge Sonia Sotomayor's record in securities class actions? Two notable Second Circuit decisions in which she has participated are Dabit (later unanimously overturned by the Supreme Court) and In re IPO Securities Litigation.

(2) Am Law Litigation Daily reports that the Amsterdam Court of Appeals has approved the proposed Royal Dutch Shell settlement with non-U.S. investors.

(3) The American Lawyer has an article on the lead plaintiff/lead counsel decision in a securities class action brought against Merrill Lynch. The court was highly critical of the "portfolio monitoring" services provided by the lead counsel candidates.

Posted by Lyle Roberts at 11:05 PM | TrackBack

May 13, 2009

Class Members As Clients

Texas billionaire Sam Wyly has suffered another setback in his long-running battle to obtain documents related to the Computer Associates securities class action. (The 10b-5 Daily has posted about the litigation over the years - see here, here, and here.) In a decision issued last week, the New York Court of Appeals found that Wyly, as an "absent" class member in the Computer Associates case, does not enjoy a presumptive right of access to the files held by plaintiffs' counsel upon the termination of representation. Moreover, in his federal court challenge of the Computer Associates settlement, Wyly had failed to demonstrate a "legitimate need" for these files and it was appropriate for the state court to defer to the federal court's determination on this issue.

The New York Law Journal has an article on the decision. In the article, Wyly's counsel notes that his client's federal court challenge of the Computer Associates settlement is currently on appeal and Wyly "will pursue the relevant documents there." Stay tuned.

Posted by Lyle Roberts at 5:24 PM | TrackBack

May 11, 2009

Household Roundup

The big news from late last week was the jury verdict for the plaintiffs in the Household International securities class action. Originally filed in 2002, the complaint alleged that Household engaged in a "massive predatory lending scheme" that led to a $600 million financial restatement. The jury found that the defendants acted at least recklessly as to 16 different statements made to the market, causing Household's stock price to be artificially inflated. The trial will now move on to the damages phase.

As just the seventh securities class action based on conduct that took place after Dec. 1995 (i.e., after the passage of the PSLRA) to go to a trial verdict, the Household case is getting a lot of attention. Here are some links:

Press: Chicago Tribune (May 8, 2009); Chicago Daily Herald (May 8, 2009)

Blogs: The D&O Diary; AmLaw Litigation Daily; Securities Litigation Watch (including a helpful analysis of the jury verdict form).

Posted by Lyle Roberts at 6:51 PM | TrackBack

April 2, 2009

Catching Up

A few interesting stories from the past week.

(1) From the "Where Are They Now" file, the parties in the Dura Pharmaceuticals securities class action have reached a $14 million settlement. The case included a 2005 U.S. Supreme Court decision on the pleading of loss causation. SecuritiesLaw360 has an article (subscrip. req'd) on the settlement.

(2) At the time of the Milberg Weiss indictment, there was some discussion about whether companies that had previously settled in cases brought by the law firm would bring actions to recover those funds. That has not really happened . . . until now. The American Lawyer has a report on a suit brought by Lakes Entertainment alleging that its 2000 settlement was the product of an improper damages estimate.

(3) One possible indicator of whether securities class actions filings will increase is whether plaintiffs firms are hiring more lawyers. According to an article in The Recorder, that appears to be happening, with an increase in lawyers switching from defense firms.

Posted by Lyle Roberts at 10:30 PM | TrackBack

March 25, 2009

Topping The List

RiskMetrics has released the SCAS 50, which "lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2008 in which the law firm served as lead or co-lead counsel."

Last year's leaders:

Total settlements - Coughlin Stoia Geller Rudman & Robbins - 29

Total settlement value - Bernstein Litowitz Berger & Grossmann - $711,950,000

Average settlement value - Grant & Eisenhofer - $108,950,000

Posted by Lyle Roberts at 6:05 PM | TrackBack

February 27, 2009

Analyzing The JPMC Decision

The Second Circuit's recent decision affirming the dismissal of a securities class action against JP Morgan Chase is getting some press attention. The New York Law Journal had two columns this week discussing the case.

In "Circuit Gives Guidance to Litigators on Securities Fraud Claims" (Feb. 23 - subscrip. req'd) and "Clarifying Pleading Requirement for Scienter, Materiality Under PSLRA" (Feb. 25 - subscrip. req'd), the authors focus on the court's application of SEC Staff Accounting Bulletin 99 as "persuasive authority" on the issue of materiality. Both columns conclude that the decision is helpful for defendants who can demonstrate that their alleged misstatements are quantitatively immaterial.

Posted by Lyle Roberts at 8:24 PM | TrackBack

February 5, 2009

Around The Web

A few items of interest from around the web.

(1) Securities Docket has a guest column on group litigation in the United Kingdom and how it contrasts to the U.S. system.

(2) The D&O Diary has an analysis of 2008 securities class actions against life sciences companies.

(3) The New York Law Journal has a column (subscrip. req'd) on the Second Circuit's recent decision holding that an investment advisor does not have standing to bring a securities case in a representative capacity on behalf of its clients. The decision is W.R. Huff Asset Management Co. LLC v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008) and the author notes that its reasoning is applicable to the selection of lead plaintiffs in securities class actions.

Posted by Lyle Roberts at 10:33 PM | TrackBack

January 23, 2009

Measuring Damages

The constant percentage method of calculating damages in a securities class action assumes that the fraud caused the stock to be valued at "x" percent more than it was really worth throughout the class period (with "x" percent equaling the percentage decline in the stock price after the fraud was revealed), even if the stock price varied widely during that time.

The New York Law Journal has an interesting column (Jan. 21 - subscrip. req'd) on whether the constant percentage method remains a valid method of calculating damages. The authors argue that the method has been called into question because of the requirement in Dura (the Supreme Court decision on loss causation) that the revelation of the "relevant truth" be the cause of any loss. Only one court, however, has specifically rejected the use of the constant percentage method.

Quote of note: "In excluding the damages and loss causation report of plaintiffs' expert, the [In re Williams Securities Litigation - N.D. Ok.] court found that the constant percentage method was in direct conflict with Dura Pharmaceuticals Inc. v. Broudo, the controlling Supreme Court precedent on loss causation. Securities litigators and their experts should pay heed to Williams. To the extent that this well-reasoned decision starts a trend in the case law, use of the constant percentage method in securities fraud cases may become a thing of the past."

Posted by Lyle Roberts at 8:59 PM | TrackBack

January 5, 2009

Year In Review

Securities Docket will be hosting a "2008 Year in Review - Securities Litigation and Enforcement" webcast on Tuesday, January 6 at 2 p.m. ET. All of the details on the free program, which will include a number of prominent bloggers, can be found here.

Posted by Lyle Roberts at 11:22 PM | TrackBack

December 12, 2008

Crystal Ball

SCAS Alert (RiskMetrics) has an article on what the coming year may bring for securities litigators. The main speculation is whether the Democratic majorities in Congress will seek to overturn the Supreme Court's decisions in Central Bank (no aiding and abetting liability) and Stoneridge (limiting scope of "secondary actor" liability).

Quote of note: "Likewise, James Cox, a securities law professor at Duke University, told the SCAS Alert that he expects that Congress would address securities litigation reform after grappling with 'the 800-pound gorilla in the room--the issue of regulatory reform.' He said he had heard that prominent plaintiffs' firms and Senate offices have been working on draft legislation to address Stoneridge."

Posted by Lyle Roberts at 10:55 PM | TrackBack

November 26, 2008

Fees and Reforms

(1) Fee requests have been in the news. Last week it was the court's decision to sharply reduce the requested fees and expenses in the Coca-Cola securities class action. This week it is the billing of temp attorneys at high hourly rates in the Xerox securities class action.

Quote of note (Forbes): "Stephen Vasil, a Yale Law School graduate, and Andrew Gilman, a New York University law grad, were hired through a temp agency to work on the Xerox case. Vasil says they often performed glorified secretarial work, including reviewing electronic documents to identify their author and destination. Vasil was paid $35 an hour, Gilman, $40. Yet the law firms in the case are asking for roughly $500 an hour for their services."

(2) Securities Docket has a guest column by Professor Adam Pritchard on his proposal that corporations opt-out of the current securities class action system by limiting potential investor damages to the disgorgement of the defendants' gains.

Quote of note: "Perhaps the best way of understanding the proposal is as a means of ex ante rebutting the presumption of reliance. The Basic Court took pains to stress that the presumption could be rebutted by [a]ny showing that severs the link between the alleged misrepresentation and his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance. My proposal severs that link. By waiving the FOTM presumption of reliance in the articles of incorporation, shareholders will be putting future purchasers of the companys stock on notice that they cannot rely on that presumption to collect out-of-pocket damages. If courts are to be faithful to Basic, they have to faithful not only to its presumption, but also the means that it provided for rebutting that presumption."

Posted by Lyle Roberts at 8:46 PM | TrackBack

November 21, 2008

Litigation On $300 A Night

The Coca-Cola securities class action continues to make news. After the "sale of stolen company documents" controversy, the case was settled earlier this year for $137.5 million.

The Fulton County Daily Report has an article on the court's decision to reduce the fee award from 26% to 21% of the common fund - about a $7 million difference - and reject $4 million in claimed expenses. Among other things, the court complained about the percentage of work done by high-billing attorneys, declined to reimburse on-line research costs, and criticized the per-day travel costs.

Quote of note (decision): "This Court is not troubled by the apparent fact that [the plaintiffs'] attorneys seek high comfort on their journeys, but neither should the class finance such a lifestyle. This Court finds that a client could reasonably expect to pay $300 per night for his attorney's food and lodging on domestic trips, and that is the level at which this Court will reimburse [the firm] for its travel."

Posted by Lyle Roberts at 10:07 PM | TrackBack

November 12, 2008

Around The Web

A couple of items from around the web:

(1) The New York Law Journal has a column (Nov. 5 edition - subscrip. req'd) on loss causation and class certification. The authors argue that although the Oscar (5th Circuit) and Salomon (2nd Circuit) decisions appear to create a split over how burdensome it is for plaintiffs to demonstrate the existence of loss causation at the class certification stage of a case, the practical difference will not be significant. In both courts the parties "will be forced to address loss causation in detail."

(2) The D&O Diary has been attending conferences on the future of securities litigation and reporting back on the results. The blog has detailed notes from the recent PLUS International Conference and Forum for Institutional Investors. Short version: happy days may be here again for the plaintiffs' bar.

Posted by Lyle Roberts at 6:49 PM | TrackBack

October 16, 2008

Pritchard's Proposal

Securities Docket has an interview with Professor Adam Pritchard (U. Mich. Law) on his proposal that corporations opt-out of the current securities class action system by limiting potential investor damages to the disgorgement of the defendants' gains. The post also includes links to Pritchard's expanded Cato Supreme Court Review article on the subject and his model shareholder proposal.

Quote of note: "My guess is that no company will buy on to it unless it gets past the SEC first, in response to a no-action letter attempting to exclude the proposal as inconsistent with federal law. Ill concede that the chances of ultimate success are probably less than 50%, but I dont see a big downside from trying."

Posted by Lyle Roberts at 5:53 PM | TrackBack

October 9, 2008

The Battle of the Acronyms

As a general matter, claims under the Securities Act of 1933 ("'33 Act") may be brought in federal or state court. Some federal courts, however, have held that the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") creates a removal exception for '33 Act securities class actions involving "covered securities" (i.e., securities sold on a national exchange) that are brought in state court. But, you might ask, what about '33 Act securities class actions that do not involve covered securities?

Ask and you shall receive an answer. In New Jersey Carpenters Vacation Fund v. Harborview Mortgage Loan Trust, 2008 WL 4369840 (S.D.N.Y. Sept. 24, 2008), the court considered whether the removal provision of the Class Action Fairness Act of 2005 ("CAFA") applied to a '33 Act securities class action involving large, mortgage-related bond offerings. The plaintiffs alleged that there were misrepresentations in the offering documents. The court concluded that (a) CAFA applies to all securities class actions except those specifically excluded by the statute; and (b) the exceptions in CAFA for class actions relating to covered securities, corporate governance, and security-related rights and duties were intended to ensure that CAFA did not encroach upon SLUSA and were inapplicable in the instant case. Accordingly, the court held that "[s]ince CAFA's main provision trumps [the '33 Act's jurisdiction provision], and no exception applies, remand of the case must be denied."

Holding: Plaintiff's motion to remand denied. (Note that the Ninth Circuit reached the opposite conclusion in Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031 (9th Cir. 2008) earlier this year.)

Posted by Lyle Roberts at 4:36 PM | TrackBack

October 3, 2008

Is That All There Is?

One of the most convoluted securities class actions ever may finally have come to an end (barring a successful appeal). The court has declined to certify the class in the case pending against Halliburton in the N.D. of Texas since 2002. According to a Law360 article (subscrip. req'd), the basis for the court's decision was the failure of the plaintiffs to establish loss causation.

Over the years, the Halliburton case has seen four amended complaints, two changes in lead counsel, the recusal of the original judge, and the judicial rejection of a proposed settlement. That's a long way to go to get to a denial of class certification.

Posted by Lyle Roberts at 4:33 PM | TrackBack

September 23, 2008

Limiting Damages and Suing The Government

(1) The National Law Journal (Sept. 22 edition) has an interesting column on the issue of securities class action damages. Professor Adam Pritchard (U. Mich.) argues that the fundamental flaw in the system is the failure to measure damages by the defendant's gain, rather than the plaintiff's loss.

Quote of note: "Measuring damages by the defendant's gain would accomplish two things. First, it would scale back the stakes in securities class actions. . . . Second, measuring damages by the defendant's benefit would focus deterrence on the executives who actually lied."

(2) The New York Law Journal (Sept. 22 edition) has an article discussing whether the government's role in the credit crisis will limit the scope of private litigation.

Quote of note: "AIG, for instance, was already facing a number of shareholder suits before the government stepped in. The government's acquisition of an 80 percent interest in the insurer through its $85 billion loan then squeezed shareholders further. How a government-controlled AIG will deal with securities class actions remains uncertain."

Posted by Lyle Roberts at 8:38 PM | TrackBack

September 5, 2008

Around The Web

A few items of interest from around the web:

(1) Bruce Carton, a longtime securities law blogger, has launched Securities Docket a "global securities litigation and enforcement report." The site provides one-stop shopping for the latest news, blog posts, filings, etc.

(2) The New York Law Journal has a column (subscrip. req'd) on recent Ninth Circuit loss causation decisions. In particular, the authors discuss the Apollo Group, Corinthian Colleges, and Gilead decisions and conclude that they have not made it more difficult to successfully plead loss causation.

(3) The WSJ Law Blog has coverage of a recent decision in the Oracle securities class action. The court found that the defendants engaged in discovery abuses, including failing to preserve audio recordings of an author's interviews with Oracle's CEO (even though the recordings were in the possession of the author).

Posted by Lyle Roberts at 9:31 PM | TrackBack

August 27, 2008

Around The Web

A couple of columns on securities litigation topics:

(1) The New York Law Journal (Aug. 25 edition) has a column on the Eleventh Circuit's recent decision regarding proportionate liability and control person claims.

Quote of note: "The LaPerriere decision provides the basis for an even further shift in favor of control person defendants. Under LaPerriere, control person defendants inevitably will avoid joint and several liability for the entirety of plaintiffs' damages and may even be held responsible for a lesser amount of damages than that attributed by the fact finder to the persons they control."

(2) Legal Times (Aug. 27 edition) has a column on the litigation surrounding auction rate securities. The authors conclude that the pending securities class actions may be rendered moot by regulatory settlements designed to fully compensate injured investors.

Quote of note: "The most interesting legal aspect of these settlements and buyback programs may be their debilitating impact on the numerous class actions and other private suits filed since the market seized up. Most problematic for any private suit, including putative class actions, is the inability to prove damages -- a central element of any private action. If all auction dealers ultimately agree to implement their own buyback programs for customers, then all those potential plaintiffs will have no remaining damages."

Posted by Lyle Roberts at 6:15 PM | TrackBack

August 22, 2008

Who's Who

When and how plaintiffs must disclose the identities of their confidential witnesses as part of the discovery process continues to be fought over in the courts. In In re Marsh & McLennan Companies, Inc. Sec. Litig., 2008 WL 2941215 (S.D.N.Y. July 30, 2008), the plaintiffs argued that the identities of their confidential witnesses were protected by the work product doctrine and there was also a need to avoid any risk of retaliation by Marsh against its former employees.

The court held that confidential witness information enjoys limited, if any, work-product protection. Even assuming that the information was privileged, the Marsh defendants would have been forced to exhaust their depositions to ascertain the identities and, accordingly, had established a substantial justification for disclosure. Moreover, the threat of retaliation identified by the plaintiffs was more properly the basis for a protective order and required specific factual support.

Holding: Ordered disclosure of confidential witness information, including identities and any documents provided to the plaintiffs. The court also authorized limited discovery as to certain investigations pending against the proposed class representatives.

Posted by Lyle Roberts at 8:28 PM | TrackBack

August 15, 2008

Think Globally, Sue Locally

The New York Law Journal has a column (Aug. 13 - subscrip. req'd) on the "Extraterritorial Application of U.S. Securities Laws." The authors focus on the recent Astrazeneca decision in the S.D.N.Y., where the court dismissed the action as to foreign purchasers on foreign exchanges based on a lack of subject matter jurisdiction.

Quote of note: "Determining U.S. subject matter jurisdiction over complex transnational securities fraud cases will always need to be governed by flexible and fact- specific analyses. However, for purposes of greater judicial uniformity as well as a greater degree of certainty in the international business community about the parameters of U.S. jurisdiction, the district courts should have better guidance than deciding cases 'on very fine distinctions' with the ultimate decision based upon a court's 'impression' of whether subject matter jurisdiction exists."

Posted by Lyle Roberts at 11:24 PM | TrackBack

August 5, 2008

Not So Fast

As it turns out, the defense is on a winning streak in securities class action trials. Although the jury verdicts in the recent JDS Uniphase (for defendants) and Apollo Group (for plaintiffs) trials were split, the Apollo Group defendants achieved a post-trial victory yesterday when the court ruled that the plaintiffs had failed to prove loss causation.

The Apollo Group case was based on the company's failure to disclose the existence of a government report finding that its wholly-owned subsidiary, the University of Phoenix, had violated Department of Education regulations. In its decision overturning the jury verdict, the court found that the two analyst reports relied upon by the plaintiffs as "corrective disclosures" that led to a stock price decline "did not provide any new, fraud-revealing analysis." The analyst reports merely repeated information about the government report already known to the market or provided information about the University of Phoenix that was factually wrong (and therefore could not have been corrective).

The plaintiffs plan to appeal the decision, which could lead to an interesting 9th Circuit opinion on loss causation. The WSJ Law Blog and Reuters have additional coverage.

Posted by Lyle Roberts at 6:39 PM | TrackBack

July 25, 2008

Reforming The System

The U.S. Chamber Institute for Legal Reform has issued a paper entitled Securities Class Action Litigation: The Problem, Its Impact, and the Path To Reform. The paper expands upon some of the concerns and recommendations raised by recent capital market studies and offers a series of proposed reforms. The proposed reforms include: more disclosure surrounding possible conflicts of interest between plaintiffs and their counsel, permitting cost-shifting for certain discovery, providing equal access to interlocutory appeals, and having Congress clarify the pleading standards for scienter and loss causation.

Posted by Lyle Roberts at 11:57 PM | TrackBack

July 24, 2008

WLF Webcast On The SEC And Securities Class Actions

The author of The 10b-5 Daily, Lyle Roberts (Dewey & LeBoeuf), is participating in a Washington Legal Foundation webcast on the SEC and securities class actions. The webcast will take place on Tuesday, July 29 at 10 a.m. ET. Click here (PDF) for the details.

Addition: An archive of the webcast can be found here.

Posted by Lyle Roberts at 6:32 PM | TrackBack

July 18, 2008

Hot Off The Press

Two columns from the New York Law Journal on securities litigation.

(1) In 'Oscar': Misinterpretation of Fraud-on-the-Market Theory (July 17 edition - subscrip. req'd), the author discusses a Fifth Circuit decision on class certification. Notably, the court held that loss causation must be established at the class certification stage of a case by a preponderance of all admissible evidence before the plaintiffs can receive the benefit of the fraud-on-the-market presumption. The author argues that the decision, handed down last year, creates an impermissibly high barrier to class certification that other circuit courts have declined to adopt.

(2) In Whither 'Stoneridge v. Scientific-Atlanta'? Early Results (July 8 edition - subscrip. req'd), the author surveys lower court decisions that have applied the U.S. Supreme Court's holding on scheme liability. The author argues that the Pugh (7th Cir.) and DVI (E.D.Pa.) decisions suggest courts are inclined to interpret Stoneridge "broadly and dismiss claims against any third parties, regardless of their affiliation with an issuer, who are not alleged to have participated in preparing or disseminating false financial statements or other public statements."

Posted by Lyle Roberts at 11:16 PM | TrackBack

July 17, 2008

Clueless

While a proposed class representative does not have to possess "expert knowledge" of the case, there are some limits on how clueless it can be. In the Monster Worldwide, Inc. securities class action before the S.D.N.Y., the court has rejected a proposed class representative (a pension fund) that put forward a witness (the co-chairman of the fund) who "did not know the name of the stock at issue in this case, did not know the name of either individual defendant, did not know whether [the pension fund] ever owned Monster stock, did not know if an amended complaint had been filed, did not know whether he had ever seen any complaint in the action, did not know that [a defendant] had moved to dismiss the complaint, and did not know that [the pension fund] had moved for pre-discovery summary judgment." Following this testimony, the pension fund put forward a second witness who "admitted that he had mostly learned about the substance of the litigation only in the week before his deposition."

The court rejected the pension fund as a class representative, but approved the appointment of the other lead plaintiff to that role. Despite its concerns that the counsel for the pension fund "may not have fulfilled their professional responsibilities in proposing [the pension fund] as a class representative," the court nevertheless appointed the firm as class counsel. The New York Law Journal has an article on the decision.

Quote of note (opinion): "The Court will not be a party to this sham. The foregoing events establish beyond a doubt that [the pension fund] has no interest in, genuine knowledge of, and/or meaningful involvement in this case and is simply the willing pawn of counsel."

Posted by Lyle Roberts at 11:06 PM | TrackBack

June 13, 2008

The Business Of Getting Business

The recruitment of foreign institutional investors to act as lead plaintiffs in U.S. securities class actions is a well-established practice. An interesting look into how these clients are obtained can be found in a breach of contract action recently filed by a plaintiffs' firm against the lawyers it hired as "independent contractors" to develop international clients.

The agreement between the parties, which is an exhibit to the answer and counterclaim, stated that the lawyers would receive monthly compensation and 10% of any fees the plaintiffs' firm earned in cases where a client obtained by the lawyers acted as lead plaintiff (with a deduction for the monthly compensation). The action arose when the lawyers decided to terminate the agreement after a few months and become associated with a different plaintiffs' firm.

Posted by Lyle Roberts at 10:54 PM | TrackBack

June 11, 2008

Around The Web

A few items of interest from around the web.

(1) Professor Michael Perino's paper finding that investors may have been damaged in cases where Milberg Weiss improperly compensated the lead plaintiff has some critics. Ideoblog has a comment and response with the author (here and here).

(2) Forbes has an article on "collusive settlements" in securities litigation.

(3) Bruce Carton, the founder of Securities Litigation Watch, is back with a new blog on securities litigation and enforcement. Readers of The 10b-5 Daily will want to add Unusual Activity to their favorites list.

Posted by Lyle Roberts at 8:46 PM | TrackBack

June 3, 2008

Going To Trial

The Wall Street Journal had an article in yesterday's edition on the JDS Uniphase securities class action trial. The article discusses how the inability to reach a settlement forced the company to risk bankruptcy by taking its chances with a jury.

Quote of note: "Marty Kaplan, JDS's chairman, says the nine-member JDS board had its 'hawks,' who wanted to push to trial, and others who preferred to settle. But he says the plaintiffs' demands far exceeded even the largest settlement the board considered, meaning there was no 'serious debate' about whether to go to trial."

Posted by Lyle Roberts at 8:41 PM | TrackBack

May 30, 2008

Cooperation

(1) The New York Law Journal has an article on the assistance being provided by Refco's ex-CEO, Phillip R. Bennett, to the investors suing the company for securities fraud. The unusual cooperation came to light when plaintiffs' counsel submitted a letter to the court in conjunction with Bennett's criminal sentencing.

Quote of note: [Plaintiffs' counsel] said he would not mind a reduction, however slight, in Bennett's sentence because of his cooperation with shareholders' lawyers. 'It would be a helpful future precedent,' he said."

(2) Of course, cooperating with plaintiffs' counsel can go too far, as illustrated by the Milberg Weiss indictment. Point of Law has a post on the presentation of a new paper by Professor Michael Perino (author of the leading PSLRA treatise) finding that investors may have been damaged in cases where Milberg Weiss improperly compensated the lead plaintiff.

Quote of note: "These findings cast doubt on Milberg Weiss claim that paying kickbacks was a completely victimless crime. They are consistent with the hypothesis that Milberg Weiss asked for and got a greater share of the settlements in these cases than it otherwise woulda real economic harm to the class members who therefore would have had a lower net recovery."

Posted by Lyle Roberts at 7:02 PM | TrackBack

May 23, 2008

Around The Web

A few items of interest from around the web:

(1) The New York Law Journal (May 19 edition) has an article on the global reach of securities class actions. In particular, the article discusses (a) the developing standards for subject matter jurisdiction over claims by foreign investors in U.S. courts, and (b) the evolution of the class action device for securities claims in foreign jurisdictions.

(2) Securities Litigation Watch has a post on the Top 10 Corporate and Securities Articles of 2007, complete with links. The list includes a number of securities litigation related articles.

(3) NERA has issued a report on the settlement of options backdating class actions. The report concludes: "in the cases that have settled to date, the amounts paid to plaintiffs have been substantially lower than in comparable non-backdating class actions."

Posted by Lyle Roberts at 11:03 PM | TrackBack

May 2, 2008

A Little Something For The Effort

House Republican leaders John Boehner (R-OH) and Lamar Smith (R-TX) have asked the House Judiciary Committee to hold a hearing on the payment of kickbacks to lead plaintiffs in securities class actions. The press release and letter to the Chairman of the House Judiciary Committee can be found here. The WSJ Law Blog has a post on the topic and the ABA Journal has an article with related news links.

Posted by Lyle Roberts at 11:58 PM | TrackBack

May 1, 2008

The Wheat From The Chaff

Establishing loss causation for the purpose of class certification or summary judgment is becoming a significant hurdle for plaintiffs. On the heels of the Flowserve and Omnicom decisions comes another defense victory.

In Fener v. Belo Corp., 2008 WL 876967 (N.D. Tex. April 2, 2008), the corrective disclosure made by the company attributed a decline in newspaper circulation to three separate sources. Only one of the sources, however, was related to the alleged fraudulent conduct. Based on Fifth Circuit precedent, the court held that it was the plaintiffs' burden to prove that it was more probable than not that this portion of the disclosure, and not the other unrelated negative statements, caused a significant amount of the stock price decline. The plaintiffs' expert failed to present empirical evidence sufficient to meet this burden. (The 10b-5 Daily previously posted about the initial motion to dismiss decision in the case.)

Holding: Class certification denied.

Quote of note: "[The] event study tends to establish that the market reacted to the bundle of August 5 news pieces with an August 6 stock price drop of 5.47%. Crucially, however, the study fails to target the corrective disclosure at issue."

Posted by Lyle Roberts at 10:32 PM | TrackBack

March 24, 2008

Break In The Action

There will be no new posts on The 10b-5 Daily until after March 31.

Posted by Lyle Roberts at 3:48 PM | TrackBack

March 21, 2008

The Limits Of The Fraud-On-The-Market Theory

Under the fraud-on-the-market theory, reliance by investors on an alleged misrepresentation is presumed if the company's shares were traded on an efficient market. Investors are not entitled to the presumption, however, if they are unable to show that the misrepresentation actually affected the market price of the stock. Class certification continues to be an intense battleground on the application of the fraud-on-the-market theory, as evidenced by two recent decisions.

(1) In In re Fannie Mae Sec. Litig., 247 F.R.D. 32 (D.D.C. 2008), the court considered whether it was appropriate to apply the fraud-on-the-market presumption to investors who purchased Fannie Mae stock after the company's Dec. 2004 announcement that it would engage in a large financial restatement. The plaintiffs argued that additional information about the alleged fraud was released over the next ten months and the class period should extend to Sep. 2005. The court disagreed and held that the Dec. 2004 announcement "severed the link between the alleged misrepresentations and the stock price" and later investors could not "claim a reasonable reliance on Fannie Mae's financial statements." Accordingly, the court found that the class period ended in Dec. 2004.

(2) In In re Credit Suisse First Boston Corp. (Lantronix Inc.) Analyst Sec. Litig., 2008 WL 512779 (S.D.N.Y. Feb. 26, 2008), the court considered whether a series of allegedly false analyst statements about Lantronix affected the market price of the company's stock. The court declined to decide whether the fraud-on-the-market presumption could ever apply to research analyst statements, noting that the issue is currently before the Second Circuit in the In re Salomon Analyst Metromedia Litig. case (see this post for more background). Nevertheless, the court decertified the class based on the plaintiffs' failure to adequately demonstrate that the analyst statements had: (a) increased Lantronix's stock price when issued; (b) had an effect throughout the class period; or (c) negatively impacted Lantronix's stock price when their falsity was revealed to the market.

Posted by Lyle Roberts at 11:30 PM | TrackBack

March 20, 2008

Where To From Here

The March 17, 2008 edition of the National Law Journal has a pair of columns on the impact of the Supreme Court's recent securities litigation decisions.

(1) In Stoneridge Alters Legal Landscape (subscrip. req'd), the authors recap the decision and argue that the Court's rejection of "scheme liability" has "profoundly changed" the potential securities fraud exposure of third parties.

Quote of note: "The holding in Stoneridge indicates that all or most of that $7 billion [in Enron-related settlements] probably did not have to be paid, because the banks, even if they acted with full knowledge that they were engaged in a scheme with Enron, had no liability to the investing public under the anti-fraud provisions of the federal securities laws. Note that while the settling banks in Enron paid approximately $7 billion, there remained a number of banks that declined to settle, and that would have faced massive exposure had Stoneridge been decided differently."

(2) In Courts Interpret Tellabs (subscrip. req'd), the authors examine the post-decision case law and conclude that courts are taking a "more stringent" approach to scienter pleading.

Quote of note: "Of 102 reported decisions reviewed applying Tellabs, 64 reflect dismissals (albeit some with leave to amend). On its face, this (unscientific) survey reflects a dismissal rate higher than historical norms."

Posted by Lyle Roberts at 11:02 PM | TrackBack

March 14, 2008

Around The Web

A few items from around the web.

(1) RiskMetrics has released its annual SCAS 50 report of the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2007 in which the law firm served as lead or co-lead counsel.

(2) The Federalist Society has posted an online debate on the Stoneridge decision on scheme liability. Participants include Professor Stephen Bainbridge, Professor Jay Brown, and AEI's Ted Frank.

(3) Amanda Rose, an incoming Vanderbilt law professor, has issued an interesting working paper on securities class actions. Rose argues that the overdeterrence threat of securities class actions could be mitigated if "policymakers adopt an oversight approach to securities litigation reform by, for example, granting the SEC the ability to screen which Rule 10b-5 class actions may be filed, and against whom."

Posted by Lyle Roberts at 10:16 PM | TrackBack

February 29, 2008

Coca-Cola Suit Fizzes Over

Big news in the long-running Coca-Cola securities class action. As previously posted in The 10b-5 Daily, the defendants have sought the denial of class certification based on alleged misconduct by lead counsel for the plaintiffs. In a report issued this week, the special master considering the issue agreed with the defendants. The report found that lead counsel engaged in improper conduct when it paid a former Coca-Cola employee to provide the plaintiffs with stolen company documents. The special master's recommendation that lead counsel be barred from serving as class counsel is subject to approval by the district court judge. Legal Pad has an extensive post on the decision, including a link to the report.

Quote of note (Special Master's Report and Recommendation): "Ordinarily, in the absence of any reason to suspect class counsel of inappropriate conduct, courts must assume that class counsel will properly and candidly discharge these duties. Here, however, the Court is faced with a very unusual situation in which Class Counsel engaged in extremely troubling conduct by paying for documents stolen from Coke, and then exacerbated the conclusions to be drawn from that initial conduct by refusing to accept responsibility for that conduct and by continuing, to this day, to defend that conduct through the use of arguments that appear to be pretextual. The administration of justice would be prejudiced should the court turn a blind eye to these circumstances."

Posted by Lyle Roberts at 10:02 PM | TrackBack

February 21, 2008

One More Time

Will the "Securities Litigation Attorney Accountability and Transparency Act" finally gain some traction? It's doubtful. Initially introduced in 2006 after the Milberg Weiss indictment, the legislation would permit fee shifting for successful defendants at the discretion of the court, require the disclosure of conflicts of interest between a plaintiff and his attorney, and allow courts to approve lead counsel through a competitive bidding process. SecuritiesLaw360 reports (subscrip. req'd) that the bill was reintroduced last week with support from House Minority Leader John Boehner (R-Ohio).

Posted by Lyle Roberts at 6:31 PM | TrackBack

February 8, 2008

Around The Web

(1) Lyle Roberts (the author of The 10b-5 Daily) and Jonathan Miller have a column in the Feb. 8, 2008 edition of the New York Law Journal on the collective scienter theory. The column (subscrip. req'd) discusses the Dynex Capital and Tellabs II decisions.

(2) Securities Litigation Watch is keeping a close tab on securities class action filings. January 2008 was a big month, with at least 20 new filings (and not all of them subprime related).

(3) Professor Stephen Bainbridge posts his remarks on "Stoneridge and Capital Markets Policy" from an ABA panel presentation today.

Posted by Lyle Roberts at 11:10 PM | TrackBack

February 1, 2008

Trial Story

The Apollo Group securities class action trial ended with a plaintiffs' verdict. A couple of news articles - from Portfolio.com and The Legal Intelligencer (Jan. 31, 2008 edition - subscrip. req'd) - offer some more background on what happened.

Quote of note (Portfolio.com): "While this might sound like the perfect case for the defense to rush to settle, that did not happen. At one point, there was a confidential mediation, but it went nowhere, says [plaintiffs' counsel]. 'They made it abundantly clear to us that they had every intention of trying this case to verdict,' he says. 'We had no intention of caving, we would never cave, and we made it abundantly clear we try cases to verdict.'"

Posted by Lyle Roberts at 7:05 PM | TrackBack

January 28, 2008

PLI Briefing on Stoneridge

The author of The 10b-5 Daily, Lyle Roberts (Dewey & LeBoeuf), is participating in a Practicing Law Institute audio webcast on the U.S. Supreme Court's recent Stoneridge decision. The webcast will take place on Thursday, January 31 at 1 p.m. ET and CLE credit is available. Click here to register.

Posted by Lyle Roberts at 11:38 PM | TrackBack

January 17, 2008

On The Other Hand

As it turns out, trials remain a risky business for both plaintiffs and defendants. Any thoughts that the JDS Uniphase defense verdict would lead to more securities class action trials will have to be tempered by yesterday's result in the Apollo Group trial. Bloomberg reports that the jury returned a plaintiff verdict that could lead to a payout of up to $277.5 million in damages.

Interestingly, the company has a web page on the litigation that includes a case summary, key documents, and a timeline of events. Comprehensive coverage of the trial and the jury verdict can be found at Securities Litigation Watch and The D&O Diary.

Posted by Lyle Roberts at 6:29 PM | TrackBack

January 10, 2008

Around The Web

Two items of interest:

(1) Texas billionaire Sam Wyly's litigation over the settlement in the Computer Associates securities class action has hit a slight bump. The court decision giving Wyly access to the work product of the lead counsel in the Computer Associates case has been on appeal in New York state court. The New York Law Journal reports that the appellate court has overruled the earlier decision, finding that an absent class member does not have the same right to lawyers' files as a client in a traditional attorney-client relationship. Wyly's attorney states that Wyly plans to appeal the decision and, in any event, will be able to obtain the material as part of his ongoing legal malpractice suit against the plaintiffs' firms.

(2) Was the JDS Uniphase case a harbinger of success for defendants in securities class action trials? We should know soon. According to Securities Litigation Watch, a verdict in the Apollo Group trial could be reached today.

Posted by Lyle Roberts at 9:02 AM | TrackBack

December 14, 2007

Pleading Issues

The New York Law Journal (subscrip. req'd) has two interesting columns this week discussing developments in the pleading of securities fraud.

(1) Lower Court's Handling of Tellabs' "Inference of Scienter" (Dec. 11) discusses how courts have addressed the PSLRA's scienter pleading standard in the aftermath of the Supreme Court's Tellabs decision earlier this year. After summarizing the relevant decisions, the authors conclude that Tellabs has made it more difficult to survive a motion to dismiss based on a "post-Tellabs trend that corporate investigations, revisions, and restatements do not necessarily support a sufficiently compelling inference of scienter."

Quote of note: "The early returns suggest a significant change in how lower courts are addressing scienter issues in 12(b)(6) motions in Section 10(b) private civil cases. As one court aptly stated, the analysis required by Tellabs 'is akin to holding a minitrial on the merits of the case based only on the complaint.'"

(2) Group Pleading Suffers Another Blow (Dec. 13) addresses the varying court decisions on whether the "group pleading doctrine," which permits the attribution of alleged misstatements in group-published documents to corporate officers without specific factual allegations about their respective involvement in the misstatements, has survived the passage of the PSLRA. As the authors note, some courts (especially the S.D.N.Y.) have drawn a distinction between group pleading for purposes of attributing misstatements (permitted) and group pleading for purposes of establishing the existence of a strong inference of scienter (not permitted). Other courts, most notably the Third Circuit in its recent decision in Winer Family Trust v. Queen, 503 F.3d 319 (3rd Cir. 2007), have rejected the distinction as "illogical" given that it requires a heightened pleading of scienter for an act that the defendant is only presumed to have committed.

Quote of note: "The issue may yet reach the Supreme Court. At present, there is only a latent conflict among the circuits, as no circuit court has expressly held that group pleading is still permissible despite the PSLRA. Nonetheless, many district courts, particularly in the Second Circuit, have continued to apply the doctrine. It is difficult to predict where the Second Circuit would come out on this issue, given its silence to date. However, if it were to adopt the prevailing view of its district courts, that would create a clear conflict between circuit court holdings, which could send the issue to the Supreme Court."

Posted by Lyle Roberts at 6:29 PM | TrackBack

December 7, 2007

A Little Birdy Told Me

Whether the plaintiffs in a securities class action should be required to disclose the identities of their confidential witnesses as part of the discovery process is an issue that continues to be the subject of litigation. The 10b-5 Daily had a post last year about an E.D. of Pa. decision in which the court held that the defendants were entitled to the names of all individuals known by the plaintiff to have relevant knowledge, but the plaintiff was not required to specifically identify the confidential witnesses relied upon in the complaint. The court did note, however, that it would consider revisiting its decision if the defendants were presented with an overwhelming list of names.

How many names would be "overwhelming"? A court in the N.D. of Cal. has an answer: 77. In In re Harmonic, Inc. Sec. Litig., 245 F.R.D. 424 (N.D. Cal. 2007), the court found the only effect of allowing the plaintiffs to withhold the names of the five confidential witnesses relied upon in the complaint would be "to force the Defendants to expend resources on taking the depositions of 77 people [i.e., the witnesses identified in the plaintiffs' initial disclosures] in order to obtain the information." The court also rejected the plaintiffs' argument that the names of their confidential witnesses were protected work product, noting that the information would "inevitably come to light."

Holding: Motion to compel answers to interrogatories concerning confidential witnesses granted.

Posted by Lyle Roberts at 8:03 PM | TrackBack

November 29, 2007

Wyly's Back

Texas billionaire Sam Wyly has been in litigation over the settlement in the Computer Associates securities class action for years, alleging that plaintiffs' counsel improperly settled the case for a low amount just prior to the company's public disclosures of accounting fraud. The 10b-5 Daily has previously posted about Wyly's efforts to obtain documents related to the case (see here, here, and here). Having finally obtained the documents earlier this year, Wyly has brought a fraud action in New York state court against the relevant plaintiff law firms. Newsday has an article on the suit.

Quote of note: "The heart of Wyly's claim is the distinct difference between two sets of shareholder lawsuits filed against CA -- one in 1998 following a sharp drop in CA's share price, and another in 2002 following revelations of federal probes of CA's accounting. . . . The suit takes exception with the law firms' claims that allegations in the two suits were largely similar and therefore could be combined for the purposes of a settlement. The suit claims that if allegations in the latter suit had been properly researched and argued, the settlement would have been much larger. Instead, Wyly's suit argues, the 2002 suit never even reached the discovery phase."

Addition: An alert reader notes that Wyly has not actually been given the documents he was seeking from plaintiffs' counsel. According to the relevant court docket, production has been stayed pending an appeal of the court's decision.

Posted by Lyle Roberts at 6:10 PM | TrackBack

November 27, 2007

The Verdict

The trial of the year - if you are a securities litigator - has come to an end. Reuters and the Associated Press report that the jury in the JDS Uniphase trial has returned a unanimous verdict in favor of the defendants. (Thanks to Securities Litigation Watch for the links.)

Quote of note (Associated Press): "Christopher Dewees, JDS Uniphase's chief legal officer, said the company participated in multiple settlement talks since the lawsuit was filed in 2002, but the parties remained 'very far apart.' 'The company is obviously extremely pleased that the jury recognized that this case is without merit,' he said in an interview. 'But it is obviously chagrined to have spent the time, effort and money over the past 6 years to achieve this verdict.'"

Posted by Lyle Roberts at 10:14 PM | TrackBack

November 20, 2007

Catching Up With Merck

The New Jersey Law Journal has an article discussing the status of the various Vioxx-related securities litigations pending against Merck & Co. The company entered into a $4.8 billion product liability settlement last week, which may make the plaintiffs' cases easier to win. The securities class action, however, was dismissed earlier this year on statute of limitations grounds. The dismissal is being appealed to the Third Circuit. (The 10b-5 Daily has previously posted about the lead plaintiff dispute in the case.)

Posted by Lyle Roberts at 10:39 PM | TrackBack

November 16, 2007

Getting Close

Plenty of cases get snatched from the hands of juries by settlements on the courthouse steps. The JDS Uniphase trial, however, is still going strong. More updates can be found on Crash.net (click here, here, and here) and a San Jose Mercury News blog.

Quote of Note (San Jose Mercury News): "As of now, it looks like closing arguments will start sometime on Monday (maybe) and continue through at least Tuesday."

Addition: Meanwhile, Securities Litigation Watch reports that another securities class action trial has gotten underway in the D. of Arizona. The corporate defendant in the case, which started in 2004, is Apollo Group.

Posted by Lyle Roberts at 10:38 PM | TrackBack

November 15, 2007

Around The Web

A few interrelated items of note:

(1) The New York Law Journal has a column (Nov. 15 edition - subscrip. req'd) on possible securities litigation reform. Professor John Coffee argues that "we have too little securities litigation in the contexts where it would be useful and too much securities litigation in the contexts where it is useless." He suggests a compromise reform that would "restore 'aiding and abetting' liability by overturning Central Bank, while also placing a percentage ceiling on the non-trading corporation's liability in a secondary market case."

(2) Professor Coffee states in his column that the number of securities class actions has dropped and "no real upturn is in sight." Others are not so sure. The D&O Diary had a post two weeks ago noting that a significant upturn in filings appeared to be underway. That trend is continuing, fueled largely by filings from a single plaintiffs' law firm. Coughlin Stoia has filed ten new securities class actions so far this month (click here for a press release search).

(3) Lots of suits leads to lots of settlements. RiskMetrics has released the Securities Class Action Services (SCAS) 50 Power Rankings report, which ranks the top 50 plaintiffs' law firms based on various settlement statistics. Coughlin Stoia heads the list for cumulative dollar value of securities class action settlements from 2003 to 2006.

Posted by Lyle Roberts at 5:04 PM | TrackBack

November 6, 2007

Keeping Up With The JDS Uniphase Trial

While media reports on the JDS Uniphase securities class action trial have tapered off since the opening statements, there is one place to get updated reports - Crash.net, a motorsport website. It turns out that Kevin Kalkhoven, the former CEO of JDS Uniphase and a defendant in the case, is one of the owners of the Champ Car World Series. Accordingly, Crash.net is following the trial closely, with a focus on Kalkhoven (click here, here, here, here, and here for the last two weeks of coverage).

Quote of note: "The trial is scheduled for nineteen days, which means if all goes according to plan, the evidentiary portion of the trial will end on Friday 16 November. Then, the thanksgiving week will be a 'break' for all lawyers and jurors, before reconvening the following week for closing arguments and jury deliberations."

Posted by Lyle Roberts at 9:03 PM | TrackBack

November 1, 2007

Payday

After the large settlement comes the large fee request. The Tyco settlement, at $3 billion with an additional $225 million to be paid by PricewaterhouseCoopers (the company's auditor), has been hailed as the largest payout ever by a single corporate defendant in a securities fraud lawsuit. The Wall Street Journal has a report on the attorneys' fees requested by the lead counsel for the plaintiffs - $460 million, or 14.5% of the settlement. Three institutional investors who are members of the class have objected to the size of the request. WSJ Law Blog has a rundown of the numbers.

Quote of note: "In similar cases, known as mega securities settlements, fees have averaged closer to 10%. 'This is something of an outlier in terms of the percentage of the fee request,' says Adam Savett, a director of the Securities Class Action Services Group, a unit of RiskMetrics Group. He added, 'Plus, the sheer size of the fee check that the judge will picture in his mind might pose a burden.'"

Posted by Lyle Roberts at 5:56 PM | TrackBack

October 24, 2007

And They're Off

There was talk about an increase in the number of securities class action trials back in 2005, but the trend never went anywhere. Not surprisingly, therefore, the start of the trial in the JDS Uniphase case has generated a fair amount of media attention. The case has an interesting history, including the lead plaintiff taking out a newspaper advertisement urging JDS Uniphase employees to disclose what they know about the alleged fraud.

Coverage of the opening statements in the trial can be found in Reuters (plaintiffs), the San Jose Mercury News (plaintiffs), and, from a few hours ago, the Associated Press (defendants).

Addition: RiskMetrics Group has put together a handy summary of post-PSLRA securities class action trials (via WSJ Law Blog).

Posted by Lyle Roberts at 6:47 PM | TrackBack

October 22, 2007

Coca-Cola Suit Fizzes

There has been an interesting development in the long-running Coca-Cola securities class action. According to media reports, the defense has sought denial of class certification based on alleged misconduct by lead counsel for the plaintiffs (Coughlin Stoia and Chitwood Harley) relating to payments to witnesses. Coca-Cola asserts that these are the "same sort of tactics" that the former lead attorney on the case has admitted to as part of a recent criminal plea agreement. Coverage can be found in the Wall Street Journal, the Fulton County Daily Report, and Reuters.

Posted by Lyle Roberts at 8:59 PM | TrackBack

October 18, 2007

Around The Web

A few items of interest:

(1) The D & O Diary has a post examining recent securities class action decisions involving foreign investors. One type of litigation that is receiving a lot of attention is "foreign cubed" cases (defined as an action brought in the U.S. against a foreign issuer, on behalf of a class that includes not only investors who purchased the securities in question on a U.S. securities exchange, but also foreign investors who purchased the securities on a foreign securities exchange).

(2) Securities Litigation Watch has a post on a recent Ninth Circuit case setting out the standard for determining when an investor is on inquiry notice of his securities fraud claim for purposes of the running of the statute of limitations. The case is Betz v. Trainer Wortham & Co., Inc., 2007 WL 2874369 (9th Cir. Oct. 4, 2007).

(3) Two new papers on determining securities fraud damages have been published: Inflation and Damages in a Post-Dura World (David Tabak - NERA) and The Loss Causation Requirement for Rule 10b-5 Causes-of-Action: The Implication of Dura Pharmaceuticals v. Broudo (Allen Ferrell - Harvard; Atanu Saha - Alix Partners).

Posted by Lyle Roberts at 6:52 PM | TrackBack

October 8, 2007

Still More Stoneridge Previews

On the eve of oral argument in the Stoneridge (a.k.a. Charter Communications) case on scheme liability, the media coverage continues.

(1) The Wall Street Journal had two items in its weekend edition, including a "Hot Topic" breakout of the case and an editorial (subscrip. req'd) urging the court to reject the position advocated by the investor plaintiffs.

(2) More editorials can be found in the Washington Times, the Financial Times, and the USA Today.

(3) CNBC has a point/counterpoint with two prominent securities litigators from its "Power Lunch" program.

Posted by Lyle Roberts at 5:07 PM | TrackBack

October 5, 2007

More Stoneridge Previews

A number of media outlets have chosen to run articles on the Stoneridge (a.k.a. Charter Communications) case today in anticipation of next week's argument. Articles can be found in the Washington Post, Wall Street Journal , Reuters, and MarketWatch.

Quote of note (Washington Post): "Joseph A. Grundfest, a Stanford University law professor who supports businesses in the case, said the SEC and the Justice Department already have the power to sue third parties for their involvement in a fraud scheme. He noted that Congress repeatedly has rejected attempts to expand the rights of investors to sue. 'There's a question of real principle here: Which decisions should be made by the courts, and which should be made by Congress?' Grundfest said."

Posted by Lyle Roberts at 5:54 PM | TrackBack

October 4, 2007

Previewing Stoneridge

For those readers who would like to get a preview of the Stoneridge (a.k.a. Charter Communications) argument in the U.S. Supreme Court next week, there are two notable events being held this Friday.

(1) The American Enterprise Institute is hosting a panel discussion (including Harvey Pitt, the former SEC Chairman) on the case in Washington, D.C. Details can be found here.

(2) The Center for Business Law & Regulation at Case Western Reserve University has a half-day conference on the case taking place on campus in Cleveland, Ohio. There also will be a live webcast. Details can be found here.

Posted by Lyle Roberts at 10:40 AM | TrackBack

September 28, 2007

Two From New York

The New York Law Journal (Sept. 28) has two columns on securities litigation topics. A subscription is required to view the columns online.

(1) In "DOJ Backs 'Scheme Liability' in Third-Party Class Actions" the authors provide a preview of the upcoming Stoneridge (a.k.a. Charter Communications) case in the U.S. Supreme Court. The column summarizes the history of the case and discusses the arguments presented in the DOJ's amicus brief.

Quote of note: "The U.S. Department of Justice's endorsement of scheme liability for third parties may result in a pyrrhic victory for the plaintiff class action bar given the stark impact that its proposed reliance test would have upon many scheme liability claims. Scheme liability, according the solicitor general's view, would only apply to defendants whose misconduct was directly relied upon by the allegedly defrauded investor and not to other, potential deep-pocket defendants who allegedly participated in a broader scheme to defraud."

(2) In "'Oscar': Nearing the End of Fraud-On-Market Theory?" the author argues that the Dura decision on loss causation has led courts to question the continuing efficacy of the fraud-on-the-market theory. The author discusses the Fifth Circuit's denial of class certification in Oscar Private Equity (a short summary and link to the decision can be found here) and concludes that it may be a harbinger of things to come.

Quote of note: "[T]he Fifth Circuit seems to have accepted the Supreme Court's challenge, and has significantly chipped away at the validity of the fraud-on-the-market theory by barring use of the presumption at the class action certification stage. In so doing, it has invoked the logic of Justice White's Basic dissent. Based on Oscar and other appellate decisions, it seems as though the repudiation of the fraud-on-the-market theory will continue and Justice White's opinion will sometime soon become the law of the land."

Posted by Lyle Roberts at 6:25 PM | TrackBack

September 26, 2007

SEC Roundtable

The Wall Street Journal reports that the SEC will hold a roundtable early next year on the topic of shareholder litigation. The roundtable is being held in response to a letter (along with discussion questions) from six prominent law professors petitioning the agency to examine the topic. It also comes in the wake of a series of reports, including from The Committee on Capital Markets Regulation and Bloomberg/Schumer, that have discussed the potential negative impact of shareholder litigation on the U.S. financial markets.

Quote of note (WSJ): "The SEC roundtable, as it appears so far, will address the law professors' concerns, including who bears the cost of paying for attorneys fees in securities lawsuits, the role insurance plays in indemnifying companies or individuals, the percentage of investors who file claims and collect portions of settlements, and how the economics of a settlement change when the defendant is a third party."

Posted by Lyle Roberts at 8:04 AM | TrackBack

September 13, 2007

Subprime Exposure

The problems in the subprime mortgage market have led to extensive litigation. The Washington Post had an article this week on the topic. Meanwhile, The D&O Diary has been keeping a running tab on subprime-related securities class actions.

Quote of note (Washington Post): "A consortium of investors is going after the collapsed Bear Stearns hedge funds. Home buyers, shareholders and investment banks have filed suits against more than a dozen mortgage lenders. A working group at the Securities and Exchange Commission is examining accounting and disclosure issues, as well as stock sales earlier this year by executives at companies that since have been ensnared by the subprime mess."

Posted by Lyle Roberts at 11:28 PM | TrackBack

August 30, 2007

Biovail Travail

The American Lawyer (September 2007) has a feature article (including a sidebar and a timeline) on the twists and turns in the securities litigation surrounding Biovail Corporation. Biovail is Canada's largest publicly traded drugmaker and has been both defending itself in a securities class action and prosecuting a case against short-sellers of the company's stock. The company's use of information gathered in the securities class action (which was subject to a protective order) in its other case has gotten the company and its counsel into trouble with the court.

Quote of note: "By the end of 2003, Biovail stock was trading below $25. The drop could be explained, at least in part, by Biovail's poor performance. In October 2003 the company issued an announcement of disappointing third quarter results, which sent the stock downward. But [the Chairman of Biovail] suspected that there was something else going on. As Biovail's share price continued to languish through 2004, he came to believe that short-sellers were waging a campaign of disinformation to make sure the share price never recovered."

Posted by Lyle Roberts at 6:55 PM | TrackBack

August 7, 2007

The Milberg Effect

Two articles from last week:

(1) The American Lawyer has a feature article on Milberg Weiss's indictment and the concurrent decline in securities class action filings.

(2) The Wall Street Journal Law Blog reports that Milberg Weiss and Lerach Coughlin have been sued in a class action based on the kickback allegations in the Milberg Weiss indictment. The suit is being brought on behalf of former class members in several lawsuits in which Milberg Weiss acted as lead counsel. A copy of the complaint can be found here. Legal Pad has more on the allegations in the case.

Quote of note (The American Lawyer): "Nor is there a new Milberg on the horizon. After several years, and several key court rulings, the PSLRA's goal of forcing plaintiffs to allege highly specific allegations appears to be working, according to both plaintiffs and defense lawyers. That makes a firm model based on filing lots of actions harder to maintain, since plaintiffs cases are more prone to dismissal. A handful of major players in the practice-Bernstein Litowitz and Grant & Eisenhofer, for example-file the major cases that Milberg did at its peak, but don't bring the bevy of smaller cases that Milberg also did."

Posted by Lyle Roberts at 11:35 AM | TrackBack

July 26, 2007

Who's Doing The Mandating?

In an op-ed in yesterday's edition of the Financial Times, the director of the Committee on Capital Markets Regulation (a.k.a. the "Paulson Committee") addresses a securities litigation reform that the SEC appears eager to avoid endorsing. Christopher Cox, the Chairman of the SEC, has told Congress that the SEC is not considering allowing companies to "mandate" arbitration for shareholder claims. The op-ed points out that the proposed reform actually puts the mandating power in the hands of the shareholders - who would vote on a charter amendment requiring arbitration and could always decide to reverse their decision later - not the company.

Quote of note: "The reform that the committee urges strengthens shareholder rights by broadening choice beyond the route of class action litigation. The SEC should not feel constrained to block or endorse alternatives to class actions. Indeed, after full and fair public discussion, the SEC should leave resolution of disputes between shareholders and their companies where it belongs, in the hands of shareholders and the courts."

Posted by Lyle Roberts at 11:11 PM | TrackBack

July 19, 2007

That Had To Hurt

The Wall Street Journal has an online debate (subscrip. req'd) between two securities litigators on the merits of scheme liability, a topic that will be addressed by the U.S. Supreme Court next term in the Stoneridge (a.k.a. Charter Communications) case. For those who like their debates slightly heated and reasonably entertaining, this will not disappoint. The WSJ Law Blog also has a related post where they invite comments on the topic.

Quote of note:

"Well, Sean, there you go again. You pick a troubling fact pattern -- a Wall Street bank's alleged involvement in a phony sale of assets to prop up corporate cash flow -- to argue for the rewriting of the securities laws."

. . . .

"Thanks Bob for your concession that Bank A's conduct in my hypothetical was 'troubling.' That had to hurt. The question that investors would like to have you (and the Chamber of Commerce) answer is: do you think Bank A should get a pass for what it did in the (not so) hypothetical? Or is Bank A an 'innocent' third party that should be beyond the reach of defrauded investors?"

Posted by Lyle Roberts at 7:26 PM | TrackBack

July 13, 2007

Cornerstone and Stanford Release Interim Report On Filings In 2007

Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released an interim report on federal securities class action filings in 2007. The findings include:

(1) There were 59 filings in the first half of 2007. This represents a slight uptick from the previous six-month period, but is significantly below the post-PSLRA average semi-annual filing rate of 101 (mid-year periods July 1996 through June 2005).

(2) The report suggests two hypotheses for the continued low filing rate: (i) increased government enforcement activity leading to lower incidence of fraud; and/or (ii) a strong stock market with low volatility.

(3) The communication and finance sectors had the most filings.

Posted by Lyle Roberts at 10:09 AM | TrackBack

July 11, 2007

Face Off

The New York Law Journal (July 9, 2007 edition) has a special section (subscrip. req'd) on securities litigation and regulation, including articles on merger & acquisition cases related to private equity deals, the recent Billing antitrust decision in the U.S. Supreme Court, and the "changing face" of securities class actions. Two prominent New York securities litigators also have a publicly available "point-counterpoint" on recent judicial developments.

Posted by Lyle Roberts at 6:35 PM | TrackBack

July 6, 2007

Around The Web

(1) A column on Law.com provides an overview of the recent U.S. Supreme Court cases related to securities litigation.

Quote of note: "While Dura and Tellabs are significant in their own right, their impact may pale in comparison to the Supreme Court's resolution, to be made in 2008, of Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc., which squarely puts the theory of "scheme liability" to the test."

(2) Professor Hannah L. Buxbaum has posted a forthcoming article on the jurisdictional issues raised by "foreign cubed" cases (defined as an action brought against a foreign issuer, on behalf of a class that includes not only investors who purchased the securities in question on a U.S. securities exchange, but also foreign investors who purchased the securities on a foreign securities exchange). The article - entitled "Multinational Class Actions Under Federal Securities Law: Toward a "Fraud on the Global Market" Theory?" - can be downloaded here.

Quote of note: "Multinational class actions invoke particularly strongly the concerns courts and commentators share regarding the over-expansive application of U.S. regulatory law in the global arena. (And, as I have argued, they are likely in the near future to attract the unfavorable notice of foreign governments as well.) Moreover, these claims illustrate particularly clearly the weaknesses of traditional jurisdictional rules."

Posted by Lyle Roberts at 8:34 PM | TrackBack

July 5, 2007

PLI Briefing On Tellabs

The author of The 10b-5 Daily, Lyle Roberts (LeBoeuf Lamb), will be co-moderating a Practicing Law Institute audio webcast on the U.S. Supreme Court's recent Tellabs decision. The webcast will take place on Wednesday, July 11 at 1 p.m. ET. Bruce Vanyo (Katten Muchin) is the other co-moderator and the panelists are Jerome Congress (Milberg Weiss) and David Graham (Sidley Austin), who represented the parties in the case. CLE credit is available. Click here to register.

Posted by Lyle Roberts at 8:31 PM | TrackBack

June 27, 2007

June 15, 2007

Catching Up With Loss Causation

With all of the talk about the U.S. Supreme Court's most recent securities litigation issues (scienter and scheme liability), it is important to remember that the full impact of the court's last big decision - the Dura opinion on loss causation issued in 2005 - is still playing out in the lower courts. This year has seen a number of interesting decisions.

(1) In In re Motorola Sec. Litig., 2007 WL 487738 (N.D. Ill. Feb. 8, 2007), the court undertook a comprehensive examination of loss causation in the context of a summary judgment motion. Notably, the court rejected defendants' argument that under Dura "a securities fraud plaintiff bears the burden, even as a nonmoving party on summary judgment, of proving that its loss was caused by the claimed fraud, and not by the 'tangle of other factors' affecting share price." Instead, the court found that it is the defendant's burden to show that the decline in share price did not result from the disclosure of information related to the claimed fraud. (The parties settled the case shortly after this decision.)

(2) In Ray v. Citigroup Global Markets, Inc., 2007 WL 1080426 (7th Cir. April 12, 2007), the court addressed an appeal from a grant of summary judgment in a collective action against an investment advisor. The court identified three possible ways "a plaintiff might go about proving loss causation." First, a plaintiff could demonstrate the "materialization of a risk" - i.e., that it was the facts about which the defendant lied that caused the plaintiff's injury. Second, a plaintiff could rely on the "fraud-on-the-market scenario" discussed in Dura and show both that the misrepresentations artificially inflated the price of the stock and that the value of the stock declined once the market learned of the deception. Finally, a plaintiff could show that its broker falsely assured the plaintiff that a particular investment was "risk-free." The court found that the plaintiffs in the instant case had failed to introduce evidence sufficient to go ahead with their suit under any of these approaches.

(3) In Oscar Private Equity Investments v. Allegiance Telecom, Inc., 2007 WL 1430225 (5th Cir. May 16, 2007), the court vacated a class certification order "for wont of any showing that the market reacted to the corrective disclosure." The court held that the plaintiffs had failed to provide sufficient empirical evidence of loss causation and, therefore, could not take advantage of the "fraud-on-the-market" presumption of reliance.

Quote of note (Oscar Private Equity): "The plaintiffs' expert does detail event studies supporting a finding that [the company's] stock reacted to the entire bundle of negative information contained in the 4Q01 announcement, but this reaction suggests only market efficiency, not loss causation, for there is no evidence linking the culpable disclosure to the stock-price movement. When multiple negative items are announced contemporaneously, mere proximity between the announcement and the stock loss is insufficient to establish loss causation."

Posted by Lyle Roberts at 10:16 PM | TrackBack

June 6, 2007

Around The Web

A few items of interest:

(1) With Vigour and Zeal has a post, including a link to a related article in Legal Week, on the filing of derivative actions in U.S. courts against non-U.S. companies.

(2) WSJ Law Blog has coverage of a humorous D. of Minn. decision denying the motion to dismiss in the UnitedHealth securities class action. As noted in the comments to the post, however, the defendants presumably were not amused by the court's heavy reliance on a pleading standard repudiated by the U.S. Supreme Court two weeks ago.

(3) And just in case you cannot get enough of the Stoneridge case, Best In Class has a post on some chatter that appears to have arrived a bit late.

Addition: Regarding the D. of Minn. decision, an alert reader points out that the court subsequently issued an amended opinion reflecting the change in the law (but reaching the same result).

Posted by Lyle Roberts at 10:51 PM | TrackBack

June 4, 2007

Stop Chattering?

According to an article in the Washington Post this weekend (which has been picked up by a number of other media outlets), the suspense is over. The SEC reportedly has asked the Solicitor General to file an amicus brief in support of the investor plaintiffs in the Stoneridge (a.k.a. Charter Communications) case on scheme liability that will be heard by the U.S. Supreme Court next term.

Two notes:

(1) Although some reports have suggested that the amicus brief will be filed in support of Enron's investors (and the original Washington Post article is not very clear on this point), that appears unlikely unless, as advocated by the attorneys for Enron's investors, the Supreme Court decides to hear the Enron and Stoneridge appeals together.

(2) Presuming the amicus brief is filed, it will be interesting to see if the SEC/Solicitor General deviates in any way from the earlier position on scheme liability taken by the SEC in a 9th Circuit case.

Posted by Lyle Roberts at 5:04 PM | TrackBack

June 1, 2007

Charter Chatter Continues

Just when you thought it was safe to read about something else on this blog, here are a few more pieces on the Stoneridge (a.k.a. Charter Communications) case pending before the U.S. Supreme Court.

(1) The Harvard Law School Corporate Governance Blog has a post with further speculation (see here) about whether Justice Alito could be the deciding vote. The post also discusses how the granting of cert in the related Enron's banks case might alter the outcome.

Quote of note: "[I]f the Court grants review in Credit Suisse [the Enron's banks case], it could well mean that Chief Justice Roberts and Justice Alito are inclined to take a narrow view of primary liability, and that The Chief Justice will be in a position to assign the opinion to a wavering Justice Alito. If Credit Suisse is granted, look for the case to be a 5-4 decision, with liability under Section 10(b) not extended to vendors and investment bankers, even where they know the transaction is a sham and will be used to effect a financial fraud."

(2) The Los Angeles Times ran an editorial on Wednesday urging the SEC to support the investor plaintiffs in the Stoneridge and Enron's banks cases.

Quote of note: "So far, the SEC has remained silent. But with its mandate to 'maintain fair, orderly and efficient markets and facilitate capital formation,' the SEC is uniquely suited to speak out when legal interpretations undermine confidence in the stock market's fairness."

(3) Meanwhile, the Washington Examiner has an op-ed urging the SEC to take the opposite position.

Quote of note: "The SECs support, expressed through a U.S. government friend-of-the-court brief in Stoneridge, would well tip the balance in the Supreme Court. For the sake of our capital markets and American shareholders, lets hope the commission does the right thing. The SECs mission of 'investor protection' cannot be achieved by further empowering plaintiffs lawyers."
Posted by Lyle Roberts at 10:40 PM | TrackBack

May 31, 2007

More Charter Chatter

The battle to win the hearts and minds of the American people (or at least the SEC) on the issue of scheme liability, which is currently before the U.S. Supreme Court in the Stoneridge (a.k.a. Charter Communications) case, shows no signs of slowing down. This week has seen three publications of note:

(1) In its Tuesday edition, the Wall Street Journal had a feature article (subscrip. req'd) on the pressure being put on the SEC to side with the plaintiff investors.

Quote of note: "[A plaintiffs attorney] won the support of aspiring Democratic presidential candidate and former plaintiffs lawyer John Edwards, who said: 'I urge the SEC to fulfill its historic mission of protecting investors. Silence, or even worse, siding with fraud participants, would be a betrayal of that mission.'"

(2) The Wall Street Journal also has an op-ed (subscrip. req'd) in today's edition urging the SEC to support the defendant corporations.

Quote of note: "Unfortunately, we cannot be certain why the Supreme Court has taken the case, or if it will do the right thing. While Chief Justice John Roberts and Justice Stephen Breyer have spoken of the need for judicial modesty, both have recused themselves from the case. All the more reason for Treasury and the SEC to stand firm and ask the solicitor general to urge the Supreme Court to keep liability circumscribed."

(3) Finally, the Legal Times has an op-ed, written by attorneys who represent investors in a scheme liability case against Enron's banks, urging the Supreme Court to adopt a broad interpretation of the relevant statutes.

Quote of note: "At bottom, Section 10(b) and Rule 10b-5 have long proscribed any scheme or artifice to defraud, as well as any conduct that operates as a fraud on investors. Enron's banks worked hand-in-hand with Enron to design and implement sham transactions with the sole purpose of hiding debt and generating fake revenue. If that's not participating in a scheme to defraud, what else can we call it?"
Posted by Lyle Roberts at 7:41 PM | TrackBack

May 25, 2007

In The News

Bloomberg has a feature article discussing the recent criticisms of the SEC's investor protection efforts. Of particular note for readers of this blog, the article states that Chris Cox, Chairman of the SEC, has denied that the SEC is considering a proposal or rule to allow corporations to mandate arbitration of shareholder claims. (Just last month, the Wall Street Journal reported that the SEC was exploring this proposal.)

The American Lawyer has an article on the possible emergence of U.S.-style securities class actions in Europe. The article notes, based on numbers from the recent issued PwC 2006 Securities Litigation Study, that the number of filings against European companies in U.S. courts has actually fallen over the past few years. On the other hand, more European countries are adopting some form of group litigation.

Posted by Lyle Roberts at 11:33 PM | TrackBack

April 27, 2007

Around The Web

(1) The New York Sun has an op-ed discussing whether the SEC should allow public companies to arbitrate securities claims. (See this post for earlier coverage of the reform proposal.)

Quote of note: "I'd wager that you wouldn't see much of a share discount at all for companies that decided they'd rather arbitrate suits; you might even see a premium. Allowing an arbitration option would surely be a good market test of the efficacy of securities lawsuits."

(2) The D&O Diary has an interesting post on outside director liability exposure. In particular, the post analyzes a recent settlement in which former outside directors of Just for Feet paid a total of $41.5 million to settle a bankruptcy trustees state court breach of fiduciary duty claim. The settlement came after the company's D&O insurance was virtually exhausted in the settlement of a related securities class action.

Quote of note: "The Just for Feet settlement may provide the best example yet of the need for a separate Side A program dedicated solely to the outside directors protection -- or better yet, for a separate Individual Director Liability (IDL) policy solely for the benefit of one individual or a group of outside directors. The existence of separate limits that cannot be depleted in resolution of others claims is the best protection against the possibility that individuals might be left to face their own liability exposure without insurance protection."

Posted by Lyle Roberts at 7:26 PM | TrackBack

April 25, 2007

Wooing The SEC

The Washington Post had an interesting article over the weekend on attempts by the plaintiffs' bar to convince the SEC to support their position in the Charter Communications case. The case will be heard by the U.S. Supreme Court next term and addresses the issue of scheme liability.

There is good reason for the plaintiffs' bar to think that the SEC may be sympathetic. In 2004, the SEC filed an amicus brief in a 9th Circuit case urging the court to adopt a broad test for determining when a person's conduct as part of a scheme to defraud constitutes a primary violation that can create securities fraud liability (see this post).

Quote of note: "The approach that state and federal regulators advance in friend-of-the-court briefs may be particularly influential, and both sides are courting the regulators. SEC officials have not yet tipped their hand. But plaintiffs' lawyers and former agency officials expressed concern about a court brief in another securities dispute the agency submitted this year."

Posted by Lyle Roberts at 1:17 PM | TrackBack

April 16, 2007

Avoiding Court

At least one of the litigation reform proposals by the Committee on Capital Markets Regulation (aka the Paulson Committee) appears to be getting some traction. A front page story (subscrip. req'd) in today's Wall Street Journal states that the SEC is exploring whether it should allow public companies to contract with their investors to provide for alternative dispute resolutions for securities claims.

Quote of note: "[A]ny move toward arbitration could realign the balance of power between shareholders and corporate managements at a time when that balance has tipped increasingly toward shareholders. It could also limit shareholders' ability to recover money damages or other compensation from corporations. The idea of giving companies the option of arbitrating shareholder disputes is likely to spark fierce opposition from both investor-rights groups and trial lawyers. As a result, there's a good chance that it could fall flat."

Posted by Lyle Roberts at 6:35 PM | TrackBack

April 10, 2007

It's All Class Certs Nowadays

While The 10b-5 Daily was on break last week, there were interesting developments in two of the biggest ongoing securities litigations.

(1) On Friday, the U.S. Court of Appeals declined to reconsider its class certification decision in the IPO allocation cases. The Associated Press has an article and the ruling can be found here (via WSJ).

Quote of note (ruling): "The Petitioners, having sought a broad class, are essentially complaining that we failed to narrow their class definition to an extent that might have satisfied Rule 23 requirements. Whatever authority we might have had to undertake that task, we did not think it appropriate to provide legal advice to experienced class-action litigators."

(2) Meanwhile, the plaintiffs in the Enron securities class action are attempting to appeal the denial of class certification by the U.S. Court of Appeals for the Fifth Circuit related to their claims against Enron's banks. A cert petition (via WSJ) was filed with the U.S. Supreme Court on Thursday. Among other things, the petition argues that the case is a "suitable companion" to the Charter Communications case the Court will hear next term. The media coverage includes articles by the Associated Press and Houston Chronicle.

Quote of note (cert petition): "This case is especially significant because it involves the alleged misconduct of banks major actors in our nations financial markets and the banks that Central Bank identified as secondary actors who nonetheless 'may be potentially liable as primary violators under Rule 10b-5 in any complex securities fraud [where] there are likely to be multiple violators.'"

Posted by Lyle Roberts at 7:48 PM | TrackBack

April 4, 2007

Break In The Action

There will be no new posts on The 10b-5 Daily until next week (April 9).

Posted by Lyle Roberts at 10:14 PM | TrackBack

March 22, 2007

Abolishing Suits and Limiting Coverage

(1) The Wall Street Journal had another op-ed (subscrip. req'd) this week, by Peter Wallison of the American Enterprise Institute, advocating the abolishment of private securities class actions. (For coverage of a similar WSJ op-ed from last month, see this post.)

Quote of note: "Yet the odd mystique of this costly compensation system lives on. Despite all the reports indicting securities class actions, only Mayor Bloomberg and Senator Schumer called for more than a mere study: 'The SEC,' they said 'should make use of its broad rulemaking and exemptive powers to deter the most problematic securities-related suits.' It's doubtbful that the SEC will pick up this baton, but even if it did history shows that courts cannot discipline themselves to distinguish effectively between the well-founded usits and the 'problematic' ones. The only solution is restoring what Congress originally intended - enforcement of Rule 10b-5 only by the SEC."

(2) The D&O Diary has an interesting post on a federal district court decision holding that the settlement of a Section 11 claim (i.e., for misrepresentations in a prospectus or registration statement) was not covered by the company's director and officer liability insurance. In CNL Hotel & Resorts, Inc. v. Houston Casualty Co., 2007 WL 788361 (M.D. Fla March 14, 2007), the court found that the settlement represented a disgorgement by the company of "wrongfully appropriated" money, which did not constitute a loss under the relevant policy provision and, therefore, was not insurable under applicable New York law.

Quote of note (The D&O Diary): "In light of the developing case law trend, and now a federal courts affirmation of the trend, it is going to be indispensable for D & O insurers to clarify within the language of their policy the coverage that policyholders can expect for amounts paid in resolution of Section 11 claims. In that regard, it is critical to note that Judge Presnell specifically stated that 'Section 11 claims are not per se uninsurable.'"

Addition: Thanks to Ted Frank for public links to Wallison's op-ed and a longer article by Wallison on the same topic.

Posted by Lyle Roberts at 10:13 PM | TrackBack

February 21, 2007

All Tellabs

The SEC's decision to file an amicus brief in support of the defendants in the Tellabs case before the U.S. Supreme Court has increased the case's exposure.

The Los Angeles Times had an article in yesterday's edition questioning whether Chairman Cox "is pushing for restrictions on investors' ability to sue." The SEC's brief has given critics a excuse to break out the "fox guarding the henhouse" analogies (again) based on Chairman Cox's sponsorship of the PSLRA when he served in Congress.

Meanwhile, the New York Law Journal has a lengthy preview (subscrip. req'd) of the Tellabs argument. The authors conclude: "At a minimum, it seems likely that the Court will agree with the majority of circuits that innocent inferences must at least to some extent by taken into consideration as part of the context necessary to judging whether a plaintiff's allegations give rise not merely to some inference of scienter but to a 'strong' inference."

Posted by Lyle Roberts at 5:57 PM | TrackBack

February 8, 2007

The Grundfest Theory

Forget about reforming securities class actions, let's just get rid of them. Or so suggests Professor Joseph Grundfest in a provocative Wall Street Journal op-ed (subscrip. req'd) in yesterday's edition. Professor Grundfest is a former SEC commissioner, so his decision to kick securities class actions when they are down (based on number of filings) cannot be dismissed lightly.

The op-ed puts forward a simple, but debatable, theory: "fewer companies are being sued for fraud because there is less fraud." The reason for the decline in corporate fraud is the rigorous post-Enron enforcement activity of the SEC and DOJ, which provides a much greater "deterrent effect" than private securities litigation. Moreover, Sarbanes-Oxley has given the SEC the ability to compensate investors without the high attorneys' fees associated with securities class actions. (A topic the author of The 10b-5 Daily has covered elsewhere.) Accordingly, investors would be better off if they "simply allowed the SEC to control the process."

Quote of note: "As long as the government's enforcement activities remain sufficiently vigorous, the private class-action securities fraud lawsuit can be viewed as an expensive, wasteful and unnecessary sideshow that generates little deterrence and offers questionable levels of compensation. The question then is not why these lawsuits have been shrinking so rapidly in recent months, but when and whether they should exist at all."

Posted by Lyle Roberts at 9:43 PM | TrackBack

February 5, 2007

Around The Web

A few items from around the web.

(1) The Financial Times had an article yesterday on the status of "scheme liability" in the U.S. courts. The article notes that the issue is currently before the Fifth Circuit in the Enron case and that the U.S. Supreme Court is considering whether to hear an appeal from the Ninth Circuit's decision in the Homestore case.

(2) Lies, Damn Lies, & Forward-Looking Statements (back from hiatus) has a post on the settlement of the opt-out case brought by the California State Teachers' Retirement System (CalSTRS) against Qwest Communications. CalSTRS claims to have recovered "approximately 30 times what it would have received had it participated in the federal class action as a class member." (The 10b-5 Daily's post on the class action settlement can be found here.)

(3) Best in Class has a post on "passive voice" press releases from plaintiffs' firms seeking clients.

(4) The Wall Street Journal had a column (subscrip. req'd) in Friday's edition discussing the effect of options backdating disclosures on a company's stock price (quick answer: generally not much of an effect). Of course, no significant stock price drop usually means no securities class action.

Posted by Lyle Roberts at 10:34 PM | TrackBack

January 29, 2007

Schumer's Conversion

The Wall Street Journal has an editorial (subscrip. req'd) in today's edition discussing the Bloomberg/Schumer report. The authors express surprise at Senator Schumer's apparent support for tort reform, noting that he has not always voted that way in Congress. They also are skeptical whether, as suggested by Senator Schumer in his press conference, the problems associated with securities class actions can be resolved via SEC rulemaking.

Quote of note: "The true costs of [Sarbox's liability provisions] have yet to be tested for the simple reason that it will take a recession or a stock-market correction to trigger the next round of attempts to turn corporate miscalculations into income redistribution opportunities. So far, this ticking bomb inside Sarbox has received little notice compared to the very real costs of compliance with Section 404 on internal controls. But we can expect to hear more about it after the first wave of Sarbox lawsuits starts hitting the papers. Until that happens, the current consensus that Sarbox is tolerable and the SEC merely has to enforce it more sensibly will remain the conventional wisdom."

Posted by Lyle Roberts at 6:15 PM | TrackBack

January 26, 2007

Best In Class

Bruce Carton, the former author of Securities Litigation Watch, has joined Garden City Group and started a new law blog. Readers of The 10b-5 Daily are likely to find Best in Class of interest. Carton also will be hosting a webcast next week on "Emerging Trends in Securities Class Actions."

Posted by Lyle Roberts at 7:47 PM | TrackBack

January 25, 2007

The Bloomberg/Schumer Report

Despite the recent downturn in securities class action filings, securities litigation reform is a hot topic. On the heels of the Committee on Capital Markets Regulation's interim report, Mayor Bloomberg and Senator Schumer have issued "Sustaining New York's and the US' Global Financial Services Leadership." The two reports cover much of the same ground, but there are differences in their securities litigation reform recommendations. After noting that "if economic conditions were to decline in the future, than a strong resurgence in [securities class actions] would likely follow," the Bloomberg/Schumer report recommends (pp. 102-104):

(1) Limit the liability of foreign companies with U.S. listings to damages that are proportional to their degree of exposure to the U.S. markets. (SEC)

(2) Impose a cap on auditors' liability. (SEC)

(3) Encourage arbitration as an alternative dispute resolution system for securities grievances. (SEC)

(4) Allow parties in federal securities actions to appeal interlocutory judgments (e.g., the denial of a motion to dismiss) immediately to the circuit courts. (Congress)

Coverage of the report can be found in the Financial Times (subscrip. req'd), Wall Street Journal (subscrip. req'd), and the New York Times. D&O Diary has a comprehensive summary.

Posted by Lyle Roberts at 11:22 PM | TrackBack

January 19, 2007

The Coffee Reforms

In the Jan. 18 edition of the New York Law Journal, Professor John Coffee presents a wish list (subscrip. req'd) of securities litigation reforms. The proposed reforms are:

(1) Congress should impose a cap on auditor liability. To make this reform more politically acceptable, Congress could overturn Central Bank and restore private aiding and abetting liability for securities fraud (at least for accounting firms).

(2) Governor Spitzer should ban, by executive order, "pay to play" practices where lawyers "compete to be selected as class counsel for the public pension funds serving as 'lead plaintiff' in securities class actions by making political contributions to state and municipal comptrollers, who in some jurisdictions, including New York, have exclusive control over the pension fund."

(3) Unlike almost every other state, there is no private right of action for securities fraud under New York law. Attorney General Cuomo should draft new legislation correcting this deficiency.

Quote of note: "Such a ceiling would not protect an audit firm from repetitive litigation resulting in repetitive large settlements - say, ten suits, each for $40 million on average. But a firm forced to settle those many actions at those levels probably does not deserve to survive. It is the prospect of a one-time billion-dollar loss that merits the adoption of a ceiling."

Posted by Lyle Roberts at 7:41 PM | TrackBack

January 16, 2007

Around The Web

A few items from around the web:

(1) The Financial Times has an article on the U.S. Supreme Court's new-found interest in business cases. Although the authors note that many of these cases result in narrow decisions, they cite the Dura decision on loss causation as having had a "big impact."

(2) The Wall Street Journal Law Blog has a follow-up post on the lead plaintiff dispute in the Merck securities litigation. The lead plaintiffs have asked the court to permit Bernstein Litowitz to act as co-lead counsel.

(3) An op-ed in the Financial Times from earlier this month discusses the negative effects abroad of U.S. shareholder litigation. The author, who works for the British Association of Insurers, advocates the curbing of lawsuits and an increase in shareholder rights. Thanks to Werner Kranenburg for the link.

Posted by Lyle Roberts at 6:55 PM | TrackBack

January 5, 2007

Special Section

Just before the holidays, in its Dec. 18 issue, the New York Law Journal ran its annual special section on securities litigation and regulation. It includes articles on: (1) a recent scheme liability decision in the Enron case; and (2) the use of agency and respondeat superior theories by plaintiffs to reach non-speaking defendants. (A post on last year's special section can be found here.)

Posted by Lyle Roberts at 5:25 PM | TrackBack

December 28, 2006

Better To Opt Out?

Earlier this month, the New York Sun ran an interesting feature article on the Time Warner securities litigation. Although the securities class action settled for $2.5 billion last year, some institutional investors who decided to opt-out of the case appear to be doing even better than the class participants. The State of Alaska, for example, recently settled its related state court action against Time Warner for 83% of its estimated damages. Thanks to Point of Law for the link.

Quote of note: "While Alaska may be the most successful opt-out plaintiff thus far, others have also improved their lot by going it alone. A Dutch retirement fund, Stichting Pensioenfonds ABP, won a $20 million settlement from Time Warner earlier this year on what ABP said was $150 million in investment losses. ABP's chief counsel told a Dutch newspaper, Het Financieele Dagblad, that the fund would have gotten only $1 million to $3 million if it had stayed in the class."

Addition: Lies, Damn Lies, & Forward-Looking Statements has a post on this article that offers more details and links on the opt-out cases.

Posted by Lyle Roberts at 5:58 PM | TrackBack

December 1, 2006

The Public Value of Securities Class Actions

The Committee on Capital Markets Regulation has issued its interim report. While there is no call for an abolition of private securities litigation (as had been suggested in the media), the report does contain a number of findings and recommendations regarding securities class actions that are likely to be controversial.

The basic premise of the "Civil Enforcement" section (pp. 74-84) is that the "public value of the securities class action litigation is questionable." The Committee cites three reasons for this conclusion. First, "virtually all of the costs" of securities class actions fall on the corporation and its insurers, which means they are ultimately borne by the shareholders. Second, securities class actions do a poor job of compensating investors (average settlement of "between two percent and three percent of the investors economic losses") and there are high transactions costs (attorney fees, business disruption, etc.). Finally, any recovery is "largely paid by diversified shareholders to diversified shareholders and thus represents a pocket-shifting wealth transfer that compensates no one in any meaningful sense." (More on the issue of diversified shareholders and securities litigation can be found here.)

In keeping with this assessment, the Committee recommends that the SEC: (1) resolve certain judicial conflicts over Rule 10b-5 liability; (2) limit the amount of damages recoverable in private litigation when it has already provided investor compensation; and (3) encourage courts (perhaps with the assistance of new legislation) to stop pay-to-play practices in which plaintiffs firms make political contributions in exchange for lead counsel positions. In particular:

Materiality - The SEC should clarify whether a misstatement can be material if its disclosure does not have an "effect on the market," thereby resolving a circuit split between the 9th Circuit (yes) and the 3rd Circuit (no).

Scienter The SEC should clarify whether the fraudulent intent (i.e., scienter) element of a securities fraud claim can be demonstrated by "recklessness." At least, that is what the Committee appears to be suggesting. The discussion of the current state of the law in this section is simply wrong, with the report stating that there is a split between the Second Circuits more strenuous "strong inference of fraudulent intent" standard and the Ninth Circuits more lenient "deliberate recklessness" standard. The Committee confuses the Second Circuits description of the relevant pleading standard for fraudulent intent (which is mandated by the PSLRA and applicable in every circuit) with the courts substantive standard for fraudulent intent. In fact, every federal circuit court (including the Second Circuit) has found that recklessness is sufficient to establish fraudulent intent. It is the Ninth Circuits "deliberate recklessness" standard, i.e., recklessness so severe that it "strongly suggests actual intent," that is generally believed to be the most strenuous version of this standard in the country. (For more on this issue, the author of The 10b-5 Daily has co-written an article that discusses the differences between the pleading and substantive standards for scienter applied by the various circuits.)

Efficient Market The SEC should clarify what constitutes an efficient market for purposes of applying the fraud-on-the market theory. The Committee discusses the recent PolyMedica decision in the First Circuit. (The 10b-5 Dailys summary of the decision and the subsequent history in the case can be found here).

Overlap between SEC and Private Lawsuits The SEC should "prohibit double recoveries against defendants by requiring that private damages awards be offset by any Fair Funds collections [by the SEC] applied for victim compensation." Interestingly, the Committee suggests that the SEC has the authority to do this pursuant to Section 36 of the Securities Exchange Act, which states that the SEC can "unconditionally exempt any person, security, or transaction from any provision [of the Act]." Although the recommended reform seems like a stretch of the SEC's authority pursuant to Section 36, the Committee does not offer any further discussion of this point. (The author of The 10b-5 Daily provided his take on the overlap issue in a National Law Journal op-ed published last year.)

Prohibit Pay-To-Play Either through legislation or SEC advocacy in the courts, lawyers that make political contributions to individuals in charge of a state of municipal pension fund "should not be permitted to represent the fund as a lead plaintiff in a securities class action." The Committee notes that the Municipal Securities Rulemaking Board has adopted a rule that prevents pay-to-play in municipal underwriting that could serve as a model for successful reform in this area.

Other recommendations in the interim report would impact securities class actions. They include recommendations that Congress should explore protecting auditing firms from catastrophic loss (p. 88), that the SEC should (a) clarify that an outside director's good-faith reliance on an audited financial statement or auditor report is conclusive evidence of good faith, and (b) reverse its position that indemnification of outside directors for Section 11 damages is against public policy (p. 91), and that public companies should be permitted to contract with their investors to provide for alternative dispute resolutions for securities litigations (p. 109).

Posted by Lyle Roberts at 10:35 AM | TrackBack

November 28, 2006

Still Going

The Halliburton securities litigation is back in the news, two years after the S.D. of Tex. rejected a proposed settlement of the case. Forbes has an article on a motion by the Archdiocese of Milwaukee Supporting Fund, which is acting as lead plaintiff in the case, to replace Lerach Coughlin and Scott + Scott as lead counsel.

Posted by Lyle Roberts at 3:41 PM | TrackBack

November 21, 2006

Paulson Committee Roundup

There has been plenty of news related to the Paulson Committee and its potential securities litigation recommendations over the past two weeks.

(1) John Thain, the head of the New York Stock Exchange, called class action suits "a tax on all companies and ultimately consumers" and expressed support for the Paulson Committee's potential tort reform recommendations. Thanks to Werner Kranenburg for the link to the Financial Times article (via MSN).

(2) Professor John Coffee used his New York Law Journal column (Nov. 16 - subscrip. req'd) to clarify that he did not recommend to the Paulson Committee (as had been reported) that the SEC dis-imply a private right of action under Rule 10b-5. Instead, his more modest proposal is that the SEC "adopt an exemptive rule under 36 of the Securities Exchange Act of 1934 that would shield a non-trading public corporation from liability for monetary damages under Rule 10b-5." In other words, plaintiffs would have to look to corporate officers and agents (e.g., auditors and underwriters) for their securities fraud recovery. Securities Litigation Watch has a post.

(3) Finally, Treasury Secretary Paulson gave a speech on Monday arguing that excessive regulation and burdensome litigation were prompting companies to choose to list their stock on foreign exchanges rather that U.S. exchanges. According to the New York Times report, Paulson "did not speak about some proposals expected to be made by the two business groups to limit shareholder lawsuits," but did suggest that he was sympathetic to limiting auditor liability.

Posted by Lyle Roberts at 7:52 PM | TrackBack

November 14, 2006

The New New Thing

Will stock buyback programs provide the next basis for securities litigation? They are certainly the topic of the day. CFO Magazine has a feature article discussing whether insiders should be permitted to sell shares while a stock buyback program is in effect. Meanwhile, the New York Times has a column (subscrip. req'd) speculating that some stock buyback programs may be used to increase executive bonus payouts that are contingent on an increase in earnings per share. Thanks to Mike Gumport for the link to the CFO Magazine article.

Quote of note (CFO Magazine): "This June, Audit Integrity, a Los Angelesbased accounting and governance analysis firm, sent a note to clients identifying 16 companies with market capitalizations of at least $100 million that it considers at high risk for fraudulent behavior, including USANA, because the companies have high levels of both stock buybacks and insider selling. Meanwhile, [a prominent plaintiffs' attorney] is putting the finishing touches on a lawsuit he plans to file against 'one of the most high-profile companies in the United States,' along with its CEO, over issues relating to its buyback programs."

Posted by Lyle Roberts at 11:12 AM | TrackBack

November 6, 2006

Et Tu, Schumer?

The plaintiffs' bar must have been amazed when they opened the Wall Street Journal last week to find Senator Charles Schumer (D - N.Y.) suggesting that something needs to be done about frivolous securities class actions. In an op-ed (subscrip. req'd) written with Mayor Michael Bloomberg, Senator Schumer discusses ways to help New York's financial services industry. Notably, the authors state that the litigation environment for corporations must be improved. Reuters has an article on all of this recent interest in securities litigation reform.

Quote of note (WSJ op-ed): "The total value of securities class-action lawsuits in the U.S. has skyrocketed in recent years, to $9.6 billion in 2005 from $150 million in 1997. The U.K. and other nations have laws that far more effectively discourage frivolous suits. It may be time to revisit the best way to reduce frivolous lawsuits without eliminating meritorious ones."

Posted by Lyle Roberts at 10:05 PM | TrackBack

November 3, 2006

More On The Paulson Committee

There has been much more on the Committee on Capital Markets Regulation (a.k.a. the Paulson Committee) and its potential litigation recommendations in the Wall Street Journal this week.

(1) An op-ed (subscrip. req'd) in Monday's edition, written by two Committee members, discussed the Committee's concerns and goals.

Quote of note: "In addition to regulation and accounting standards, the liability system can also affect the competitiveness of U.S. markets. Firms are sometimes confronted with circumstances in litigation, including securities class-action suits, where even a small probability of loss, given the size of claims, could result in bankruptcy. Consequently, companies often must agree to large settlements that result in reduced value for shareholders rather than pursuing a successful outcome on the merits of its case."

(2) An article (subscrip. req'd) in Wednesday's edition discussed the desire of accounting firms to limit the potential liability for their audit work and the Committee's possible recommendations on this issue.

Quote of note: "Recognizing, though, that auditor liability overhaul might be a tough sell on Capitol Hill, the committee may suggest that the U.S. Securities and Exchange Commission come up with a solution, Mr. Scott said. 'The SEC could modify their own rules regarding liability,' he added. One idea under study: Allowing accounting firms to negotiate liability caps with clients, a practice now barred to preserve auditors' independence."

Posted by Lyle Roberts at 6:21 PM | TrackBack

October 30, 2006

Trick Or Treat

Is it the end of private securities litigation? Not yet, but one could hardly tell given some of the fierce reactions to the possibility that The Committee on Capital Markets Regulation, a private group of business leaders and academic experts, may recommend that the SEC limit the ability of private plaintiffs to bring actions pursuant to Rule 10b-5.

The New York Times had a feature article on the "Paulson Committee" (as it is colloquially known because U.S. Treasury Secretary Henry Paulson provided a favorable quote for its initial press release) this past weekend. Although the main focus of the Paulson Committee appears to be examining the effects of the Sarbanes-Oxley Act, an initial recommendation to the Committee from Professor John Coffee that the SEC consider dis-implying a private right of action under Rule 10b-5 (in some or all cases) is garnering the most attention.

Reaction can be found in a New York Times column and posts in Point of Law, Ideoblog, and Securities Litigation Watch. The 10b-5 Daily offered its views on the problem of SEC/private litigation overlap last year.

Posted by Lyle Roberts at 10:14 PM | TrackBack

October 27, 2006

Around The Web

Two items from around the web:

(1) The Wall Street Journal has an article (subscrip. req'd) today on efforts by Bernstein Litowitz to remove Milberg Weiss as co-lead counsel and re-open the lead plaintiff/lead counsel selection process in the Merck securities litigation. Merck's motion to dismiss the case is currently pending before the court.

(2) Following up on an earlier post in The 10b-5 Daily concerning the British Petroleum derivative suit filed in Alaska state court, the Financial Times has a column (via a reprint in South Africa's Business Day) on the case, the spread of U.S.-style shareholder litigation, and the potential corporate governance effects on foreign companies.

Posted by Lyle Roberts at 5:36 PM | TrackBack

October 20, 2006

As Yogi Berra Once Said

The fraud-on-the-market theory states that reliance by investors on an alleged misrepresentation is presumed if the company's shares were traded on an efficient market. But what is an efficient market? The PolyMedica securities litigation has offered a thorough examination of this issue.

In considering class certification, the district court originally held (contrary to most other courts) that an efficient market is simply one in which "market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices." On appeal, the U.S. Court of Appeals for the First Circuit rejected this definition in a decision - In re PolyMedica Corp. Sec. Litig., 432 F.3d 1 (1st Cir. 2005) - issued late last year. The appellate court held that an efficient market "is one is which the market price of the stock fully reflects all publicly available information." In other words, the market price must respond "so quickly to new information that ordinary investors cannot make trading profits on the basis of such information."

On remand - In re PolyMedica Corp. Sec. Litig., 2006 WL 2776669 (D. Mass. Sept. 28, 2006) - the district court focused on the expert evidence concerning whether there was a "cause-and-effect relationship, over time, between unexpected corporate events or financial releases and an immediate response in [PolyMedica's] stock price." The plaintiffs' expert provided an analysis demonstrating that PolyMedica's stock price moved in response to significant news events on certain days within the portion of the proposed class period in question, but the district court found that this analysis was insufficient to establish either causation or that the news was reflected "fully" and "quickly" in the stock price. Moreover, the district court found defendants' expert evidence that (1) short selling in PolyMedica stock was difficult and (2) the price of PolyMedica stock exhibited positive serial correlation (the direction in which the stock moved on a given day was a statistically significant predictor of how it would move the next day) was sufficient to suggest that the First Circuit's standard for market efficiency had not been met.

Holding: Class certification as to a portion of the proposed class period denied.

Quote of note: "Nothing in [plaintiffs'] analysis tends to show that all reactions to any news event were regularly complete within any given time frame, let alone 'quickly.' . . . It may be true, as [plaintiffs' expert] suggests, that one 'can observe a lot just by watchin,' but Yogi Berra is hardly a competent expert in market efficiency."

Posted by Lyle Roberts at 6:04 PM | TrackBack

October 13, 2006

The Jackal Hunter

The Association of U.S. West Retirees failed to reduce the attorneys' fees in the shareholder litigation over the U.S. West/Qwest merger, but its challenge to the attorneys' fees request in Qwest's $400 million securities class action settlement has been more successful. In a colorful analogy, the Association stated in its court filing that "lead counsel are the mere jackals to the government's lions, feasting after both the United States Securities Exchange Commission and the United States Justice Department made the kill." The district judge evidently agreed. The Rocky Mountain News reports that in approving the settlement the court reduced the proposed attorneys' fees by $36 million (from $96 million to $60 million). Thanks to Securities Litigation Watch for the link.

Posted by Lyle Roberts at 8:24 PM | TrackBack

October 10, 2006

London Calling

For more on U.S. securities plaintiff firms representing foreign investors, here are two articles from The Times and the Evening Standard discussing the City of London's apparently unwitting (initially) role in bringing a derivative lawsuit against British Petroleum's officers and directors in Alaska state court.

Quote of note (The Times): "It is rare for British pension funds to take legal action against the companies in which they invest, but American lawyers are increasingly identifying London as a potential new market for aggrieved investors. Some UK-based companies have expressed concern to The Times that these lawyers are trying to export their no-win, no-fee system to Britain."

Posted by Lyle Roberts at 7:30 PM | TrackBack

October 5, 2006

International Cooperation

Securities plaintiff firms are putting a lot of effort into attracting foreign institutional investor clients. Lies, Damn Lies, & Forward-Looking Statements has a post on the latest "cooperation agreement" between a U.S. firm and a German firm. (The relevant press release can be found here.)

Posted by Lyle Roberts at 7:02 PM | TrackBack

September 29, 2006

You Forgot Somebody

In an unusual case, two plaintiff firms have been the subject of a suit alleging that they engaged in legal malpractice in their handling of a securities class action. The securities class action was brought against Bennett Funding Group ("BFG") and settled in 1998 for a total of $139 million. Although no objections were raised to the settlement, members of the class later brought a malpractice class action against the plaintiff firms alleging that BFG's auditor, Arthur Andersen, should have been named as a defendant.

The district court dismissed the malpractice claims. This week, in Achtman v. Kirby McInerney & Squire, LLP, 2006 WL 2720643 (2d Cir. Sept. 25, 2006), the US. Court of Appeals for the Second Circuit affirmed the dismissal, finding that the plaintiff firms' decision not to sue Arthur Andersen was reasonable as a matter of law. The New York Law Journal (subscrip. req'd) has an article on the decision.

Quote of note: "[Counsel for the plaintiff firms] said yesterday he appreciated the irony of two class action firms being sued in a class action. 'They're usually accused of suing every deep pocket in sight,' he said. 'Here they're exercising restraint and they get sued for it.'"

Posted by Lyle Roberts at 8:59 PM | TrackBack

September 13, 2006

Reality Check

The Wall Street Journal had a curious editorial, entitled "The Milberg Effect," in yesterday's edition. The authors argue: (a) plaintiffs are projected to bring 57 fewer securities class actions in 2006 than in 2005 (based on a recent Cornerstone statistical report); (b) Milberg Weiss is projected to file 56 fewer securities class actions in 2006 than in 2005; and, therefore, (c) it is the Milberg Weiss criminal indictment, rather than "Sarbanes-Oxley or better corporate governance standards," that has led to the overall 2006 decline in filings. The conclusion of the editorial is that these numbers should "provide all the evidence Congress needs to conclude that the only real way to rein in America's runaway legal system is with tort reform that allows redress of genuine wrongs but limits the ability of lawyers to game the system."

Whatever the merits of additional tort reform, somebody should have checked with a securities litigation practitioner before deciding that this argument made sense. The Cornerstone report is referring to the number of companies that have been sued, not to the overall number of securities class action suits that have been brought. It is common for multiple securities class action suits (filed by different law firms on behalf of different investors) to be brought against a single company. These suits are later consolidated and counted, for purposes of statistical analysis, as a single filing or case. There may be a "Milberg Effect" on the number of securities class actions brought this year, especially if that firm's willingness to act as a first-filer means that in its absence some cases are never pursued, but it seems safe to conclude that it is nothing like the one-for-one ratio suggested by the WSJ editorial.

Addition: Securities Litigation Watch takes a whirl at breaking down the numbers (also see the comments section for a discussion about the potential first-filer impact).

Posted by Lyle Roberts at 7:11 PM | TrackBack

September 5, 2006

On Behalf Of The Company

The New York Times has an article on the proliferation of shareholder suits related to options backdating. The article discusses the difficulty in bringing a securities class action, as opposed to a derivative suit.

Quote of note: "The class-action suits that allowed lawyers to champion shareholder rights while earning millions in fees from the collapse of companies like Enron and WorldCom have not materialized, even though more than 80 companies are under investigation in the backdating of stock options. Even when it is clear that options grant dates were manipulated, it is less clear how to calculate damage to specific shareholders. And in many cases, the statute of limitations has expired."

Posted by Lyle Roberts at 7:17 PM | TrackBack

August 25, 2006

Break In The Action

There will be no new posts on The 10b-5 Daily until after Labor Day (Sept. 4).

Posted by Lyle Roberts at 11:31 AM | TrackBack

July 20, 2006

Scheming And Testifying

(1) Scheme liability continues to be the topic of the moment, with a New York Law Journal column (posted July 20 - subscrip. req'd) declaring Parmalat to be the best S.D.N.Y. securities litigation decision of the past year. The column, by Professor John Coffee, also discusses the recent Ninth Circuit opinion on the scope of scheme liability (a summary of that decision can be found here).

Quote of note: "[T]he new "scheme to defraud" case law could significantly extend the private reach of Rule 10b-5 against persons who only a year ago appeared immune as mere aiders and abettors. One can agree or disagree about the desirability of this result, but the Parmalat decision is carried off with style and authority."

(2) The National Law Journal has an article (posted July 20 - subscrip. req'd) on the recent Congressional hearing for a proposed securities litigation reform bill. The article focuses on the issue of whether it is appropriate to auction off the role of lead counsel in securities class actions.

Quote of note: "Judge Walker testified recently before the House of Representatives subcommittee on capital markets that not only should Bill H.R. 5491 allow judges the option of competitive bidding as a means of selecting lead counsel, but also that competition among law firms should be more intense. 'If anything, this provision should be made even stronger by providing that the court shall not permit a securities class action to proceed unless and until the lead plaintiff has demonstrated that the lead plaintiff has evaluated competing proposals for representation of the class,' Judge Walker said in prepared testimony. "

Posted by Lyle Roberts at 10:21 PM | TrackBack

July 12, 2006

Around The Web

A quick catch-up on interesting items from the past few days.

(1) On Friday, the New York Times had an article on securities plaintiff firms. The article discusses the stock option backdating cases and speculates about which firm is ready to "assume Milberg's mantle."

(2) Point of Law has some follow-up on the congressional hearing for H.R. 5491, a securities litigation reform bill. A discussion of the legislation can be found here. A reader also points out that in addition to the testimony at the hearing, the AFL-CIO and the Consumer Federation of America apparently submitted statements opposing the bill.

(3) Lies, Damn Lies, & Forward-Looking Statements has a long post (which is full of relevant links) on the efforts being made by securities plaintiff firms to attract foreign institutional investors as clients.

Posted by Lyle Roberts at 9:41 PM | TrackBack

July 6, 2006

Two Columns

Two columns on securities litigation that bookended the holiday:

(1) An op-ed in the June 26 edition of the Washington Post by Professor Richard Booth (U. of Maryland Law School) posits that diversified investing is the solution to the problem of securities fraud. Professor Booth concludes that all securities class actions should be replaced by derivative actions on behalf of the company.

Quote of note: "The cost of litigation operates as a tax on the returns of diversified investors that subsidizes undiversified investors. Even if undiversified investors have a legitimate gripe, the fact is that about two-thirds of all stock is held by diversified institutional investors, and much of the remainder is held by diversified nonprofit institutions. There is no justification for protecting undiversified investors at the expense of other investors when diversification is free for the taking."

(2) The July 5 edition of the New York Law Journal contains an article (subscrip. req'd) on two recent decisions from the S.D.N.Y. The decisions address when the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does, or does not, pre-empt state class actions alleging misconduct in the securities industry.

Quote of note: "In sum, through differing outcomes, Felton and Paru appear to reinforce an emerging principle: if, at its core, the state securities class action depends on an allegation of misrepresentation or omission, SLUSA will preempt it, whatever legal theory the plaintiff may invoke; if it does not, SLUSA preemption will not lie."

Posted by Lyle Roberts at 10:37 PM | TrackBack

June 28, 2006

Prepared Testimony

The prepared testimony of the witnesses who appeared at today's hearing on the "Securities Litigation Attorney Accountability and Transparency Act" can be found here. The witnesses were Judge Vaughn Walker (N.D. Cal.), William Galvin (Secretary of the Commonwealth, Commonwealth of Massachusetts), Theodore Frank (American Enterprise Institute), and Professor James Cox (Duke University School of Law).

Posted by Lyle Roberts at 7:11 PM | TrackBack

June 27, 2006

Here Comes Congress

As a consequence of the Milberg Weiss indictment, several Congressmen have introduced a bill (H.R. 5491) that would amend the Private Securities Litigation Reform Act.

The legislation, entitled the "Securities Litigation Attorney Accountability and Transparency Act," would:

(1) allow a prevailing defendant to argue to the court that the plaintiff's attorney should pay the prevailing defendant's fees and expenses because the "position of the plaintiff was not substantially justified;"

(2) require disclosure to the court of any conflict of interest between a plaintiff and his attorney and permit the court to disqualify the attorney if necessary; and

(3) permit courts to approve lead counsel in securities class actions through "alternative means," including a competitive bidding process.

A hearing on the legislation will take place before the Subcommitte on Capital Markets, Insurance, and Government Sponsored Enterprises of the House Committee on Financial Services tomorrow morning. The witnesses list can be found here. Thanks to Point of Law for the link.

Posted by Lyle Roberts at 7:16 PM | TrackBack

June 23, 2006

Kircher Roundup

Last week's U.S. Supreme Court decision in the Kircher case, with its focus on the interaction between federal civil procedure law and SLUSA, has not exactly garnered a lot of media attention. That said, Point of Law provides this commentary and the New York Law Journal (June 22) has a short article (subscrip. req'd).

Posted by Lyle Roberts at 6:20 PM | TrackBack

June 20, 2006

Scheme Liability Revisited

The extent to which secondary actors (e.g., accountants, lawyers, or bankers) can be held primarily liable under Rules 10b-5(a) and (c) - covering deceptive devices, schemes, and acts - has been the subject of recent judicial contention. A column in the June 13 edition of the New York Law Journal (subscrip. req'd) attempts to reconcile the different positions taken by the Southern District of New York in the Parmalat case and the Eighth Circuit in the Charter Communications case. For posts from The 10b-5 Daily discussing the issue in more detail, see here and here.

Quote of note: "The two cases may be reconciled, not by use of the Eighth Circuit's guidelines, but rather by the fact-specific inquiry suggested in Parmalat. In Parmalat, the banks were alleged to have engaged in the worthless invoice transactions to cover up loans to Parmalat, thus making financial fraud the only possible purpose for the transactions. On the other hand, the transactions in Charter Communications were not as plainly fraudulent, despite the plaintiffs' characterization of them as "sham or wash transactions.'"

Posted by Lyle Roberts at 5:36 PM | TrackBack

June 9, 2006

Compensation For Class Counsel

Securities Litigation Watch has an interesting guest post from Wayne Schneider, General Counsel for the New York State Teachers' Retirement System, on plaintiff attorneys' fees in securities class actions. Mr. Schneider discusses the success that some public pension funds have had in negotiating contingency fee rates that are considerably lower that the historical rates for these cases.

Quote of note: "Public sector funds are showing in quite dramatic fashion that the 30% plus fees celebrated by legal academics hired to support fee requests are not necessary to provide reasonable compensation for class counsel in federal securities class actions."

Posted by Lyle Roberts at 5:28 PM | TrackBack

June 7, 2006

Stepping Into The Gap

The impact of the Milberg Weiss criminal indictment on the business of securities class actions continues to be the subject of media interest. In the last few days, articles on this topic have appeared in Forbes and the Los Angeles Times (free regist. req'd). The general consensus? Other firms would step into any gap.

Quote of note (Forbes): "'If they were to disappear tomorrow, I doubt very little would change,' says Joseph Grundfest, a professor at Stanford University Law School and former Securities and Exchange commissioner. 'The same companies would be sued, the same causes of action would be pursued.'"

Posted by Lyle Roberts at 7:24 PM | TrackBack

June 4, 2006

Mr. Roberts Goes To Washington

On a personal note, Lyle Roberts (the author of The 10b-5 Daily) has joined the Washington, D.C. office of LeBoeuf, Lamb, Greene & MacRae, LLP. The firm's press release can be found here.

Posted by Lyle Roberts at 3:14 PM | TrackBack

June 1, 2006

Fees And Trades

Two interesting articles:

(1) In a legal system that permits contingency fee arrangements, it is axiomatic that big settlements lead to big attorney fee awards. The New York Sun has an article on the attorney fee arrangment in the Enron securities class action, which could lead to a record $1 billion payout for the lead counsel in the case.

(2) The 10b-5 Daily has frequently discussed the potential impact of Rule 10b5-1 stock trading plans on securities class actions (for example, in this post). The Los Angeles Times has an article (free regist. req'd) on a forthcoming Stanford University study finding that corporate insiders with stock trading plans "initiated 10.4% of their stock sales before a negative earnings report that would send share prices lower" as compared to "5.2% of the time in advance of positive earnings news." The author of the study speculates that executives may be manipulating the timing of the release of corporate news that could effect their stock sales. The article also notes that relatively few companies disclose the existence or terms of their executives' trading plans.

Posted by Lyle Roberts at 9:39 PM | TrackBack

May 31, 2006

Gaming The System

A column (via law.com) in the May 18 edition of the New York Law Journal discusses the post-Dura case law on loss causation and what it means for corporate disclosures. The author, Professor John Coffee, speculates that companies may be tempted "to write press releases in a code that discloses consequences, but not causes" so as to avoid creating a direct connection between the revealing of a misrepresentation and a stock price decline. Note that some of the judicial decisions discussed in the column previously have been summmarized on The 10b-5 Daily, including the D.E. & J. Limited Partnership and Cornerstone Propane cases.

Quote of note: "In any event, one prediction seems particularly likely: the old-fashioned corrective press release may gradually give way to a series of more nuanced communications, often made through third parties, that hint at a problem and intend that the market recognize the problem slowly and incrementally."

Posted by Lyle Roberts at 11:30 PM | TrackBack

May 26, 2006

More On Options Backdating

Options backdating is the new new thing in corporate scandals, with speculation that there may be a need for a federal taskforce to oversee all of the various U.S. Attorney offices that have issued subpoenas to companies on this issue. To date, shareholder litigation over these alleged practices appears to be limited to derivative suits (see, for example, this announcement from earlier this week). In a Forbes column posted this morning, however, former SEC Chairman Harvey Pitt notes that any improper conduct may "require a [financial] restatement, with class action litigation in the offing."

Addition: D&O Diary points out that a few securities class actions related to options backdating have already been filed. See this post.

Posted by Lyle Roberts at 10:51 PM | TrackBack

May 24, 2006

Ripple Effects

Regular readers know that it has been the practice of The 10b-5 Daily not to post about the legal troubles of Milberg Weiss - a subject matter that is arguably outside of the scope of this blog. A number of excellent legal blogs cover white collar crime issues and have extensively posted about the recent criminal indictment of the firm (see, e.g., the WSJ Law Blog and White Collar Crime Prof Blog).

That said, the indictment of one of the leading securities class action plaintiff firms in the country will inevitably have ripple effects on this area of the law. Especially given that Milberg Weiss is, according to ISS's Securities Class Action Services (SCAS), lead or co-lead counsel in 95 active shareholder suits. Accordingly, The 10b-5 Daily will post relevant articles discussing the effect of the indictment on pending or previous securities class actions.

A recent roundup includes articles from The American Lawyer and The Recorder (via law.com) discussing Milberg Weiss' ability to continue as lead counsel in current cases and an article from Reuters suggesting that it is unlikely that companies who have settled with Milberg Weiss in cases cited in the indictment will bring legal actions to recover the funds.

Posted by Lyle Roberts at 11:48 PM | TrackBack

May 16, 2006

Reducing Class Sizes

The Dura decision by the Supreme Court left little doubt that in-and-out traders (i.e., investors who both bought and sold their shares during the class period) will have difficulty establishing the existence of loss causation. At least one court has confirmed this reading of the case in the context of class certification proceedings. In In re Cornerstone Propane Partners, L.P. Sec. Litig., 2006 WL 1180267 (N.D. Cal. May 3, 2006), the court found that "plaintiffs who sold their stock before July 21, 2001, when the first corrective disclosure occurred, did not suffer any loss causally related to the defendants' alleged misrepresentations." Accordingly, the court excluded these plaintiffs from the definition of the class.

It is important to note that other courts, even pre-Dura, have come to a similar conclusion in the context of evaluating potential lead plaintiffs (see, for example, this post). Moreover, while the decision is interesting, removing in-and-out traders from the class is unlikely to have much of a practical effect on a securities class action other than reducing, by some amount, the potential damages.

Addition: There is a press release from defense counsel in the Cornerstone case noting that the decision "appears to be the first of its kind."

Addition: A reader points out that a post-Dura class certification decision issued earlier this year in the Eastern District of Virginia reaches the opposite result. See In re BearingPoint, Inc. Sec. Litig., 232 F.R.D. 534 (E.D.Va. 2006) ("In sum, because in-and-out traders may conceivably prove loss causation, they are appropriately counted as members of the proposed class.") Thanks to Andrew Brown for the cite.

Posted by Lyle Roberts at 8:10 PM | TrackBack

May 11, 2006

Around The Web

(1) Securities Litigation Watch has posted the SCAS 50, which "lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2005 in which the law firm served as lead or co-lead counsel." At the top of the list, by a considerable margin, are Bernstein Litowitz Berger & Grossmann and Barrack, Rodos & Bacine.

(2) Lies, Damn Lies, & Forward-Looking Statements has a post on the emerging practice of law firms and their clients "putting out press releases in advance of the deadline for filing a lead plaintiff motion, often indicating their intention to file a lead plaintiff motion."

Posted by Lyle Roberts at 11:43 PM | TrackBack

April 19, 2006

Increasing Coverage

The Dayton Business Journal has a column on directors and officers insurance that is either, depending on your point of view, alarming or alarmist. The author discusses some of the ways outside directors can maximize their protection.

Posted by Lyle Roberts at 10:01 PM | TrackBack

April 10, 2006

Break In The Action

There will be no new posts on The 10b-5 Daily until next week (April 17).

Posted by Lyle Roberts at 11:26 PM | TrackBack

April 6, 2006

PLI Telephone Briefing on SLUSA

The U.S. Supreme Court's recent decision in Dabit and upcoming oral argument in Kircher has generated interest in the scope, meaning, and practical impact of the Securities Litigation Uniform Standards Act ("SLUSA")

The author of The 10b-5 Daily, Lyle Roberts (Wilson Sonsini) will be moderating a Practicing Law Institute telephone briefing on this topic on Wednesday, April 19 at 1 p.m. ET. The briefing will cover the history of SLUSA, this term's Supreme Court cases, and other current SLUSA issues. The panelists are Jay Kasner (Skadden Arps), who successfully argued the Dabit case on behalf of Merrill Lynch, and Robert Wallner (Milberg Weiss). CLE credit is available. Click here to register.

Posted by Lyle Roberts at 11:17 PM | TrackBack

April 4, 2006

Around The Web

(1) The New York Law Journal has a column (via law.com - subscrip. req'd) in this week's issue on the Supreme Court's decision in the Dabit case.

(2) Professor John Coffee has a forthcoming article entitled Reforming the Securities Class Action: An Essay on Deterrence and its Implementation. He argues that the deterrence function of securities class actions would be enhanced by requiring corporate insiders to more frequently contribute to settlements. To accomplish this goal, Professor Coffee proposes two primary reforms: (a) the SEC should require a company's independent directors "to assess the apportionment of liability among the corporation and its officers and explain in a public statement if they consider it to be fair to the corporation - and why;" and (2) "the court awarding attorneys fees in a securities class action should award substantially higher fees for the portion of the recovery obtained from insiders than on the portion obtained from the corporation." Thanks to Lies, Damn Lies, and Forward-Looking Statements for the link.

Posted by Lyle Roberts at 11:57 PM | TrackBack

March 23, 2006

Dabit Roundup

There has been a considerable amount of media and blog coverage of the Dabit decision. Here is a partial roundup:

Media - Articles can be found in Bloomberg, the Financial Times, the New York Times, and the Washington Post.

Blog - Commentary, with some emphasis on the federalism implications of the decision, can be found on Concurring Opinions, Conglomerate, Ideoblog (here, here, and here), PointofLaw.com, and ProfessorBainbridge.com.

Posted by Lyle Roberts at 3:41 PM | TrackBack

March 20, 2006

Backdating Option Grants

The possibility that a number of companies have been backdating stock option grants to increase their value was the subject of a Wall Street Journal feature article (subscrip. req'd) this past weekend. The article notes that the practice "while not illegal in itself, could result in false disclosure." As a result, a company may be "vulnerable to an allegation of securities fraud." For some blogosphere commentary, see these posts from ProfessorBainbridge.com and Truth on the Market.

Posted by Lyle Roberts at 5:28 PM | TrackBack

March 15, 2006

Disclosing Confidential Sources

A recent district court decision discusses whether a lead plaintiff should be required to disclose its confidential sources as part of the discovery process. The court in In re CIGNA Corp. Sec. Litig., 2006 WL 263631 (E.D.Pa. Jan. 31, 2006) held that the defendants were entitled to the names of all individuals known by the plaintiff to have relevant knowledge, but the plaintiff was not required to specifically identify the confidential sources relied upon in the complaint. The court did note, however, that it would consider revisiting its decision if the defendants were presented with an overwhelming list of names.

Quote of note: "Of course, the recent identification of 'Deep Throat,' whose provision of information to the Washington Post led to the infamous Watergate scandal, also reminds us of the value of the free flow of information in a democratic society without fear of disclosure or retribution. However, as the D.C. Circuit's decision in the case of Judith Miller shows, the ability to avoid disclosing a confidential informant is not absolute; in most instances there is indeed a balancing test. How should the optimal balance be determined in this case?"

Posted by Lyle Roberts at 11:13 PM | TrackBack

March 10, 2006

Ten Years Later

The U.S. Chamber Institute for Legal Reform has released a paper entitled Securities Class Action Litigation: How is the System Working Ten Years After Enactment of the Private Securities Litigation Reform Act? The paper surveys various statutory, judicial, and policy issues that have arisen in this area of the law.

Posted by Lyle Roberts at 8:57 PM | TrackBack

March 7, 2006

Of Jackals And Lions

The Association of U.S. West Retirees is continuing its campaign against the attorneys' fees being paid out in various settlements related to Qwest's securities litigation (U.S. West and Qwest merged in 2000). Although the organization failed to reduce the attorneys' fees in the shareholder litigation over the U.S. West/Qwest merger, it is back again, with some new colorful analogies, to challenge the attorneys' fees request in Qwest's recent $400 million securities class action settlement. The Rocky Mountain News has an article.

Quote of note: "'It is all too obvious that lead counsel are the mere jackals to the government's lions, feasting after both the United States Securities Exchange Commission and the United States Justice Department made the kill,' [counsel for the Association of U.S. West Retirees] wrote. But 'unlike the jackal, they seek the lion's share' of the settlement."

Posted by Lyle Roberts at 9:22 PM | TrackBack

Of Jackals And Lions

The Association of U.S. West Retirees is continuing its campaign against the attorneys' fees being paid out in various settlements related to Qwest's securities litigation (U.S. West and Qwest merged in 2000). Although the organization failed to reduce the attorneys' fees in the shareholder litigation over the U.S. West/Qwest merger, it is back again, with some new colorful analogies, to challenge the attorneys' fees request in Qwest's recent $400 million securities class action settlement. The Rocky Mountain News has an article.

Quote of note: "'It is all too obvious that lead counsel are the mere jackals to the government's lions, feasting after both the United States Securities Exchange Commission and the United States Justice Department made the kill,' [counsel for the Association of U.S. West Retirees] wrote. But 'unlike the jackal, they seek the lion's share' of the settlement."

Posted by Lyle Roberts at 9:22 PM | TrackBack

March 2, 2006

Short Sellers Debate

Following up on his Wall Street Journal editorial from a few weeks ago, Professor Moin Yahya (University of Alberta) is debating Professor Larry Ribstein (University of Illinois) on whether short selling plaintiffs are engaged in illegal conduct. PointofLaw.com has all the action.

Posted by Lyle Roberts at 10:09 PM | TrackBack

February 28, 2006

Disclosing Risks

Dr. David Tabak of NERA Economic Consulting has written a working paper on the relationship between risk disclosures and damages in securities class actions. CFO.com has an article discussing the paper.

Quote of note (CFO.com): "Given the increasing potential for shareholder lawsuits, Tabak believes that top managers should give greater weight to the option of revealing the possibility of bad news before it becomes a certainty. The realization of such perils as an adverse interest-rate movement, a product failure, or an impending government probe 'could easily lead to a large decline in a company's stock price' a greater decline, he asserts, than what would have occurred earlier if the company had merely disclosed the probability that an event would take place."

Posted by Lyle Roberts at 11:09 PM | TrackBack

February 21, 2006

Opting Out

Business Week has an article on the increasing number of institutional investors who are opting out of securities class actions and filing their own suits. The article discusses the Time Warner and WorldCom litigations.

Posted by Lyle Roberts at 6:20 PM | TrackBack

February 15, 2006

Reforming The Reform Act

The Wall Street Journal has an op-ed (subscrip. req'd) today discussing the effectiveness of the PSLRA. The author is Kenneth Lehn, a professor and former chief economist for the SEC.

The op-ed argues that the PSLRA has not discouraged the bringing of securities class actions. To the contrary, the percentage of listed companies subject to suit has increased and settlement values are up. The author summarizes the results of a number of recent studies.

After this rigorous opening, however, the op-ed suggests three modest PSLRA reforms that do not really go to the identified problem. First, defendants should be allowed to appeal denials of motions to dismiss. Second, damages should not be calculated using aggregate models. Finally, investors who are fully compensated for their losses by SEC distributions pursuant to the Fair Funds program should not be allowed to collect additional damages in private litigation.

Even assuming that these proposed reforms were worthwhile, it is hard to see how they would have any significant effect on the number of filings. What is missing, one might suggest, is a proposed reform addressing the economic incentives driving plaintiffs' attorneys to bring securities class actions.

Posted by Lyle Roberts at 11:03 PM | TrackBack

February 9, 2006

Short Sellers

In case you missed it, which would be easy to do since it appeared in the Saturday edition of the Wall Street Journal, Professor Moin Yahya had an op-ed (subscrip. req'd) decrying the relationship between short sellers and the securities litigation plaintiffs' bar. The op-ed discusses a few cases in which short sellers appear to have profited by sponsoring securities fraud suits against companies (including the Terayon case, discussed in this post from 2004).

Quote of note: "Plaintiffs should be deemed insiders until they announce their intention to sue or commence the lawsuit. Furthermore, any hedge funds that deal with plaintiffs or their lawyers should disclose their dealings prior to any short-selling. The SEC has had no compunction in the past targeting fraudulent practices, and the short-selling plaintiffs should not be treated any differently."

Posted by Lyle Roberts at 5:17 PM | TrackBack

February 2, 2006

Elliott Weiss Interview

Professor Elliott Weiss, a well-known securities law expert, is the author of a law review article ("Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions") that was the basis for the PSLRA's lead plaintiff provisions. In an interesting career change, Professor Weiss has joined a prominent securities class action plaintiffs' firm. Securities Litigation Watch has an interview.

Posted by Lyle Roberts at 11:46 PM | TrackBack

January 30, 2006

Around The Web

(1) The Boston Business Journal has an article on securities class action litigation trends. The article suggests that the recent rise in financial restatements may lead to a boom in filings.

(2) The Chicago Tribune provides a lengthy profile of Daniel Fischel, a law professor and leading expert witness in securities cases. Fischel will be testifying on behalf of Enron's former CEO at his criminal trial.

Posted by Lyle Roberts at 6:18 PM | TrackBack

January 24, 2006

Attorneys Beware

The National Law Journal has an article on the widening exposure of law firms in securities class actions. Although the Supreme Court's prohibition on aiding and abetting liability in private securities fraud actions has generally shielded law firms, in some cases courts have found that the law firms acted as primary violators. Plaintiffs have added fuel to that fire by arguing that even if a law firm did not make (or substantially participate in) a misrepresentation to the market, it can be held liable as a primary participant in a fraudulent scheme. (For more on scheme liability, see this post.)

Posted by Lyle Roberts at 3:08 PM | TrackBack

January 23, 2006

Put In The Claim Form

This week's Economist has an article (subscrip. req'd.) on the failure of many investors, including institutional investors, to file claims in securities fraud settlements. The article notes that institutional investors may be "violating their fiduciary responsibilities when they do not try to get their money" and could be the subject of "class-action suits to come." An easy prediction - especially since those suits have already been around for a year.

Quote of note: "A study by James Cox, a colleague of Mr McGovern's at Duke, of 118 securities class-action suits between 1995 and 2002, published in the Stanford Law Review last month, concludes that 72% of institutions never claim their full share of the proceeds. Mr Cox offers several explanations: institutions' distaste for a form of litigation that, as they see it, benefits mainly lawyers; low expected gains; and the cost and hassle of claiming."

Posted by Lyle Roberts at 12:36 PM | TrackBack

January 6, 2006

Rescission

In-House Counsel has an overview of the recent trends in court decisions on director and officer liability insurance coverage. In particular, the article addresses the increasing number of cases in which alleged misrepresentations in the insurance application (usually involving financial information that a company is forced to later restate) have led insurers to rescind their policies.

Quote of note: "The remedy of rescission is a response to corporate fraud. The very reason corporations seek outside directors is to attempt to pre-empt any such fraud. Proliferation of the rescission remedy as to innocent directors and officers will discourage qualified outside directors from accepting such positions, thereby increasing the very conduct the rescission remedy seeks to discourage."

Posted by Lyle Roberts at 7:53 PM | TrackBack

December 30, 2005

Picking Up The Bill

For those who missed it over the Christmas holiday, the Wall Street Journal had a feature article (subscrip. req'd) last Friday on the battle over whether the settlements entered into by several banks as part of the Enron and WorldCom securities litigations are covered by the banks' errors and omissions insurance policies.

Quote of note: "But Swiss Reinsurance Co. and some other big insurance companies are balking. While many insurers have paid out at least a portion of such claims, the holdouts say banks shouldn't be allowed to benefit through insurance from the roles they allegedly played in the frauds, or to cover their fines and legal bills. Beyond the money, the dispute raises questions about how heavily companies can rely on broadly written insurance policies to cover unanticipated losses stemming from alleged wrongdoing."

Posted by Lyle Roberts at 10:02 PM | TrackBack

December 27, 2005

Working For The SEC

The National Law Journal has a feature article (subscrip. req'd) in its most recent edition on the SEC's use of private counsel to investigate corporate malfeasance. The article includes a discussion of the conflicting "waiver of privilege" rulings that that have arisen out of the McKesson HBOC securities litigation. (The 10b-5 Daily has posted about some of those decisions.)

Quote of note: "In 2001, the SEC began offering favorable treatment to troubled companies that hire independent counsel to do internal corporate investigations and report back to the SEC. But with that has come a host of new legal challenges. Do companies that waive attorney-client privilege and turn over the results of internal investigations to the SEC also waive the privilege for third parties, such as plaintiffs' lawyers representing shareholders? And have the outside counsel become, in effect, agents of the government so that cooperating employees need to be given Miranda warnings?"

Posted by Lyle Roberts at 6:05 PM | TrackBack

December 19, 2005

Scheme Liability

The December 19 edition of the New York Law Journal has a special section (regist. req'd) on securities litigation and regulation. The special section includes articles on scheme liability, scienter and summary judgment, the demand requirement in derivative cases, and the use of asset protection devices in SEC enforcement cases.

The lead article on scheme liability under subsections (a) and (c) of Rule 10b-5 is of particular interest. The article discusses the district court split over whether secondary actors who did not prepare or substantially participate in preparing corporate financial misstatements can still be held liable for them as scheme participants. The issue currently is before the First and Ninth Circuits.

Quote of note: "Recently, plaintiffs have aggressively pursued scheme theories of liability against secondary actors under subsection (a) and/or (c) in cases involving major accounting scandals such as Homestore, Lernout & Hauspie, Parmalat, and Enron. In those cases, plaintiffs allege that secondary actor defendants - who did not make the misleading financial statements and disclosures - are liable under subsections (a) and/or (c) for knowingly or recklessly participating in "schemes" with insiders that allowed the companies to misstate their financial condition. A threshold question presented in these cases is whether a secondary actor who participates in a scheme to generate false financial results, but does not itself participate in generating the company's financial statements, can be held liable under Rule 10b-5."

Posted by Lyle Roberts at 11:40 PM | TrackBack

December 12, 2005

Around The Web

Two legal columns of interest:

(1) Forbes has a column on the lead plaintiff contest in the Refco securities class action.

(2) The New York Law Journal has a column (regist. req'd) discussing the effect of the SEC's new offering rules on the liability for misstatements in registration statements or prospectuses/oral communications soliciting a sale.

Posted by Lyle Roberts at 7:05 PM | TrackBack

December 2, 2005

Going To China

As of last year, about 70 Chinese companies were listed on U.S. stock exchanges. Accordingly, U.S. securities litigation is a topic of interest for these companies and their domestic regulators. Legal Week has an article on the pending visit to China of a prominent plaintiffs' securities lawyer.

Posted by Lyle Roberts at 11:26 PM | TrackBack

November 23, 2005

Charitable Causes Resolved

MarketWatch reports that the Oracle derivative settlement has received court approval. Under the original terms of the settlement, the CEO of Oracle agreed to pay $100 million to charity on behalf of the company, while the company was to pay $22.5 million in legal fees to plaintiffs' counsel. The proposed settlement came under criticism, with the court expressing concern over the fact that Oracle, the presumed beneficiary of the settlement, would be paying the legal fees. The approved settlement provides that the CEO of Oracle will make both payments.

Posted by Lyle Roberts at 4:03 PM | TrackBack

November 15, 2005

Alito And Securities Class Actions

Fortune has an article on Supreme Court nominee Judge Samuel Alito's record in business cases. The article briefly discusses a securities class action decision that was favorable for the defendant company.

Quote of note: "In a shareholder class action suit brought against Burlington Coat Factory after its stock price plummeted, Alitos opinion came down on the side of the company, but in a nuanced way. 'It suggests that hes not particularly hostile to securities plaintiffs and many judges are,' says David Hoffman, who teaches corporate law at Temple University."

Posted by Lyle Roberts at 6:52 PM | TrackBack

November 10, 2005

SLUSA And '33 Act Class Actions

As a general matter, claims under the '33 Act may be brought in federal or state court and cannot be removed. There is a continuing split, however, over whether the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") created a removal exception for '33 Act securities class actions (e.g., misstatements in a prospectus) brought in state court. The Second Circuit says that it did, but other courts have disagreed. In the latest decision on the issue, Lowinger v. Johnston, 2005 WL 2592229 (W.D.N.C. Oct. 13, 2005), the court found that removal pursuant to SLUSA was proper.

Posted by Lyle Roberts at 4:23 PM | TrackBack

November 2, 2005

Staying Derivative Discovery

The October 21 edition of the New York Law Journal has a roundup (regist. req'd) of recent decisions on the applicability of the SLUSA discovery stay provisions to parallel state court derivative actions. The authors find that the trend in the case law is against imposing a discovery stay in this situation, but it is worth noting that there has been some recent contrary authority that is not discussed in the article.

Quote of note: "Thus, of the eight cases analyzed, [six] denied a stay of discovery in the derivative action, frequently with the proviso that the discovery would not be shared with the federal securities action. One stayed discovery based upon the derivative action counsel's stated intent to share the fruits of that discovery with the federal securities action. Only one stayed discovery despite the absence of evidence of collusion and where the derivative complaint was filed a year before the federal securities complaint."

Posted by Lyle Roberts at 6:15 PM | TrackBack

October 27, 2005

Economic Realities and Unintended Consequences

The U.S. Chamber Institute for Legal Reform released a study and related article this week on securities class action litigation. The lead author on both papers is Anjan V. Thakor, a professor at the Olin School of Business at Washington University in Saint Louis.

(1) "The Economic Reality of Securites Class Action Litigation," a study done in conjunction with Navigant Consulting, finds that large institutional investors generally break even from their investments in stocks impacted by fraud allegations because the losses resulting from ill-timed purchases of inflated shares of one company are, over time, largely offset by financial gains generated from well-timed sales of inflated shares of a different company. As a result, institutional investors are often overcompensated as the result of securities fraud litigation. Less diversified investors (i.e., individual investors) are at greater risk of losing money as the result of securities fraud because they lack the natural "hedge" of institutional investors.

(2) "The Unintended Consequences of Securities Litigation" examines the financial impact of securities litigation on defendant companies and their stock holders. The article finds that the mere filing of a securities class action lawsuit on average results in a 3.5% drop in the defendant company's equity value. Moreover, the economic losses to a defendant company caused by securities fraud litigation are likely to far exceed the gains to the plaintiffs (especially for smaller companies).

The study and article can be found here. Securities Litigation Watch has a number of posts discussing the study (which uses settlement data from SCAS).

Posted by Lyle Roberts at 9:41 PM | TrackBack

October 25, 2005

Asking Too Much?

In this interview with the Toronto Globe and Mail, the CEO of Deloitte Touche wonders whether investors are asking too much of company auditors.

Quote of note: "He said investors expect a level of detail that audits are not designed for, and expect a certification to assure the company's financial health when it simply is meant to attest to the accuracy of the financial statements, based on information provided by the company. Auditors are now being held responsible for failing to detect outright fraud perpetrated by several company insiders who go to great lengths to hide their illicit activity, he said."

Posted by Lyle Roberts at 10:08 PM | TrackBack

The Dual Approach

The author of The 10b-5 Daily has an op-ed in The National Law Journal this week on the overlap between the SEC's Fair Funds program and private securities litigation.

Posted by Lyle Roberts at 10:02 PM | TrackBack

October 14, 2005

Tagging Along

The PSLRA states that securities class action plaintiffs, within 20 days of filing a complaint, shall publish a notice advising the proposed class of the suit. After the publication of this notice, it is not uncommon for other plaintiffs' firms (who have not filed complaints) to publish similar notices in the hopes of attracting a client who can be put forward as a lead plaintiff candidate. Not surprisingly, as discussed in this post on Securities Litigation Watch, the initial plaintiffs' firms do not care for this practice. (Click here for more on the battle of the press releases from last June.)

Posted by Lyle Roberts at 6:03 PM | TrackBack

October 5, 2005

Class Actions Overseas

France has been considering the implementation of a class action system. Those plans are coming under criticism, however, as at least one French attorney (who recently filed a suit against Vivendi on behalf of shareholders) looks to the Internet to recruit clients. The Associated Press has an article.

Posted by Lyle Roberts at 10:21 PM | TrackBack

October 3, 2005

For SEC Use Only

Section 304 of the Sarbanes-Oxley Act of 2002 provides that a company's CEO and CFO must disgorge certain bonuses, equity-based compensation, and trading profits if the company is required "to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws." Although Congress did not create an express private right of action in the statute, recent securities class actions and derivative suits often include a tag-along Section 304 claim.

The Legal Intelligencer reports (via law.com - free regist. req'd) that a federal judge finally has had the opportunity to address whether private litigants, as opposed to the SEC, can bring a Section 304 claim. In a derivative suit brought against Stonepath Group in the E.D. of Pa., Judge Dalzell has ruled that Congress did not intend to create an implied private right of action. The court found that another Sarbanes-Oxley provision expressly creates a private right of action, leading to the conclusion that Section 304's silence should be interpreted as restricting enforcement of the statute to the SEC. The case is Neer v. Pelino - a Westlaw cite will be added to this post when available.

Addition: Neer v. Pelino, 389 F.Supp.2d 648 (E.D.Pa. 2005).

Posted by Lyle Roberts at 6:19 PM | TrackBack

September 30, 2005

Trials and More Trials

The Recorder has an article (via law.com - free regist. req'd) by Michael Tu on the increase in securities class action trials.

Quote of note: "The varying results from these trial verdicts gives both plaintiffs and defendants reason to believe that they can, under the right circumstances, take their cases to trial and win. Given that increasingly aggressive settlement postures now being taken by plaintiffs are decreasing the defendants' relative risks of going to trial in many cases, defendants are less likely to settle when they believe they have a defensible case."

Posted by Lyle Roberts at 8:00 PM | TrackBack

September 29, 2005

Charitable Causes On Hold

The Wall Street Journal reports (subscrip. req'd) that the state court judge presiding over the Oracle derivative case has temporarily declined to approve the proposed settlement. The CEO of Oracle agreed to pay $100 million to charity on behalf of the company, while the company will make a payment of $22.5 million in legal fees to plaintiffs' counsel. The terms of the settlement have come under criticism.

According to the article, the judge "seemed favorably disposed to the general outlines of the deal, but said he wanted more testimony about why Oracle shareholders should bear the cost of . . . legal fees." The next scheduled hearing is on November 15.

Posted by Lyle Roberts at 7:04 PM | TrackBack

September 27, 2005

Supreme Court To Address Circuit Split On SLUSA

The Supreme Court has granted cert in the Dabit case (2d. Cir.) and will address the scope of the Securities Litigation Uniform Standards Act of 1998 ("SLUSA").

SLUSA preempts certain class actions based upon state law that allege a misrepresentation in connection with the purchase or sale of nationally traded securities. The issue before the Supreme Court is the application of the "in connection with" requirement. In particular, the court will resolve the circuit split between the Second and Seventh Circuits over whether SLUSA preemption applies to claims brought solely on behalf of persons who were induced to hold (but not purchase or sell) securities.

The 10b-5 Daily has posted frequently on this issue, including posts on the underlying Second Circuit opinion in the Dabit case finding that SLUSA only applies to purchaser/seller claims and the Seventh Circuit's opinion in the Putnam Funds II case reaching the opposite conclusion. For a cite to an article discussing the circuit split and its ramifications, see this post.

Posted by Lyle Roberts at 10:54 AM | TrackBack

September 22, 2005

More Dead Fish

The Rocky Mountain News has another article on the attorneys' fees challenge in the $50 million settlement of the shareholder class action related to the merger of Qwest Communications and U.S. West. Having suggested that the settlement stunk "like a three-day-old unrefrigerated dead fish" (see this post), it is perhaps not surprising that the Association of U.S. West Retirees is pursing an appeal of the denial of its fees challenge.

Posted by Lyle Roberts at 5:23 PM | TrackBack

O Canada Again!

Mondaq's has published a law firm summary of the new securities class action legislation set to go into effect in the Canadian province of Ontario. (The 10b-5 Daily has recently posted about the legislation.)

Quote of note: "[T]he Ontario regime contains two measures to reduce the potential for strike suits (although it remains to be seen how successful these measures will be). First, a plaintiff is required to obtain leave of the court before bringing a lawsuit, and the court will grant leave only if it is satisfied that the suit is being brought in good faith and has a reasonable prospect of success at trial. Second, the court must approve any proposed settlement of a lawsuit (this is also true of an SEC Rule 10b-5 lawsuit that is brought as a class action)."

Posted by Lyle Roberts at 5:06 PM | TrackBack

September 16, 2005

More On Charitable Causes

The New York Times and San Jose Mercury News have opinion columns today questioning the propriety of the Oracle derivative settlement announced earlier this week. The CEO of Oracle agreed to pay $100 million to charity on behalf of Oracle, with an additional payment of $22.5 million in legal fees to plaintiffs' counsel.

Quote of note (Times): "John C. Coffee Jr., a professor of securities law at Columbia University, is not persuaded justice was served. He suggested that it 'would be fairer if the plaintiffs' attorneys would take their fee in the form of a charitable contribution that Mr. Ellison would make in their name to charities of his choice.' Perhaps, he mused, Mr. Ellison would choose a charity that promotes tort reform."

Quote of note II (Mercury News): "There's certainly a long history of Silicon Valley tycoons giving less than full respect to the rights of shareholders. Whether this justifies such an unusual settlement is debatable. Either way, it's going to be a tough call for Judge Schwartz."

Posted by Lyle Roberts at 7:14 PM | TrackBack

September 12, 2005

Charitable Causes

The derivative litigation surrounding alleged insider trading by Larry Ellison, the CEO of Oracle, has taken a surprising turn. (The 10b-5 Daily has previously discussed the contradictory judicial decisions over this trading in a post entitled "Is A Billion Dollars In Stock Sales Significant?") The New York Times reports that Mr. Ellison will pay $100 million to charity to resolve one of the two derivative cases pending in California state court. The attorneys for the derivative plaintiff will receive a separate payment of $22.5 million.

Quote of note: "'I've never heard of anything, structured from the beginning as a settlement this large, going to a charity,' said Michael A. Perino, a law professor at St. John's University School of Law. Typically, Mr. Perino said, a derivative action results in a payment to the company."

Posted by Lyle Roberts at 8:29 PM | TrackBack

September 8, 2005

Rome Was Sued In A Day

Securities class actions brought in U.S. courts by foreign investors? Lots of them. Securities class actions brought in U.S. courts against foreign companies? Commonplace. But how about a securities class action brought in a U.S. court against a foreign state? Now we're talking.

In Aguayo v. Republic of Italy, 05 CV 7717 (S.D.N.Y.), filed last week, the plaintiff has brought a suit against Italy and the underwriters of its debt securities issued in this country. The complaint alleges that the relevant registration statements "understated Italy's debt, so that Italy could report that it complied with the European Union requirement that debt be limited to 3% of gross domestic product."

Thanks to Pietro Adami for sending in the complaint, which can be found here.

Posted by Lyle Roberts at 1:25 PM | TrackBack

September 7, 2005

Ohio Goes It Alone

As previously discussed in The 10b-5 Daily, the state of Ohio has pursued a strategy of supplementing pending securities class actions with its own individual suits. That strategy appears to have paid off, at least in the WorldCom case. Columbus Business First reports that Ohio, on behalf of its pension funds, has agreed to a $94 million settlement with individuals and banks it alleged participated in the WorldCom securities fraud.

Quote of note: "The litigation was initiated by former Ohio Attorney General Betty Montgomery, who split with several states involved in a federal class-action lawsuit against WorldCom and its executives in September 2002. At the time, Montgomery said she made the move because Ohio was unable to gain lead plaintiff status in the federal case."

Posted by Lyle Roberts at 7:54 PM | TrackBack

September 5, 2005

Foreign Influence

On Friday, the Wall Street Journal had a front-page story (subscrip. req'd) on the increase in foreign investors acting as lead plaintiffs in U.S. securities class actions. (A related trend is the rise in suits filed against foreign companies listed on U.S. exchanges.)

Quote of note: "The tort bar's newfound interest in overseas clients -- in particular, those involved in securities litigation -- is driven by a broader phenomenon: the globalization of business and investing. In U.S. securities cases, judges are required to tap shareholders with the largest losses as the lead plaintiffs. Increasingly, these shareholders are based overseas, from pension funds to hedge funds and private-equity players."

Quote of note II: "One [foreign investor bringing a suit in the U.S.] is retired tire-company executive Markus Blechner. Last year, when DaimlerChrysler AG paid $300 million to settle allegations it mislead U.S. investors, the Swiss national received nothing because he had purchased his shares in the auto maker on a Swiss exchange. . . . 'I thought, 'That's not fair. Don't I deserve to get paid, too?' recalls Mr. Blechner. He and two Austrian investment funds are now suing the auto maker in U.S. federal court in Delaware. 'Why not? It doesn't cost me anything,' Mr. Blechner says."

Posted by Lyle Roberts at 5:14 PM | TrackBack

September 1, 2005

O Canada!

As noted in The 10b-5 Daily late last year, the Canadian province of Ontario is set to implement new securities class action legislation. The most significant change is the creation of a broader private right of action for shareholders who purchased their shares in the secondary market. The Toronto Globe and Mail had an article in yesterday's edition discussing the legislation and the need for Canadian companies to implement new disclosure policies in response to the increased litigation risk.

Quote of note: "Until now, investors who bought shares on the secondary market were able to sue only by alleging outright fraud as opposed to mere negligence. They also had to prove they relied on the misrepresentation when they bought or sold shares, an argument challenging to prove in court. By contrast, the new legislation makes no such stipulation, automatically assuming the plaintiff relied on the information. It is mainly for these reasons that a coalition of companies, including Alcan Inc., had opposed the bill, which was in the works for years. Those objectors pointed to the United States where, by contrast, plaintiffs must demonstrate that a defendant knowingly made a misleading or false statement."

Posted by Lyle Roberts at 8:52 PM | TrackBack

August 29, 2005

Bounty Hunters

Corporate Counsel has a short article (via law.com - free regist. req'd) on the incentives some institutional investors are offering their counsel to obtain direct recoveries from individual defendants.

Quote of note: "Christopher Waddell, general counsel of the California State Teachers' Retirement System, said that he uses both bounty and sliding-scale fees in order to 'incentivize' his outside counsel to go after personal assets. CalSTRS, the nation's third-largest public pension fund, has promised its lawyers a 2.5 percent bounty, plus an undisclosed fee, in a pending suit against the former directors of WorldCom."

Posted by Lyle Roberts at 11:06 PM | TrackBack

August 23, 2005

Tax Deductible

The Associated Press has a column deploring the tax deductibility of securities class action settlements.

Quote of note: "For some companies, federal and state tax deductions will amount to as much as 40 cents on every dollar they pay to settle investors' claims. And given all the major settlements announced this year from the likes of Time Warner Inc., Citigroup Inc., JPMorgan Chase & Co. and many others, that quickly adds up."

Posted by Lyle Roberts at 7:26 PM | TrackBack

August 19, 2005

Indemnification & Advancement

The New York Law Journal has an overview (via law.com - free regist. req'd) of recent Delaware court decisions addressing the rights of corporate directors and officers to indemnification and the advancement of attorneys' fees and litigation expenses.

Posted by Lyle Roberts at 8:05 PM | TrackBack

August 16, 2005

Out Of The Frying Pan

The Globe and Mail reports that investors are planning to bring a securities class action against the Canadian Imperial Bank of Commerce ("CIBC"). The proposed basis for the suit is noteworthy: the bank allegedly misled its investors over the cost of its settlement of the claims brought against it in the Enron securities class action. While CIBC had set aside a $300 million reserve for the settlement, it eventually settled two weeks ago for $2.4 billion.

Quote of note: "The precise size of the class action against CIBC has not been determined, but it will likely seek damages equivalent to the amount of the Enron settlement, which has helped to erase approximately $3.3-billion (Canadian) of CIBC's market value in the past two weeks, the source said."

Posted by Lyle Roberts at 9:07 PM | TrackBack

August 9, 2005

Trials And Tribulations

The National Law Journal has a feature story on the recent increase in securities class action trials. The article suggests two possible reasons for the change: (1) an increase in the size of settlements, thus increasing the willingness of defendants to risk a trial; and (2) greater sophistication in how attorneys prepare for trial (e.g., using mock trials to hone their arguments).

Quote of note: "Ron Miller, an economist at NERA Economic Consulting in New York, suspects that the cases with bigger market losses are more likely to go to trial because of the cost-benefit analysis. Trials are expensive, and a small case is not worth anyone spending all that time or money in court. 'My suspicion is that there have been so few of these trials that a few people have gotten the same idea at the same time; it is time to test the waters,' he said."

Posted by Lyle Roberts at 7:13 PM | TrackBack

July 26, 2005

Cox Hearing

The New York Times reports that Representative Chris Cox, the President's nominee to head the SEC, had a confirmation hearing today before the Senate Banking, Housing and Urban Affairs Committee. He is expected to be confirmed, but did face questions about his role in sponsoring the PSLRA.

Quote of note: "Mr. Cox said many advocates for and against him were wrongly assuming that he would be lax in protecting shareholders because of his work on the 1995 securities law. 'I view that legislation today as I did then - and as Senator Stevens described in his introduction of me - it's a vital part of the regime to protect shareholders,' Mr. Cox said."

Posted by Lyle Roberts at 7:02 PM | TrackBack

July 22, 2005

SLUSA Splits And Class Action Trials

Two interesting articles on securities fraud issues:

(1) This month's issue of the Wall Street Lawyer (Vol. 9, No. 2 - July 2005) has an article on two circuit splits concerning the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). In "Showdown Over SLUSA," the authors (Greg Harris and Christian Word) discuss the splits between the Second Circuit and Seventh Circuit over: (a) whether SLUSA preempts "holder" cases in which the plaintiff class consists entirely of investors who neither bought nor sold securities during the alleged class period; and (b) whether a district court's decision to remand an action removed to federal court under SLUSA is appealable. The authors speculate that this double-split "raises the prospect of Supreme Court intervention and the high court's first decision addressing SLUSA." (The 10b-5 Daily's discussion of the splits can be found here and here.)

(2) This month's issue of the Securities Reform Act Litigation Reporter (Vol. 19, No. 4 - July 2005) has an article providing an overview of the securities class actions that have gone to trial since the enactment of the PSLRA. In "Ten Years After the Reform Act: Trends in Securities Class Action Trials," the author (Michael Tu) finds that a total of seven cases have been brought to a trial verdict during this period, with only four cases involving claims based on post-Reform Act conduct. The Securities Litigation Watch has been following this issue closely and has both a handy list of the cases and a link to the article.

Posted by Lyle Roberts at 11:24 PM | TrackBack

July 15, 2005

Who Is The Client?

The 10b-5 Daily has previously posted about a petition filed in New York state court against the plaintiffs' law firms that settled the Computer Associates securities class action. Texas billionaire Sam Wyly is seeking the discovery collected in the case and argues that the firms have breached their fiduciary duty to him by not granting access to the materials because, as a CA shareholder, he was effectively a client of the firms until he declined to participate in the settlement.

The plaintiffs' law firms removed the case to federal court, arguing that the petition raised numerous federal questions, including "whether under the PSLRA lead counsel represents the class as a whole or individual class members." In Wyly v. Milberg Weiss Bershad & Schulman, 2005 WL 1606034 (S.D.N.Y. July 8, 2005), the court disagreed, finding that none of the cited reasons were sufficient to find federal jurisdiction, and remanded the case back to state court. The court declined, however, to award Wyly any attorneys' fees for fighting the removal, noting "the dubious nature of petitioner's cause of action and the surrounding circumstances."

Posted by Lyle Roberts at 10:07 PM | TrackBack

July 14, 2005

The PSLRA And The Supreme Court

Why has the Supreme Court declined to hear cases that would clarify the PSLRA? Business Week has a "news analysis" on the Supreme Court's reluctance to take cases in "vital areas such as antitrust, environmental, intellectual-property, securities, and tax law." In particular, the article cites the varied application of the PSLRA's heightened pleading standards as a "prime example of the legal confusion that the Supreme Court has allowed to fester."

The article does not state how many cert petitions involving interpretations of the PSLRA the Supreme Court has rejected. That said, anecdotal evidence abounds. A recent example is the Supreme Court's decision not to hear the Baxter case, an appeal from a Seventh Circuit decision that created a circuit split over the PSLRA's safe harbor for forward-looking statements.

Posted by Lyle Roberts at 7:37 PM | TrackBack

July 11, 2005

Fair Funds

The Wall Street Journal had a feature article (subscrip. req'd) last week on the SEC's efforts, pursuant to Section 308 of Sarbanes-Oxley (the "Fair Funds" provision), to pay out some of the large civil penalties it has collected to investors. The article focuses on the logistical challenges of the WorldCom case, where tracking down all of the injured investors and sorting out their claims is expected to take close to two years.

Quote of note: "Regulators are looking for cheaper and faster ways to get money back to investors. While the Fair Funds program was set up to be separate from private class-action lawsuits, the SEC is moving to work more closely with trial lawyers and has hitched several of its Fair Fund efforts to related class-action settlements that cover a similar set of investors. SEC funds have been combined with class-action settlements in about a half-dozen cases, including the agency's $150 million settlement with Bristol-Myers Squibb Co. and its $25 million settlement with Lucent Technologies Inc."

Posted by Lyle Roberts at 9:25 PM | TrackBack

July 8, 2005

Relying On Confidential Sources

The June issue of The Review of Securities & Commodities Regulation (Vol. 38, No. 11) contains an excellent overview of the law surrounding the use of confidential sources. The article, entitled "Anonymous Sources in Securities Class Action Complaints," is authored by John Henn, Brandon White, and Matthew Baltay and provides a circuit-by-circuit analysis.

Posted by Lyle Roberts at 7:25 PM | TrackBack

July 6, 2005

Off To The Races

No sooner does France announce that it may permit class actions than the first securities class action appears. Reuters reports that a French lawyer has launched a class action against Vivendi Universal on behalf of small shareholders. The company already faces a similar suit in the U.S.

Quote of note: "'Until now, no one has had the courage to do this' in France, Canoy told Reuters. 'But why can the Americans do certain things and not the French?'"

Posted by Lyle Roberts at 8:00 PM | TrackBack

June 21, 2005

The Discovery Stay, Class Action Trials, And More On Enron

Some miscellaneous items that have been piling up in The 10b-5 Daily's mailbox and around the web:

1) There is an interesting commentary, entitled "The Incoherent Jurisprudence of the PLSRA Discovery Stay," in the May 18, 2005 issue of the Andrews Securities Litigation and Regulation Reporter (Westlaw cite: 11 No. 1 ANSLRR 2). The author (Jesse Weiss) examines the applicability of the stay where: (a) defendants have produced documents to government agencies; (b) plaintiffs have brought state law claims in addition to federal securities fraud claims; or (c) there are parallel proceedings in state or federal court.

(2) Securities Litigation Watch tries to track down the elusive answer to the following question: exactly how many securities class actions have gone to trial since the passage of the PSLRA? (As The 10b-5 Daily recently noted, everyone has a different number.)

3) The Christian Science Monitor has a feature article on the relative value of the recent Enron settlements.

Posted by Lyle Roberts at 11:50 PM | TrackBack

June 17, 2005

Article Roundup

It was a busy week for news articles related to securities class actions. Here is a quick roundup:

(1) There were three noteworthy articles related to the Enron settlements. Forbes had a column on the potential attorneys' fees. The Associated Press discussed the pressure on the other bank defendants to settle. Finally, CNN/Money offered an overview of the settlement landscape.

(2) The New Jersey Law Journal published a "practice paper" (via law.com - free regist. req'd) on the Third Circuit's Chubb decision. (The 10b-5 Daily's summary of the decision can be found here.)

(3) The June 2005 SCAS Alert contains an interesting survey of foreign legislative efforts to permit U.S.-style securities class actions.

Posted by Lyle Roberts at 6:48 PM | TrackBack

June 13, 2005

The Verdict

As previously noted in The 10b-5 Daily, securities class actions rarely go to trial - making trial verdicts big news. Thane International, Inc., a California-based direct marketing company, has announced a trial victory in a securities class action brought in the S.D. of Cal. and based on the company's 2002 acquisition of Reliant Interactive Media Corp. in a stock swap. Reliant shareholders alleged that Thane had promised it would list the combined company on the Nasdaq National Market, but failed to do so. According to the press release, only six securities class actions have made it all the way to a trial verdict since 1996 (note that different sources have different numbers, but everyone appears to agree that the total is less than ten).

Thanks to Dave Tabak for the link.

Posted by Lyle Roberts at 7:46 PM | TrackBack

June 8, 2005

Fox In The Chicken Coop?

The nomination of Congressman Chris Cox as SEC chairman has come under criticism, with many opponents citing his sponsorship of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Professor Stephen Bainbridge of UCLA Law School has an interesting post on whether the PSLRA has actually "weakened investor protections" and provides links to a number of empirical studies to the contrary.

Posted by Lyle Roberts at 7:22 PM | TrackBack

June 6, 2005

Impact Of Dura

The Supreme Court's recent loss causation decision in the Dura case has been the subject of considerable commentary. The author of The 10b-5 Daily, along with one of his colleagues, has written an article on the topic - "Lower Courts Will Determine Impact of Supreme Court's Securities Fraud Ruling" - for the Washington Legal Foundation. A link to the article can be found here.

Posted by Lyle Roberts at 6:56 PM | TrackBack

May 20, 2005

Coffee On Dura

Professor John Coffee has a column (via law.com - free regist. req'd) in today's New York Law Journal examining the Supreme Court's recent loss causation decision. Among other issues, the column discusses the court's failure to reject the idea that an investor can claim an economic loss even if the price of his shares increased. (Regular readers will note that Professor Coffee's analysis of the pleading standard discussion in the Dura opinion differs from The 10b-5 Daily's analysis.)

Quote of note: "In the real world, however, there is a major difference: price declines are real phenomena that demonstrate that the market considered information to be material; in contrast, a price that does not change may be the result of either offsetting developments or, more likely, the fact that the allegedly material misrepresentation simply never was deemed material by the market. Indeed, to permit recovery in this case hypothesized by the Court is to permit recovery based on a double speculation -- first, as to the original uncorroborated price inflation and, second, as to what would have been the later price increase in the absence of discovery of the original inflation. Even the 9th Circuit has never gone this far."

Posted by Lyle Roberts at 7:06 PM | TrackBack

May 16, 2005

The Hazards Of Cooperation

The New York Law Journal has a column (via law.com - free regist. req'd) on the hazards of cooperating with government investigations. Among the possible consequences is that securities plaintiffs may be able to lift the PSLRA's mandatory discovery stay. The 10b-5 Daily has covered the district court spit on this issue extensively, most recently in a post from last September entitled "The 'Government Investigation' Exception."

Quote of note: "Recently, some courts have been moved by the argument that sustaining the mandatory stay would unduly prejudice or unfairly disadvantage plaintiffs otherwise unable to gain access to documents already produced to government agencies conducting investigations that mirror plaintiffs' claims. Reasoning that securities plaintiffs would be unfairly kept out of the judicial loop without access to the documents already held by those agencies while parallel investigations and prosecutions proceeded, these courts have determined that plaintiffs are entitled to have these same documents."

Posted by Lyle Roberts at 7:50 PM | TrackBack

May 10, 2005

It's Good To Be The Kings

Business Week (May 16, 2005 edition) has a feature article profiling the plaintiffs' counsel who handled the WorldCom securities class action. The article is entitled "The Kings of Class Actions."

Posted by Lyle Roberts at 7:54 PM | TrackBack

May 4, 2005

Confidential Sources

Confidential sources have become a hot topic in securities class actions. The Third Circuit and Ninth Circuit (see here and here) have issued recent decisions discussing the use of statements from confidential sources to help meet the PSLRA's heightened pleading standards. The New York Law Journal has an informative article (via law.com - free regist. req'd) that summarizes these decisions and talks generally about the development of the case law in this area.

Quote of note: "[A] majority of courts addressing this issue have permitted the use of confidential sources, at least under certain circumstances. However, a review of recent decisions suggests that the courts are now closely scrutinizing the use of confidential sources in securities fraud cases and are becoming more vigilant in probing whether there is in fact such a source, whether that source would have been in a position to acquire first-hand knowledge of the matters attributed to it, and whether the information attributed to the source is corroborated by other, independent particularized facts pled in the complaint."

Posted by Lyle Roberts at 6:09 PM | TrackBack

April 29, 2005

Down Under

The use of securities class actions is gaining favor in other legal systems. In an interesting article entitled "The Rise of Shareholder Class Actions in Australia" (via mondaq.com - free regist. req'd), an Australian attorney discusses the legal, regulatory, and environmental changes that have led to a spate of recent cases against Australian companies. He also compares the U.S. and Australian systems.

Quote of note: "There is an ever popular view among regulators and academics that shareholder class actions should be encouraged in order to supplement the often slow-moving cogs of government enforcement with much speedier private actions. Private enforcement is frequently more intimidating to corporations, particularly in the case of shareholder class actions which can aggregate the claims of thousands or even millions of shareholder and thereby significant increase a corporations legal exposure in comparison with the relatively meagre statutory fines that attach to corporate misfeasance."

Posted by Lyle Roberts at 9:13 PM | TrackBack

April 21, 2005

Dura Roundup

More on the Dura decision:

(1) The Legal Times has an article (via law.com - free regist. req'd) discussing the reaction of the parties to the decision.

(2) Forbes has a column stating that the decision was a "no-brainer" and providing some academic commentary.

(3) The Wall Street Journal has an editorial (subscrip. req'd) citing the decision as another reason why criminal sentencing in the Enron "barge" case should not be based on the alleged inflation of the company's stock price.

Posted by Lyle Roberts at 5:31 PM | TrackBack

April 15, 2005

As Goes France . . .

The Associated Press reports that in France a government-appointed panel has begun preparing the new class action law. One early debate is over whether France should adopt an "opt-out" or "opt-in" system for potential class members.

Quote of note: "Eventually, experts say, the moves afoot in Britain, Sweden and France could lead to a European Union-wide class-action law - since governments generally prefer their neighbors' industries to be exposed to the same kinds of risk as their own. 'It's not for tomorrow, but if it gets off the ground in France, and since we already have it in Sweden, then maybe we'll see something at a European level,' said Peter Burbidge, a law professor at Britain's Westminster University. 'The French would want others to have it if they have it.'"

Posted by Lyle Roberts at 8:00 PM | TrackBack

April 12, 2005

Sleeping With The Fishes

The use of confidential witnesses to support securities fraud allegations can be controversial, especially when the defense wants to test the accuracy of the statements attributed to these individuals. The Recorder has an article (via law. com - free regist. req'd) discussing two recent cases in the N.D. of Cal. where the handling of confidential witnesses has led to contempt and sanction motions.

Quote of note: "The plaintiff view is, 'My god, if we were to tell who they were, they'd sleep with the fishes.'"

Posted by Lyle Roberts at 3:45 PM | TrackBack

April 6, 2005

Who Is The Client?

Interesting item in Newsday about a petition filed in New York state court against the plaintiffs' law firms that settled the Computer Associates securities class action. Texas billionaire Sam Wyly reportedly is seeking the discovery collected in the case and argues "that the documents 'rightfully belong to him' because, as a CA shareholder, he was effectively a client of the firms until he declined to participate in the class-action settlement."

Addition: Forbes has more on the story.

Posted by Lyle Roberts at 7:06 PM | TrackBack

April 1, 2005

Rite Again

KPMG's settlement of the claims against it in the Rite Aid litigation has given rise to an interesting battle over attorneys' fees. In an opinion that came out two months ago, the U.S. Court of Appeals for the Third Circuit held that the district court should reconsider its fee award of $31 million (25% of the settlement). The Third Circuit found that although the district court correctly applied the percentage-of-recovery approach, it erred in its application of a lodestar 'crosscheck' by focusing only on the hourly rates for the top lawyers handling the case, making the fee award appear more reasonable.

On remand, however, the district court has once again awarded plaintiffs' counsel $31 million in fees. See In re Rite Aid Corp. Sec. Litig., 2005 WL 697461 (E.D. Pa. March 24, 2005). Although the district court conceded that the new calculation increased the lodestar mutliplier from 4.07 to 6.96 (i.e., plaintiffs' counsel will receive nearly 7 times the amount that they would have been paid if they had worked on an hourly basis), it nevertheless found that the award was still reasonable. In its decision, the district court noted that the "case appears to involve the largest class recovery on record against an auditor in a 10b-5 action, a fact no one at the hearing contested." Moreover, the settlement was achieved "without relying on the fruits of any official investigation."

The Legal Intelligencer has an article (via law.com - free regist. req'd) on the decision.

Posted by Lyle Roberts at 8:57 PM | TrackBack

March 25, 2005

Getting A Fair Trial

Finding jurors that do not have strong feelings about the WorldCom corporate scandal may prove difficult for the company's former auditors. Arthur Andersen is the last remaining defendant in the WorldCom securities class action and the case is about to go to trial. According to a Bloomberg report, counsel for Arthur Andersen has informed the judge that many of the individuals in the jury pool "owned WorldCom stock while others displayed 'deeply felt' bias against Andersen and WorldCom." Jury selection begins on Monday and the trial is expected to last until the end of May.

Posted by Lyle Roberts at 10:40 PM | TrackBack

March 18, 2005

More On "Statistical" Tracing

Texas Lawyer has an article (via law.com - free regist. req'd) on the U.S. Court of Appeals for the Fifth Circuit's recent decision rejecting the use of "statistical" tracing to establish standing for Section 11 claims. The 10b-5 Daily posted about the case last week.

Posted by Lyle Roberts at 5:33 PM | TrackBack

March 9, 2005

More Biotech Woes

The Los Angeles Times has an article today on how disclosure issues can trigger shareholder litigation and SEC actions. The article focuses on the recent difficulties faced by many biotech companies. (The 10b-5 Daily has posted frequently on this topic.)

Quote of note: "Public demands that companies scale back secrecy have escalated since recent corporate scandals, and the SEC has supported more meaningful disclosure for public companies. Yet the pressures may raise particular issues in biotechnology because of the importance of test results and the profound effect that new products may have on the bottom line."

Posted by Lyle Roberts at 7:51 PM | TrackBack

February 23, 2005

E&Y Wins Class Action Trial

Securities class actions rarely go to trial, but that does not mean they never go to trial. The Recorder reports (via law.com - free regist. req'd) that Ernst & Young has achieved a trial victory in a securities class action brought in the N.D. of Cal. and based on the accounting firm's work for Clarent Corp. The plaintiffs filed the class action after accounting irregularities at Clarent came to light in 2001. Although the jury found no liability for Ernst & Young, Clarent's former CEO was found liable for an accounting misrepresentation. Plaintiffs' counsel has issued a press release stating that the trial was only the third trial of a securities class action in the last ten years.

Posted by Lyle Roberts at 10:24 PM | TrackBack

February 17, 2005

Class Action Reform Approved By House

As expected, the U.S. House of Representatives approved the Class Action Fairness Act today. Bloomberg reports that the final vote was 279 to 149. President Bush has said he will sign the legislation.

Posted by Lyle Roberts at 9:45 PM | TrackBack

February 15, 2005

Securities Reform Act Litigation Reporter

The February issue of the Securities Reform Act Litigation Reporter includes The 10b-5 Daily's summary of the Supreme Court argument in the Dura case. A pdf of the issue, which also contains an article on the PSLRA, detailed case summaries, and copies of recent decisions, can be found here.

Disclosure and an Offer: The author of The 10b-5 Daily is on the Board of Advisors for the Securities Reform Act Litigation Reporter. The publisher has authorized a 33% discount on initial subscriptions to this useful periodical for readers of this weblog. For subscription information and to obtain the discounted price, call (202) 462-5755.

Posted by Lyle Roberts at 9:58 PM | TrackBack

February 11, 2005

Class Action Reform Passes

By a surprisingly large margin, the Senate passed the Class Action Fairness Act yesterday. The legislation applies some of the reform concepts in the PSLRA and SLUSA to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court. The Associated Press reports that the final vote in the Senate was 72-26. The House of Representatives, which had previously passed its own version of the legislation, is expected to take up the matter next week.

Addition: A reader has sent in this link to the U.S. Senate Republican Policy Committee's "Legislative Notice" describing the legislation and its history.

Posted by Lyle Roberts at 4:16 PM | TrackBack

February 9, 2005

Looking Ahead

National Underwriter has an interesting article on remarks made at a directors and officers liability insurance conference by two prominent members of the plaintiffs' securities litigation bar. The topics included private actions vs. class actions, derivative cases, holding corporate officers accountable, and what industry is likely to see a flurry of new suits (hint: insurance).

Posted by Lyle Roberts at 12:43 PM | TrackBack

February 4, 2005

What Is Sufficient Notice?

The PSLRA states that securities class action plaintiffs, within 20 days of filing a complaint, "shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class." Although the standard practice is for the notice to be put out on a wire service, some plaintiffs/counsel have chosen to publish their notice in the print edition of a single publication (with the express intention, it has been argued, of limiting the number of lead plaintiff candidates).

A minor court split has developed over whether publishing notice in the print edition of a single publication is sufficient. Last year, a D. of Md. court found that the publication of a notice in the New York Times did not meet the PSLRA's requirements. A recent decision from the E.D. of Pa., however, has held that the publication of a notice in the Investor's Business Daily was sufficient.

Securities Litigation Watch has posted extensively on the subject and the Legal Intelligencer has an article on the E.D. of Pa. decision (which also found that the notice does not need to contain an extensive description of the case).

Posted by Lyle Roberts at 4:56 PM | TrackBack

January 31, 2005

Calculating Attorneys' Fees

In 2003, KPMG settled the claims against it in the Rite Aid securities litigation for $125 million. As reported in The 10b-5 Daily, a class member objected to the payment of 25% of that sum (i.e., $31 million) in attorneys' fees. The district court approved the settlement terms despite the objection and an appeal followed.

According to an article (via law.com - free regist. req'd) in the Legal Intelligencer, the U.S. Court of Appeals for the Third Circuit has held that the district court should reconsider its fee award. The district court correctly applied the percentage-of-recovery approach, but erred in its application of a lodestar 'crosscheck' by focusing only on the hourly rates for the top lawyers handling the case, making the fee award appear more reasonable. The court found: "Had the hourly rates been properly blended, taking into account the approximate hourly billing rates of the partners and associates who worked on the case, the multiplier would have been a higher figure, alerting the trial court to reconsider the propriety of its fee award."

It is important to note, however, that the court also rejected the argument that courts should be required to apply a sliding scale and reduce the percentage of a settlement going to attorneys' fees based on the size of the fund. The opinion can be found here.

Posted by Lyle Roberts at 6:53 PM | TrackBack

January 28, 2005

Applying The Fraud-On-The-Market Theory To Research Analysts

Whether and how to apply the fraud-on-the-market theory (i.e., reliance by investors on an alleged misrepresentation is presumed if the company's shares were traded on an efficient market) to research analyst statements continues to be controversial.

In DeMarco v. Lehman Brothers, 222 F.R.D. 243 (S.D.N.Y. 2004), a case alleging that a Lehman analyst made buy recommendations for RealNetworks, Inc. stock while secretly holding negative views of the stock, Judge Rakoff denied the motion for class certification based on the plaintiffs' inability to provide sufficient evidence that the fraud-on-the-market theory was applicable. The court noted that there is a "qualitative difference" between a statement of fact from an issuer and a statement of opinion by a research analyst. In particular, a "well-developed efficient market can reasonably be presumed to translate the former into an effect on price, whereas no such presumption attaches to the latter." As a result, the court held that the fraud-on-the-market doctrine can apply to a case based on research analyst statements "only where the plaintiff can make a prima facie showing that the analyst's statements materially impacted the market price in a reasonably quantifiable respect."

Another district judge in the S.D.N.Y., however, has disagreed with that standard and granted class certification in a similar case. In DeMarco v. Robertson Stephens, 2005 WL 12033 (S.D.N.Y. Jan. 20, 2005), Judge Lynch addressed a case alleging that a Robertson Stephens' analyst and certain corporate officers maintained a buy rating on Corvis Corp. stock while privately selling their own holdings. (An earlier post on the case can be found here). In determining whether the fraud-on-the-market theory could be applicable, the court "decline[d] to adopt a higher standard at class certification for plaintiffs alleging securities fraud by research analysts and their employers." The court found that "by presenting a mix of market activity evidence, logical arguments, and statistical studies of the influence of at least some analyst statements, plaintiffs have made 'some showing' of their ability to make a common legal and factual presentation on reliance to an eventual factfinder."

The Second Circuit has come close to deciding this issue before, only to be thwarted by a settlement. It may get another chance.

Addition: The New York Law Journal has an article (via law.com - free regist. req'd) on the decision.

Posted by Lyle Roberts at 5:59 PM | TrackBack

January 25, 2005

Collecting On Claims

Securities Litigation Watch has an interesting post on the recent series of suits by mutual fund investors alleging that the funds failed to collect as much as $2 billion in securities class action settlement payouts to which the investors were entitled.

Posted by Lyle Roberts at 8:08 PM | TrackBack

Class Action Reform

The U.S. Senate is set to pass the Class Action Fairness Act. The legislation applies some of the reform concepts in the PSLRA and SLUSA to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court. Reuters reports that the Senate floor debate may take place the week of Feb. 7.

At the same time, proponents of U.S. class action reform are urging France not to permit these types of suits. Jacques Chirac, France's president, announced earlier this year that he had asked his government to propose legislation allowing collective suits against companies. An article in today's Financial Times discusses comments made by the president of the U.S. Chamber of Commerce on a trip to Paris, where he warned France that U.S.-style class actions "would damage the economy and shift money from 'good companies to lawyers.'"

Posted by Lyle Roberts at 7:30 PM | TrackBack

January 17, 2005

PLI Telephone Briefing On Pleading Scienter

The Private Securities Litigation Reform Act of 1995 requires plaintiffs alleging securities fraud to plead a "strong inference" of scienter (i.e., fraudulent intent) on the part of the defendants to survive a motion to dismiss. Exactly how to apply this standard, however, has been the subject of constant litigation. Recent notable judicial decisions have addressed, among other topics, what is necessary to adequately plead the scienter of a corporate defendant, the use of control person liability, and the role of insider stock sales in establishing a motive to commit fraud.

The author of The 10b-5 Daily, Lyle Roberts (Wilson Sonsini Goodrich & Rosati), will be chairing a Practising Law Institute telephone briefing on this topic on Thursday, January 20 at 1 p.m. ET. The panelists are Sam Rudman (Lerach Coughlin Stoia Geller Rudman & Robbins) and Bruce Carton (Executive Director, Securites Class Action Services, Institutional Shareholder Services). CLE credit is available. Click here to register.

Posted by Lyle Roberts at 1:22 PM | TrackBack

January 7, 2005

France Considers Allowing Class Actions

More from the international front, as France joins the list of countries that may implement a class action system. The Financial Times reports that President Jacques Chirac has asked his government to propose laws that would permit "collective actions against abusive practices that have been observed in certain markets." Thanks to Adam Savett for the link.

Posted by Lyle Roberts at 6:23 PM | TrackBack

January 5, 2005

Deloitte & Touche Obtains Dismissal Of Royal Ahold-Related Claims

The Baltimore Business Journal reports that Deloitte & Touche, along with a few other corporate and individual defendants, has been dismissed from the Royal Ahold N.V. securities litigation pending in the D. of Md. The case stems from the Dutch retailer's $1.1 billion earnings restatement last year. Deloitte & Touche served as the auditors for Royal Ahold and its U.S. subsidiaries. The court's lengthy decision can be found here.

Disclosure: The author of The 10b-5 Daily is quoted in the article.

Posted by Lyle Roberts at 5:50 PM | TrackBack

December 31, 2004

Impact of Sarbanes-Oxley

A study by Deloitte & Touche and a law firm has found that companies who have reported internal control weaknesses related to financial reporting have not been disproportionately hit with securities litigation. WebCPA has an article on the study, which found that only 6 percent of the nearly 300 companies analyzed were served with a class action securities complaint related to the disclosed deficiencies. It is not clear from the article, however, whether the study considered the impact of stock price movements related to the disclosures. The release of the study comes as companies prepare to meet the internal control disclosure deadlines of Sarbanes-Oxley Section 404.

Quote of note: "The disclosures in the study ranged from simple and significant deficiencies, to reportable conditions and material weaknesses. Material weaknesses represented 52 percent of the disclosures."

Posted by Lyle Roberts at 9:31 AM | TrackBack

December 28, 2004

Canada Braces For Securities Class Actions

Continuing The 10b-5 Daily's international theme, the Toronto Globe and Mail has a feature article on recent amendments to the Ontario Securities Act that are expected to generate "a wave of shareholder class action lawsuits." Until now, Canadian investors who purchase shares in the secondary market have been limited to common law fraud claims, which require a showing of individual reliance. The recent amendments will create a presumption of reliance (i.e., the fraud-on-the-market theory) and will allow investors to "sue for two types of misconduct: a misrepresentation made in disclosure documents or public oral statements; and a failure to make timely disclosure of a material change."

The article notes that some commentators are concerned the amendments will create an incentive to bring U.S.-style strike suits, but there will be certain safeguards in the new laws that do not exist here. Notably, a company's liability will "be limited to either 5 percent of its market capitalization or $1 million, whichever is greater." There will also be penalty limits for individuals.

Quote of note: "The legislation also is notable for the broad scope of potential defendants it will expose to liability. Not only does it pertain to the company and its directors and officers, but also to investment fund managers, spokespersons, experts (such as accountants, lawyers, financial analysts, engineers and geologists) and so-called influential persons (such as stock promoters or a majority shareholders with a significant influence on the company)."

Posted by Lyle Roberts at 5:52 PM | TrackBack

December 15, 2004

International Forays

It is international week at The 10b-5 Daily, with two more articles discussing the exporting of American-style class action litigation (including securities fraud cases). The New York Law Journal (via law.com - free regist. req'd) has a piece on pending legislation in the Netherlands that will allow for settlements that bind all members of a class who do not opt out. The author notes that the expansion of class actions in Europe is taking place at the same time that U.S. corporations are attempting to limit their use here. While over at Forbes, there is a profile of U.S. lawyers who are pursuing mass tort actions abroad.

Quote of note (New York Law Journal): Marc Gottridge of Lovells "does not foresee a sea change in the balance of class actions, despite the pending legislation in the Netherlands and elsewhere. 'Even if foreign countries adopted the same procedures' used in American courts, 'the U.S. would still be an attractive forum in many cases' for institutional investors based in Europe, he said. That is because of the U.S. system's wide-reaching discovery, jury trials and the potential for immense punitive damage awards."

Posted by Lyle Roberts at 8:56 PM | TrackBack

December 13, 2004

Cooking The Books

Long-time readers of The 10b-5 Daily know that this blog has been interested in South Korea's efforts to establish a private securities class action system. As the deadline approaches for the new legislation to go into effect, financial regulators continue to weigh the costs and benefits. In this article from the Korea Times, the governor of the Financial Supervisory Service (FSS) notes that securities class actions can be misused and discusses the prevalence of these suits in the U.S. Another article from the same paper, however, quotes a FSS official as stating: "Its fair to say the imminent class action lawsuit has also kept companies from cooking their books."

Posted by Lyle Roberts at 7:32 PM | TrackBack

December 10, 2004

Group Pleading

The New York Law Journal has an article (via law.com - free regist. req'd) on whether the group pleading doctrine, which creates a presumption that a company's senior officers are collectively responsible for misrepresentations or omissions contained in public statements made by the company, is compatible with the heightened pleading standards of the PSLRA. The article discusses the Fifth Circuit's decision in the INSpire case from earlier this year. (For The 10b-5 Daily's summary of the decision click here.)

Posted by Lyle Roberts at 6:21 PM | TrackBack

December 1, 2004

Biotech Woes Continue

The New York Law Journal has an article (via law.com - free regist. req'd) on the wave of securities class actions that have hit the biotech industry. (The 10b-5 Daily has previously posted about the relevant 2003 filing statistics.) The article discusses a recent law firm survey and profiles several prominent cases, including the litigation brought against ImClone Systems and Regeneron Pharmaceuticals.

Quote of note: "The biggest concern for a life science company involves its handling of news related to its prominent drug. In an industry that relies on investors to fork over millions to high-risk investments, life science companies position themselves to attract investment dollars. In such an industry, companies must navigate carefully."

Posted by Lyle Roberts at 2:02 PM | TrackBack

November 30, 2004

Oracle Obtains Dismissal In Derivative Suit

Although Oracle has had its hands full fighting off securities litigation, including a recent setback when the U.S. Court of Appeals for the Ninth Circuit reversed the lower court's dismissal of the federal securities class action brought against the company, things may be looking up. Reuters reports that Oracle has obtained a dismissal of the shareholder derivative suit brought against the company's officers in Delaware Chancery Court. The facts and accusations in the Delaware case reportedly "mirror" those in the federal securities class action.

Posted by Lyle Roberts at 9:43 PM | TrackBack

November 24, 2004

Europe Gets Litigious

In the wake of recent corporate scandals, European courts have become flooded with individual shareholder suits. A Bloomberg article discusses the Deutsche Telekom litigation in Germany, where 2,100 claims have been filed by 754 law firms. Last February, the company delivered 8 tons of paperwork in response to the complaints. All of this has European courts and legislators contemplating whether they should permit shareholders to file securities class actions.

Quote of note: "Countries from the Netherlands to Finland have changed their laws or are considering changes to permit investors and consumers to file multi-party complaints. The goal is to help cope with shareholder suits and product liability cases that can attract thousands of plaintiffs."

Quote of note II: "'Europe wasn't litigious until about five years ago, but then we started to get Americanized,' says Paul Bowden, a 49-year-old partner at the law firm of Freshfields Bruckhaus Deringer in London. 'Consumer associations have become more powerful and willing to push lawsuits, and there is a growing number of small law firms with young, ambitious lawyers who have learned a lot from the U.S.'"

Posted by Lyle Roberts at 7:27 PM | TrackBack

November 18, 2004

Qwest In Settlement Negotiations

On the heels of its $250 million settlement with the SEC last month, Qwest Communications is apparently in negotiations to settle the securities class actions pending against the company. An article in the Rocky Mountain News states that Qwest and the California State Teachers' Retirement System, which is acting as lead plaintiff, have recently engaged in a mediation. One analyst quoted in the article suggests that any settlement under $500 million would be a "net win for Qwest." In any event, it would be less than the "billions of dollars" in damages that lead counsel was reported to be seeking.

Posted by Lyle Roberts at 8:09 PM | TrackBack

November 16, 2004

Enron's Legal Tab

According to a feature article (free regist. req'd) in the Atlanta Journal-Constitution, the legal bills related to Enron's bankruptcy are close to $1 billion.

Quote of note: "When Enron Corp. emerges from bankruptcy by year's end, there won't be much wealth left for those who invested in the once high-flying company. By most estimates, Enron's creditors will likely receive 20 cents on the dollar, while shareholders probably won't get a cent. But don't worry about the lawyers, accountants and other advisers who've feasted on Enron's Chapter 11 case. Their court-approved fees are expected to reach $995 million."

Posted by Lyle Roberts at 6:08 PM | TrackBack

November 15, 2004

Dura Date Set

Oral argument in Dura Pharmaceuticals v. Broudo, the U.S. Supreme Court case on loss causation, has been set for January 12, 2005. Broudo's brief is due in a couple of days and will be posted when available on the web. (Links to Dura's brief and various amicus briefs can be found here.)

Posted by Lyle Roberts at 4:25 PM | TrackBack

November 11, 2004

Reliance On Counsel

An opinion from the U.S. Court of Appeals for the District of Columbia from earlier this year has an interesting holding for securities fraud defendants. In Howard v. S.E.C., 376 F.3d 1136 (D.C.Cir. 2004), the court examined a charge against the director of a broker-dealer for aiding and abetting a Rule 10b-9 violation (prohibited representations in connection with certain offerings). An element of a Rule 10b-9 claim is scienter (i.e., fraudulent intent). The court found that in the absence of red flags warning the director of the illegality in question, the director was entitled to rely on the advice of counsel and this reliance was evidence that he had not acted with scienter.

Holding: SEC order imposing sanctions vacated with respect to certain charges.

Quote of note: "[R]eliance on the advice of counsel need not be a formal defense; it is simply evidence of good faith, a relevant consideration in evaluating a defendant's scienter."

Quote on note II: "All the SEC can say is that Howard should have known what the legal requirements of Rule 10b-9 were and that he violated the disclosure laws by failing to reveal what he should have found out, but did not. At best this amounts to a finding of negligence; at worst it is liability without fault."

Posted by Lyle Roberts at 7:48 PM | TrackBack

November 10, 2004

Class Action Reform Is Back On The Agenda

The 10b-5 Daily has been following the up-and-down fortunes of the Class Action Fairness Act over the past year. (Click here for the most recent post.) The legislation applies some of the reform concepts in the PSLRA and SLUSA to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court.

With Republicans gaining seats in the Senate in this month's election, the Legal Times reports (via law.com - free regist. req'd) that the Class Action Fairness Act may finally get a floor vote. The timing, however, is still up in the air.

Quote of note: "If supporters want such legislation to pass during the lame duck period, [Stanton Anderson, head of the U.S. Chamber Institute for Legal Reform] and his team must persuade appropriators to attach the legislation to their spending bills, something they are often reluctant to do. Otherwise, they'll have to wait for the new Congress. 'If the decision is made to have riders, then we want to be at the top of the list,' he says. The urgency, adds Stanton, comes from not knowing for sure what will be on the legislative calendar next year. One thing that worries him: A drawn-out fight over the Supreme Court. 'If there's a Supreme Court nomination,' he says, 'then that will suck up everybody's time and energy.'"

Posted by Lyle Roberts at 9:30 PM | TrackBack

November 8, 2004

WorldCom News

Two interesting articles related to the WorldCom securities litigation:

(1) The Wall Street Journal reports (subscription only) on Bear Stearns' surprising decision to go to trial in Alabama state court over claims that it misled The Retirement Systems of Alabama (RSA) in connection with the sale of bonds from a WorldCom subsidiary. Citigroup, JPMorgan Chase, and Bank of America have already settled with RSA for $111 million.

Quote of note: "One reason Bear may be willing to have its day in court: The pension fund isn't seeking punitive damages, which are intended to punish the defendant and to discourage repeat behavior, so its exposure is capped at $16.2 million. And unlike Citigroup, Bear Stearns isn't named in the massive class-action suit that has been filed in New York by WorldCom stockholders and bondholders. So it doesn't have to worry that an award against it in Alabama will negatively affect its position in that suit."

(2) An article in the November 2004 SCAS Alert has more background on the story. The article discusses the recent decision by the U.S. Court of Appeals for the Second Circuit to overturn the district court injunction that blocked RSA from pursuing its state court lawsuit. Judge Cote presides over the federal securities class action pending against WorldCom and others in the S.D.N.Y. and had ordered the Alabama court to delay its trial until 60 days after a verdict in the federal case. The Second Circuit found that a federal court has no protectable interest in being "the first court to hold a trial on the merits."

Quote of note (SCAS Alert article): "Traditionally, few institutional investors have litigated their claims in state court. The practice has become more common in the past two years. Last year, pension funds in Ohio and California opted out of a federal class action against AOL Time Warner to bring state court claims. Federal class counsel have argued that investor recoveries typically occur sooner and are more certain in federal court. Defense lawyers also have tried to discourage state litigation, preferring to negotiate a single federal class settlement that would cover all investors."

Posted by Lyle Roberts at 8:52 PM | TrackBack

November 3, 2004

Vivendi Case Stays In U.S.

By declining to issue shares on a U.S. stock exchange, a foreign company may believe it is avoiding the risk of having a securities class action brought against it in a U.S. court. Not necessarily. An example is the Vivendi Universal securities class action currently pending in the S.D.N.Y. Vivendi is a French corporation and the plaintiffs are foreign investors who purchased their stock on foreign stock exchanges. Nevertheless, the plaintiffs have brought suit for violations of U.S. securities laws.

In a recent decision (In re Vivendi Universal, SA Sec. Litig., 2004 WL 2375830 (S.D.N.Y. Oct. 22, 2004)), the court has confirmed that it has subject matter jurisdiction over the claims. The general standard in the Second Circuit is that a court may exercise jurisdiction over securities claims asserted by foreigners if: "a) there was conduct in the United States that directly caused the foreigners' losses and (b) such conduct was more than 'merely preparatory' to a securities fraud conducted elsewhere." In this case, the court found that Vivendi's CEO and CFO had "moved their operations to New York and spent at least half their time managing the company from the United States during a critical part of the class period." The court held that this was sufficient to conclude that the U.S.-based conduct was integral to the alleged fraud.

The New York Law Journal has an article (via law.com - free regist. req'd) on the decision.

Posted by Lyle Roberts at 8:43 PM | TrackBack

October 21, 2004

Coming To America

The number of foreign companies listed on U.S. stock exchanges has grown over the past few years, with a significant amount of the increase coming from China. About 70 mainland Chinese companies are now listed in the U.S. and, inevitably, these companies have begun to feel the sting of securities class action litigation.

An article in today's China Daily discusses the regulatory difficulties faced by U.S.-listed Chinese companies and notes the recent SEC investigation and securities class action suit brought against the China Life insurance company over accounting irregularities. Judging by this line in the article, however, foreign understanding of the regulatory/litigation environment in the U.S. remains imperfect: "What seems most worrisome to management is that under the Sarbanes-Oxley Act, even restatement of accounts can trigger a class action by shareholders."

Posted by Lyle Roberts at 9:28 PM | TrackBack

October 18, 2004

Tyco News

There are two recent articles in the Wall Street Journal (subscrip. req'd) related to the Tyco International securities litigation (last posted about here).

First, a court in the D. of N.H. has allowed most of the claims in the pending securities class action to go forward. Interestingly, however, it dismissed a related derivative action on the grounds that it was barred under Bermuda law (Tyco is registered in Bermuda).

Second, former Tyco CEO Dennis Kozlowski and CFO Mark Swartz have asked a New York state court to direct one of Tyco's "excess" insurance carriers to pay legal bills that they say have surpassed $25 million.

Posted by Lyle Roberts at 8:19 PM | TrackBack

October 7, 2004

AT&T Case Goes To Trial

In an unusual development in the world of securities litigation, Telecomweb reports that the class action pending against AT&T in the D. of N.J. has gone to trial. Proceedings got under way yesterday in the case, in which the plaintiffs allege that AT&T engaged in fraud in connection with its initial public offering of AT&T Wireless in 2000. The court granted partial summary judgment to AT&T this past June, but allowed some claims to proceed.

Posted by Lyle Roberts at 8:21 PM | TrackBack

October 6, 2004

What Is An Efficient Market?

The fraud-on-the-market theory states that reliance by investors on an alleged misrepresentation is presumed if the company's shares were traded on an efficient market. What is an efficient market? Courts have frequently interpreted the U.S. Supreme Court's decision in Basic v. Levinson (which adopted the fraud-on-the-market theory) as incorporating the economic definition of an "efficient market." That is to say, an efficient market is one in which the stock price rapidly reflects all publicly available information. See, e.g., Gariety v. Grant Thornton, LLP, 368 F.3d 356, 367 (4th Cir. 2004).

At least one court, however, has taken a hard look at the Basic decision and disagrees. In In re Polymedica Corp. Sec. Litig., 2004 WL 1977530 (D. Mass. Sept. 7, 2004), the court found that an efficient market is simply one in which "'market professionals generally consider most publicly announced material statements about companies, thereby affecting stock market prices.'" As a result, the court declined to consider the defendants' argument (asserted as part of an opposition to class certification) that the fraud-on-the-market theory could not be applied because the market price of Polymedica stock did not fully and rapidly reflect public information.

Holding: Class certification granted (after excluding short sellers from the proposed class).

Quote of note: "When legal precedent is available, I follow it, not economic or academic literature. And though the First Circuit has not issued an opinion on the matter, Supreme Court precedent exists. Furthermore, it is plain in Basic that the Court did not want to adopt the 'economic' or 'academic' definition of efficient market."

Posted by Lyle Roberts at 10:30 PM | TrackBack

October 4, 2004

In Search Of A Smoking Gun

A growing number of plaintiffs' firms have forensic accountants on their permanent staff. An article (via law.com - free regist. req'd) in The Recorder discusses this trend and the importance of forensic accounting in formulating securities class action complaints that can survive a motion to dismiss.

Quote of note: "[Andy] Rudolph said the wave of corporate scandals led by Enron Corp. has cast his work in a new light. 'I used to go to seminars and give speeches and almost get booed' by other accountants and company CFOs, Rudolph said. 'The pendulum has swung. Now people want to hear about fraud.' He also gets a different reaction at social events when he tells people he's a forensic accountant. 'Is it like CSI?' people ask."

Posted by Lyle Roberts at 6:03 PM | TrackBack

October 1, 2004

Can You Bring A Securities Class Action Based On '33 Act Claims In State Court?

The federal district court split over whether SLUSA bars the bringing of a securities class action alleging '33 Act claims in state court continues. In Zia v. Medical Staffing Network, Inc., 2004 WL 2093505 (S.D. Fla. Sept. 16, 2004), the court held that SLUSA only permits the removal to federal court of securities class actions based on state law. Accordingly, the case was remanded. (For a discussion of a contrary opinion from the N.D. of Tex., see this post.) The decision notes, however, that the issue is currently before the U.S. Court of Appeals for the Eleventh Circuit in another case - ATC Enter., Inc. v. Williams - and oral argument was set to occur in September.

Posted by Lyle Roberts at 7:53 PM | TrackBack

September 28, 2004

Court Appoints Trustee For Halliburton Plaintiffs

The Halliburton settlement just got even messier. Not only has the N.D. of Tex. rejected the proposed $6 million settlement, but the court now has appointed a trustee to protect the interests of the preliminary class members. The Houston Chronicle reports that Judge Lynn "made the decision to appoint the trustee, called a 'guardian ad litem,' Thursday, according to legal documents obtained Friday."

Posted by Lyle Roberts at 6:31 PM | TrackBack

September 27, 2004

Fair Funds

Section 308 of Sarbanes-Oxley, the "Fair Funds" provision, allows the SEC to combine civil penalties with the disgorgement obtained from a securities law violator into a fund for the benefit of the victims of the violation. The Los Angeles Times has a feature article (free regist. req'd) today discussing the SEC's use of its restitution powers. The article states that although accounts have been set up in 96 cases, amassing $2.6 billion in funds, the disbursement of those funds has proven to be a "logistical challenge" for the SEC and relatively little of the money has found its way to investors to date.

As for the impact on private litigation, the article notes that many of the supporters of the Fair Funds strategy "like the fact that the funds gave investors a means beyond class-action lawsuits to reclaim their losses." In passing the legislation, however, Congress failed to specifically address whether these funds were supposed to supplement or offset funds obtained as the result of private litigation. The practical effect of large SEC civil penalties may be the reduction of private settlements (see, for example, this post about the mutual fund trading practices cases), but it is not clear that they can be used as a direct offset.

The SEC, for its part, has not given defendants much comfort on this issue, suggesting that civil penalties should still be viewed as a punitive measure despite the Fair Funds provision. As the SEC's Director of Enforcement stated earlier this year: "That harmed investors can benefit directly from these efforts is icing on the case, so to speak." The courts may have to have the final say.

Posted by Lyle Roberts at 7:08 PM | TrackBack

September 23, 2004

Lehman To Settle Enron-Related Claims

The Wall Street Journal reports (subscrip. req'd) today that Lehman Brothers is "close to reaching a deal to pay about $220 million to settle a class-action lawsuit alleging that it and other big brokerage firms participated in a scheme with Enron Corp. executives to mislead shareholders."

Posted by Lyle Roberts at 6:20 PM | TrackBack

September 21, 2004

Mutual Fund Update

Two articles on the mutual fund trading practices cases, which have been consolidated in the D. of Md., suggest that they may not be a "bonanza" for investors.

The Wall Street Journal reports (subscrip. req'd) that "the hefty penalties already levied by regulators in settlements with 11 fund firms make it less likely there will be a big payoff for investors in the private litigation." Meanwhile, the Boston Globe finds that the existing "settlement talks remain at initial stages" and some of the "fund firms appear to be in no mood to settle with plaintiffs."

Posted by Lyle Roberts at 7:29 PM | TrackBack

September 13, 2004

Forbes Takes Swing At Securities Class Actions

The most recent edition of Forbes (Sept. 20) has a cover story on securities class action litigation. The authors are sharply critical of the effectiveness of public pension funds as lead plaintiffs.

Quote of note: "All told, public and union pension funds were lead plaintiffs in 28% of investor class actions last year; in 1996 they led just 3% of cases, says PricewaterhouseCoopers. Yet they have done nothing to improve shareholder recoveries or reduce significantly the lawyers' cut. 'We have a system where the courts consistently allow law firms to file cases on behalf of figureheads,' complains University of Arizona law professor Elliott Weiss. Translation: The lawyers still run the show. It is a pointed criticism, for Weiss did the research on class action settlements that helped shape the reform act."

Posted by Lyle Roberts at 12:18 AM | TrackBack

August 31, 2004

Throwing In A Little Corporate Governance V

Although the media generally has praised the recent trend of requiring corporate governance reforms as part of the settlement of shareholder litigation (see, e.g., this post from last month), the response has not been uniform. Business Week has a column in its Sept. 6 edition that is critical of the real value of these reforms.

Quote of note: "It is just another example of how there's as much bluster as big bucks behind the recent wave of such therapeutic shareholder deals. Governance experts and the lawyers who push the lawsuits laud them for forcing boards closer to true independence and pressuring executives to be more accountable. But while some financial payouts have been impressive, the governance changes, with few exceptions, have not. Worse, the settlements are taking some of the pressure off companies to make more substantive changes."

Posted by Lyle Roberts at 8:38 PM | TrackBack

August 26, 2004

Halliburton Court To Rule On Settlement

The 10b-5 Daily has been actively following the unusual dispute among the lead plaintiffs in the Halliburton securities class action over a proposed $6 million settlement. (The most recent post can be found here.) According to an Associated Press story today, the new judge presiding over the case will decide whether to approve the settlement next week.

Quote of note: "[Judge Barbara Lynn of the N.D. of Tex.] pointed out that the $6 million settlement, cut in half by attorney and administrative fees, would result in low payouts to thousands of plaintiffs in the class-action lawsuit. She said they wouldn't lose much if she rejected the settlement, allowed the case to move forward and it eventually failed."

Posted by Lyle Roberts at 9:09 PM | TrackBack

August 25, 2004

WorldCom News

The Wall Street Journal reported (subscrip. req'd) today that seventeen former WorldCom bond underwriters, as part of the pretrial "requests for admission" in the securities class action pending in the S.D.N.Y., refused to admit that any of WorldCom's financial reports were false. Judge Cote apparently expressed scepticism over this position at the hearing.

The WSJ also reported that ten of WorldCom's former directors have agreed to settle allegations that they did not properly oversee the company for $50 million. An official announcement of the settlement could come this week. Bloomberg has a story on the settlement.

Quote of note (WSJ): "Asked about its attorney's exchange with Judge Cote, J.P. Morgan spokeswoman Kristin Lemkau yesterday said the bank and its co-defendants 'do not contend that no financial fraud occurred at WorldCom.' While Judge Cote characterized the banks' responses as an across-the-board denial, Ms. Lemkau said that, in fact, is not the banks' position. 'The financial fraud and its concealment from us has been the centerpiece of the underwriters' defense for two years and is a substantial part of our motion for summary judgment to have the entire case dismissed,' Ms. Lemkau said. 'That is different from whether -- for purpose of responding to a request to admit -- a particular line item in a particular financial statement was false, an issue which involves, among other things, accounting judgment and a review of the discovery record, which is not complete.'"

Posted by Lyle Roberts at 8:18 PM | TrackBack

August 23, 2004

Mutual Fund Fee Cases

CBS MarketWatch.com has a column on the mutual fund fee cases, which allege "that the operational savings that a fund company accrues when its issues reach the multibillion-dollar level never get passed to individual investors." The columnist argues that the cases will ultimately benefit investors by either resulting in fee cuts or creating an environment in which mutual fund companies will be reluctant to raise fees.

Posted by Lyle Roberts at 11:44 PM | TrackBack

August 20, 2004

WSJ On Litigious Pension Funds

The Wall Street Journal has an editorial (subscrip. req'd) in today's paper on the relationship between public pension funds and the securities plaintiffs' bar. The editorial is entitled "Pension Fund Shenanigans" and discusses what the authors describe as "a couple of recent cases show[ing] that some public pension funds are not only failing their own beneficiaries, they are making mischief for well-run corporations."

Posted by Lyle Roberts at 5:08 PM | TrackBack

August 19, 2004

The Impact Of The PSLRA

Stephen Choi, a law professor at Berkeley, has published an article entitled "Do the Merits Matter Less After the Private Securities Litigation Reform Act?" Choi finds that the PSLRA has reduced nuisance litigation, but may discourage some meritorious suits.

Notably, Choi's research suggests that two classes of cases are less likely to be brought post-PSLRA: (1) cases against "companies engaged in smaller offerings or with a lower secondary market volume (and therefore reduced potential damage awards);" and (2) cases against "companies engaged in fraud where no hard evidence of the fraud is announced pre-filing of a suit." Choi concludes that the PSLRA "has operated less like a selective deterrence against fraud and more as a simple tax on all litigation (including meritorious suits)."

ProfessorBainbridge.com has a post on the article. Thanks to George Best for sending in the link.

Posted by Lyle Roberts at 7:12 PM | TrackBack

August 18, 2004

Pollack

Judge Milton Pollack (S.D.N.Y.) passed away last week. During his long career on the bench, Judge Pollack decided a number of well-known financial fraud cases, including the Drexel Burnham Lambert bankruptcy case and the Merrill Lynch research analyst cases (currently on appeal in the Second Circuit). The New York Times ran an obituary in Monday's edition.

Posted by Lyle Roberts at 2:01 PM | TrackBack

August 13, 2004

AOL Individual Defendants Back In

In May, some of the individual defendants in the AOL/Time Warner securities class action were dismissed from the case. According to a report in yesterday's Washington Post, however, Judge Kram of the S.D.N.Y. has reinstated the case against most of these defendants (including former AOL Chairman Steve Case) based on the plaintiffs' second amended complaint.

Quote of note: "The opinion said: 'According to the second amended complaint, on October 17, 2000, Case said, 'I do not think people generally are concerned about Internet advertising. Our results show that there's no reason to be concerned when it comes to AOL.' In light of Case's alleged knowledge as early as November 1999 that the advertising revenue was facing a 'stark reversal of fortune,' the above statement may form the basis of a [securities fraud] claim against Case.'"

Posted by Lyle Roberts at 10:21 PM | TrackBack

August 11, 2004

The Perils Of Being A Director

The September/October issue of Corporate Board Member has a column on the increased litigation risk faced by corporate directors.

Quote of note: "The legal buzzwords for directors to remember here are 'business judgment' and 'good faith.' Courts traditionally wont allow the former to be questioned so long as they are assured that board members acted in the latter."

Posted by Lyle Roberts at 4:53 PM | TrackBack

July 28, 2004

Institutional Investors Make A Difference

This week's edition of The National Law Journal has a feature article (via law.com - subscrip. req'd) on securities litigation and the increasing competition amongst the plaintiffs' law firms. The article focuses on the importance to these firms of developing strong relationships with institutional investor clients who can act as lead plaintiffs.

Quote of note: "Because a firm's success depends not only on the viability of its case but also on the breadth of the client, how institutional investors choose their lawyers to pursue securities matters has become increasingly 'political,' said Joseph A. Grundfest, a securities law professor at Stanford Law School."

Posted by Lyle Roberts at 9:17 PM | TrackBack

July 27, 2004

Throwing In A Little Corporate Governance IV

The Associated Press has an article on requiring corporate governance reforms as part of the settlement of shareholder litigation. The author reviews some recent settlements that included reforms (Broadcom and Applied Micro Circuits) and argues "these settlements help debunk arguments against further governance reform for all public companies." (The 10b-5 Daily most recently posted about this issue here.)

Quote of note: "Only four of the 63 settlements reached in class-action shareholder suits so far in 2004 have produced governance reforms, according to Bruce Carton, executive director of securities class-action services for Institutional Shareholder Services, an adviser to major money managers. But while hardly an avalanche of reform, the recent activity does stand out compared with the prior two years, when only five of 346 settlements produced governance changes."

Addition: An astute reader notes that the above statistics almost certainly understate the number of shareholder cases that have resulted in corporate governance reforms because corporate governance reforms are often implemented as part of the settlement of a related derivative suit, rather than in the settlement of the securities class action.

Posted by Lyle Roberts at 10:34 PM | TrackBack

July 21, 2004

Harvard Law School Settles Estate Claim

Last year, The 10b-5 Daily posted about the unusual legal battle over the estate of Harvey Greenfield. Greenfield was a well-known plaintiffs' securities class action lawyer who passed away in 2002. Although Greenfield had told people that he planned to leave the bulk of his estate (valued at $35 million) to Harvard Law School, a will could not be located after his death. Harvard filed a claim against the estate. The New York Law Journal reports today that a settlement has been reached between Harvard and Greenfield's sole living heir to fund a securities law professorship in Greenfield's name with about $2.8 million.

Posted by Lyle Roberts at 10:34 PM | TrackBack

July 19, 2004

Biotech Woes

The Motley Fool website has an interesting, non-lawyer commentary on the large number of securities class actions that have been filed in the biotech industry over the past few years. The author engages in an informal survey of 100 mid-cap ($100 million to $2 billion) biotech companies and finds that 31, or nearly one-third, are currently facing suits. (The 10b-5 Daily has previously posted about the statistics for biotech cases filed in 2003.)

Quote of note: "Drug development is a high-risk business model, where investigational products frequently fail. Approximately 30% of drugs in phase 3 trials will never gain approval, and roughly 20% of drugs filed for approval with the FDA will get turned down. That's a pretty high failure rate."

Quote of note II: "This non-legal advice from a non-lawyer is to stick to the facts of the clinical data and avoid giving opinions on how good the drug is. Don't say something like 'potential to be best in class' or 'revolutionize the treatment of this disease.' Such careless comments will be a nightmare if the drug hits a snag. You can bet that the lawyers will be looking for them, too."

Posted by Lyle Roberts at 8:32 PM | TrackBack

July 14, 2004

Mutual Fund Cases In Settlement Talks

The parties in the mutual fund trading practices cases, which have been consolidated in the D. of Md., are in settlement negotiations. The Wall Street Journal has an interesting article (subscrip. required) exploring the ramifications of the mutual funds' agreement to pay $2.5 billion to settle with the SEC and state regulators. Almost all of these funds will go to mutual fund investors (in part because of the Sarbanes-Oxley provisions allowing the SEC to distribute penalties it obtains to injured investors), which is likely to reduce any settlement in the private lawsuits. (The 10b-5 Daily has posted about the cases frequently, most recently about the lead plaintiff contest.)

Quote of note: "Attorneys for the mutual-fund companies have cited the settlement agreements in their defense, which by some measures total more than the alleged damages. The 'plaintiffs are tilling a plowed field,' lawyers for Janus wrote in a court filing."

Quote of note II: "The plaintiffs' attorneys are likely to contend in amended complaints due later this month that the fund companies need to prove that they are fully compensating investors for the harm done by the trading. Some of the lawsuits are seeking the return of fund-management fees on the theory that the managers violated their fiduciary duty to investors, an issue not directly addressed by the SEC settlements."

Posted by Lyle Roberts at 11:19 PM | TrackBack

July 12, 2004

The Big Breakup In Review

The New York Times had a long feature article in its Sunday edition on the breakup of Milberg Weiss Bershad Hynes & Lerach, widely recognized as the leading plaintiffs' securities class action firm. The article discusses a number of topics, including the history of Milberg Weiss, the PSLRA, and the recent corporate scandals.

Posted by Lyle Roberts at 6:32 PM | TrackBack

More On Dura

The Financial Times has an article on the U.S. Supreme Court's decision to grant cert in the Dura Pharmaceuticals case and address the issue of loss causation. The article also discusses the potential impact on the research analyst cases.

Quote of note: "The Supreme Court is not expected to rule on the Dura case until 2005; an appeal in the Merrill Lynch case is due to begin in New York next month, although some lawyers believe that ruling may be put off until after the Supreme Court acts."

Disclosure: The author of The 10b-5 Daily is quoted in the article.

Posted by Lyle Roberts at 5:58 PM | TrackBack

July 9, 2004

D&O Insurance Rates Falling

Last year, there was a great deal of concern over the rising costs of directors and officers ("D&O") insurance. According to an article in the Silicon Valley/San Jose Business Journal (via MSNBC), however, the pendulum has swung the other way. Rates began declining in April of this year and "now many companies are saving between 18 percent and 50 percent." The article attributes most of the decline to rate competition caused by new underwriters entering the market. (Thanks to the Securities Law Beacon for the link.)

Quote of note: "Those getting the biggest break are stable, middle-market public companies, between $500 million and $1 billion in market cap. This group was hit as hard as anyone when D&O rates started increasing in 2001. Until rates started easing earlier this year, some companies saw increases as high as 300 percent."

Posted by Lyle Roberts at 10:17 PM | TrackBack

July 8, 2004

Class Action Reform Stalled Again

The Associated Press reports that the Class Action Fairness Act will not be voted on in the U.S. Senate this legislative year, becoming the "victim of election-year skirmishing between the two parties." Proponents of the bill were unable to get enough votes to invoke cloture today after Senate Majority Bill Frist (R.-Tenn.) refused to allow consideration of various unrelated amendments.

Posted by Lyle Roberts at 8:15 PM | TrackBack

The Wonderful World Of Rule 10b5-1

To what extent are individual stock trading plans (entered into pursuant to SEC Rule 10b5-1) helpful in defending against private securities fraud claims? At least one court, the N.D. of Cal. in the Monterey Pasta case, has suggested that the use of a stock trading plan may allow a defendant to negate any inference of fraudulent intent based on his stock sales because the sales were pre-scheduled. As more company executives implement these plans, the issue is likely to gather steam.

The author of The 10b-5 Daily, along with one of his colleagues, has an article on the topic - "Individual Trading Plans Can Help Defend Securities Fraud Claims" - in the most recent edition of Compliance Week (July 7). A link to the article can be found here.

Posted by Lyle Roberts at 7:56 PM | TrackBack

July 7, 2004

Senate Debates Class Action Reform

The U.S. Senate finally is debating the Class Action Fairness Act (see this post), but its passage may be derailed by unrelated amendments. The Associated Press and Reuters have reports on today's action.

Quote of note (Associated Press): "Democrats are demanding a vote on raising the minimum wage from the $5.15 an hour to $7 over the next few years. They also want a vote on fighting global warming and on extending an assault weapon ban that is to expire this year. Hawaii's two Democratic senators are pushing legislation that would recognize native Hawaiians as a governing entity. Republican Sen. Larry Craig of Idaho, with Sen. Edward Kennedy, D-Mass., are trying to add a proposal that would give temporary legal status to undocumented farm workers."

Posted by Lyle Roberts at 6:04 PM | TrackBack

June 29, 2004

Moving Slow

In securities litigation, the wheels of justice can move slow. The Associated Press has an article on the securities class action against Cabletron Systems, Inc. in the D. of N.H. The complaint was originally filed in 1997 and alleges that Cabletron artificially inflated its stock price by overstating sales and failing to disclose problems with its products.

In a remarkable series of events, the case was dismissed in 1998 with leave to amend, reassigned several times after the original judge passed away, dismissed again in 2001, reinstated by the 1st Circuit in 2002 (in a well-known opinion), and has since been bogged down in discovery and procedural disagreements. In the interim, Cabletron has gone out of business.

Quote of note: "The two sides are currently waiting for a judge to settle procedural disagreements. Cabletrons lawyers want to know the identity of the shareholders anonymous sources. . . . The shareholders want permission to question under oath several of Cabletrons top executives, a group that hasnt been identified but is expected to include [Craig] Benson [a former Cabletron officer and the current governor of New Hampshire]."

Posted by Lyle Roberts at 7:24 PM | TrackBack

June 25, 2004

SLUSA And '33 Act Claims

There is a growing district court split over whether plaintiffs can bring a securities class action pursuant to the Securities Act of 1933 ("'33 Act") in state court. As a general matter, claims under the '33 Act may be brought in federal or state court.

Securities class actions, however, are subject to a number of special rules. The Securities Litigation Uniform Standards Act of 1998 ("SLUSA") is designed to prohibit the bringing of securities class actions in state court and provides for their removal to federal court. SLUSA only applies to class actions "based upon the statutory or common law of any State." The drafters were focused on plaintiffs who wanted to avoid the heightened pleading standards of the PSLRA by bringing the equivalent of Rule 10b-5 claims (for which federal courts have exclusive jurisdiction) in state court under state law.

In In re Tyco Int'l, Ltd. Multidistrict Litig., 2004 WL 1403009 (D.N.H. June 21, 2004), the court addressed motions to remand to state court seven of the 47 cases that had been consolidated for pretrial proceedings. The seven cases are all based exclusively on the '33 Act. The court found that although SLUSA would prohibit the bringing of a securities class action in state court alleging both '33 Act claims and state law claims, it does not, as a matter of statutory construction, apply to securities class actions based exclusively on the '33 Act. (For a discussion of a contrary opinion from the N.D. of Tex., see this post.)

Holding: Motions to remand granted.

Quote of note: "SLUSA's legislative history supports the view that Congress attempted to prevent plaintiffs from circumventing the PSLRA by 'enact[ing] national standards for securities class action lawsuits involving nationally traded securities,' rather than by making federal courts the exclusive forum for Securities Act class actions alleging fraud."

Posted by Lyle Roberts at 10:22 PM | TrackBack

June 15, 2004

Go After The Gatekeepers

For every commentator who believes that Congress has gone too far in passing corporate reforms, there is another who believes that Congress needs to take immediate additional action. In this column from CBS MarketWatch, the author argues that the PSLRA should be overhauled to make it easier for investors to bring suit and new reforms should be passed to address the failings of lawyers, accountants, and Wall Street firms to prevent fraud.

Quote of note: "The real problem is the lack of 'vicarious liability,' whereby institutional gatekeepers are held accountable for misdeeds as much as the organizations from which they supposedly protect the public."

Posted by Lyle Roberts at 6:53 PM | TrackBack

June 10, 2004

Round And Round It Goes

The shakeup in the plaintiffs' securities bar continues with today's announcement that Lerach Coughlin Stoia & Robbins will combine with Geller Rudman. The merger will expand Lerach Coughlin's presence on the east coast, adding offices in New York and Florida.

As of August 1, 2004, the combined firm will be known as Lerach Coughlin Stoia Geller Rudman & Robbins LLP and will have approximately 140 lawyers. Both firms are the products of recent splits. (See this post on the Milberg/Lerach split and this post on the Cauley/Geller split.)

Posted by Lyle Roberts at 5:36 PM | TrackBack

June 2, 2004

Class Action Reform Tabled

As predicted, Senate Majority Leader Bill Frist has been forced to table the Class Action Fairness Act until after the completion of the 2005 Department of Defense authorization bill. The Hill has this report.

Quote of note: "With several of the class-action bills co-sponsors opposing the cloture vote, Frist probably lacked the votes yesterday to limit debate on the defense bill. Frist said he remains committed to bringing the class-action bill to the floor and said he would move 'immediately' to it after the defense bill was complete."

Addition: A reader has sent in this link to the U.S. Senate Republican Policy Committee's "Legislative Notice" describing the bill and its history.

Posted by Lyle Roberts at 9:07 PM | TrackBack

May 28, 2004

PLI Teleseminar On Loss Causation

Regular readers of The 10b-5 Daily know that the past year has seen a series of notable court opinions on the pleading of loss causation (the requirement that a plaintiff demonstrate that the economic harm it suffered occurred as a result of the alleged securities fraud). Is loss causation becoming a significant barrier to bringing a securities fraud claim?

The author of The 10b-5 Daily, Lyle Roberts (Wilson, Sonsini, Goodrich & Rosati), will be chairing a PLI teleseminar on this topic on Wednesday, June 9 at 1 p.m. ET. The panelists are Alfred Lechner (Morgan Lewis & Bockius - former U.S. District Judge) and Sherrie Savett (Berger & Montague). The program will also be webcast and CLE credit is available. Click here to register.

Posted by Lyle Roberts at 7:15 PM | TrackBack

Two Steps To Tango

NERA Economic Consulting has published an interesting working paper entitled "Loss Causation and Damages in Shareholder Class Actions: When It Takes Two Steps To Tango." The author, Dr. David Tabak, discusses the circuit court split (see this post) between courts that believe plaintiffs must demonstrate a causal connection between the alleged misrepresentations and a subsequent decline in the stock price to adequately plead loss causation (e.g., Emergent Capital Investment Management, LLC v. Stonepath Group, Inc., 343 F.3d 189 (2d Cir. 2003)) and courts that believe plaintiffs merely need to demonstrate that the alleged misrepresentations artificially inflated the stock price (e.g., Broudo v. Dura Pharmaceuticals, Inc., 339 F.3d 933 (9th Cir. 2003)).

Dr. Tabak finds that "if plaintiffs have to plead either only a purchase inflation or only a later price decline, some investors will 'successfully' plead loss causation without having suffered a loss." Accordingly, there is a logical argument that plaintiffs should have to plead both a purchase inflation and a later price decline related to the fraud to survive a motion to dismiss. The article also discusses how the different loss causation pleading requirements impact the calculation of damages.

Posted by Lyle Roberts at 6:05 PM | TrackBack

May 27, 2004

Class Action Reform May Be Delayed Again

The Class Action Fairness Act applies some of the reform concepts in the PSLRA and SLUSA to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court. It is believed that Republicans have enough votes in the Senate to pass the bill (see this post), but Reuters reports that there is a disagreement over when it will reach the floor. The House passed its own version of the legislation almost a year ago.

Quote of note: "Republicans seeking curbs on what they call runaway litigation against business want to start debating the class action measure on June 1, when Senate Majority Leader Bill Frist has scheduled a vote on a motion to bring up the bill. . . . But Democratic aides predict Frist will not be able to get the 60 votes he needs to bring up the bill next Tuesday, because of the desire to resume debate on defense."

Posted by Lyle Roberts at 10:40 PM | TrackBack

May 19, 2004

Predicting The Future

The Associated Press has an article discussing whether the market should expect another set of corporate scandals in the future. Although human nature is unlikely to change, the article reviews the legal environment and concludes "[i]n sheer numbers, the legal activity of recent years - both government action and investor litigation - should be enough to give any would-be wrongdoer some immediate cause for pause."

Quote of note: "'I don't think there's a clear connection' between legal risks and improper behavior, said Bruce Carton, executive director for Securities Class Action Services at ISS. 'When the misdeeds are going on, people aren't thinking years down the road, 'Will this cost me in a class action suit?' My sense is that (the legal risk) generally won't deter the bad guys, but it may spur the bad guys' employers to put safeguards in place that may catch or deter somebody down the line.'"

Posted by Lyle Roberts at 11:04 PM | TrackBack

May 18, 2004

Whose Job Is It?

In a feature article this past weekend, the Washington Post addressed the issue of investor restitution for securities fraud. The article discusses some of the recent enormous settlements with regulators (e.g. the $1.4 billion settlement with the New York Attorney General over biased research reports) and concludes that the "problems with investor restitution are simple -- there is never enough money to go around -- and complicated -- it can be difficult to determine who should get what little money there is." The article also touches on another difficult problem, how to reconcile the SEC's new powers to collect settlement funds for allocation to investors with private securities litigation. (See this post in The 10b-5 Daily from last June.)

Quote of note: "The SEC is asking Congress for the power to seize more assets from wrongdoers who otherwise might shelter them under the protection of state bankruptcy laws and for the ability to hire outside law firms to help it collect payments. A House bill [the Securities Fraud Deterrence and Investor Restitution Act] that would give the SEC that authority is pending before the Judiciary Committee. Former SEC staffer [Mercer E.] Bullard said the public shouldn't demand that the agency invest a substantial portion of its resources into collecting penalties from wrongdoers. He said that is a task better suited to plaintiff lawyers."

Posted by Lyle Roberts at 9:02 PM | TrackBack

May 13, 2004

"What Do You Have To Have? Pictures?"

The 11th Circuit (Florida, Georgia, Alabama) is a tough place to bring a successful securities class action. That appears to be the conclusion of a Miami Daily Business Review feature article (via law.com - regist. req'd) on the topic. The article notes that a recent NERA report (see this post) found that 10 percent of the securities class actions filed in the 11th Circuit since the passage of the PSLRA have been dismissed within two years - tied for second place among all circuits. The article also profiles some prominent cases.

Quote of note: A plaintiffs' attorney in Florida contended "that the 11th Circuit's standard for inferring intent to defraud -- as set out in the 11th Circuit's 1999 decision Bryant v. Avado -- has 'heightened the pleading requirements beyond the intent of Congress. Motive and opportunity and damages are not enough [in the 11th Circuit],' [the plaintiffs' attorney] said. 'What do you have to have? Pictures? You almost need an insider to get to discovery.'"

Posted by Lyle Roberts at 9:13 PM | TrackBack

May 7, 2004

Ten Years Is A Long Time

According to a Reuters article, the CFO of Royal Ahold has told a Dutch newspaper that the U.S. securities class actions brought against the company in the aftermath of its recent accounting scandal could "'last long, even 10 years is possible.'" Complicating the situation, Royal Ahold's D&O insurance carrier has served the company with a court summons in an attempt "to terminate the Directors, Officers and Corporate Liability policy of $100 million for Ahold's U.S. Foodservice subsidiary where much of the profit overstatements took place in 2002." (The 10b-5 Daily has posted about this case before, most recently concerning the court's discovery decision issued last March.)

Posted by Lyle Roberts at 5:01 PM | TrackBack

May 4, 2004

Press Coverage Of The Big Breakup

The Milberg Weiss split has generated press coverage, including articles in the New York Law Journal (via law.com - free regist. req'd), Reuters, Bloomberg, and the San Diego Union-Tribune.

Quote of note (Reuters): "[T]he two firms agreed on a structure in which lawyers already working on a case would continue to work on it, even if that meant having attorneys from both firms on a case. A committee has been set up to deal with any spats."

Posted by Lyle Roberts at 6:28 PM | TrackBack

The Top 50

ISS's Securities Class Action Services ("SCAS") has issued a list of the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2003 in which the law firms served as lead or co-lead counsel.

The full report can be found here. Securities Litigation Watch, the blog authored by Bruce Carton of SCAS, also has a post summarizing the results.

Posted by Lyle Roberts at 12:17 PM | TrackBack

May 3, 2004

The Splits Keep Coming

Not to be outdone, Cauley Geller Bowman & Rudman, another well-known plaintiffs' securities class action firm, also has announced a split. Cauley Bowman Carney & Williams PLLC is based in Little Rock and Geller Rudman PLLC is based in New York. Each new firm has around 15 attorneys.

Addition: The official press release was issued on May 6.

Posted by Lyle Roberts at 5:06 PM | TrackBack

The Big Breakup Is Official

Initially announced last June, the breakup of Milberg Weiss Bershad Hynes & Lerach, widely recognized as the leading plaintiffs' securities class action firm, is finally complete. With little fanfare, the firm has split as of May 1 into Milberg Weiss Bershad & Schulman LLP (headquartered in New York) and Lerach Coughlin Stoia & Robbins LLP (headquartered in San Diego).

Although the split generally follows geographical lines, it will not stay that way for long. An article in today's Financial Times states that one of the name partners of Lerach Coughlin sees "the new firm growing to more than 150 lawyers by the end of the year and opening new offices in New York, Florida, Philadelphia and Washington, DC." Indeed, the websites already show both firms as having offices in Los Angeles and Washington, D.C. (but only Lerach Coughlin has attorneys listed in those locations).

Addition: The new firms have issued a joint statement. Of course, they also have separate thoughts on the matter (click here for Milberg Weiss' press release; click here for Lerach Coughlin's press release).

Posted by Lyle Roberts at 1:30 PM | TrackBack

April 28, 2004

$1 Billion In Settlements?

The Rocky Mountain News has an article on the mutual fund trading practices cases. (The 10b-5 Daily recently posted about the opening hearing in the cases, which have been consolidated in the D. of Md.) The article quotes an expert speculating that the settlements of the cases could total $1 billion.

Quote of note: "'It's hard to figure what a judge may grant in compensation, and that leaves a pretty dark cloud over the entire industry,' [a Morningstar equity analyst] said. 'What will happen in the class-action lawsuits is going to be a problem for any company involved in market timing and late trading.'"

Posted by Lyle Roberts at 9:48 PM | TrackBack

April 27, 2004

More Coverage Of Terayon Case

The lead plaintiff/lead counsel controversy in the Terayon securities litigation in the N.D. of Cal. continues to receive press coverage. (The 10b-5 Daily has posted about the the case here and here.) The May 3 edition of Fortune has a column on Judge Patel's order and subsequent developments.

Quote of note: "Accordingly, Judge Patel is probably still months away from deciding what to do next. Her options include kicking the firm off the case, fining it, or deciding that it did nothing wrong after all, and allowing it to continue as co-lead counsel."

Posted by Lyle Roberts at 8:45 PM | TrackBack

April 26, 2004

Mixed Opinions

The Economist has an interesting article (subscrip. req'd) on the recent court decisions in the research analyst cases. For non-subscribers, the article can be found in the Finance & Economics section of the April 24 edition.

Quote of note: "So far, Merrill Lynch seems to have hit the jackpot. All the litigation against it has been consolidated in New York under Milton Pollack, a federal judge who believes that there is no case to answer. Others have been less lucky: Lehman Brothers suffered a nasty setback last month when another federal judge in the same judicial district in lower Manhattan, Jed Rakoff, allowed litigation against it to proceed. These are, of course, early days; but because the stakes are so high, defendants on the end of adverse rulings are under great pressure to settle. It may well be that none of the civil cases lasts long enough to be decided by a jury."

Disclosure: The author of The 10b-5 Daily is quoted in the article.

Posted by Lyle Roberts at 11:13 AM | TrackBack

April 20, 2004

SEC Files Amicus Brief In WorldCom Appeal

Last Friday, the SEC filed an amicus brief in support of the plaintiffs in the WorldCom securities class action. Two of the defendants, Salomon Smith Barney and its former telecommunications analyst, Jack Grubman, have appealed the district court's grant of class certification to the United States Court of Appeals for the Second Circuit. (The district court's decision is discussed in this post.) At issue is whether the district court properly determined that the fraud on the market theory was applicable to analysts.

The New York Times has an article on the SEC's brief. The district court held that it "comports with both common sense and probability" to find that Grubman's analyst reports affected the price of WorldCom securities and therefore to presume that WorldCom investors relied on those statements pursuant to the fraud on the market theory. The SEC reportedly supports this holding. The Second Circuit is scheduled to hear oral argument in the case on May 10.

Quote of note: "There is no reason to believe that Mr. Grubman's opinions, which relied on WorldCom's disclosures, had any distinct price impact 'over and above the price consequences of WorldCom's massive ongoing fraud,' Citigroup's [the parent company of SSB] lawyers said in their brief. As such, each investor should have to prove that he was harmed by Mr. Grubman and Salomon in individual cases, not as a class action. But lawyers at the S.E.C. countered that economic studies showed that analysts' reports affect securities prices and that their very purpose was to provide information upon which investors base their decisions."

Addition: The SEC's amicus brief can be found here (thanks to Bruce Carton for the link) and here (thanks to Paul Mackey for the link).

Posted by Lyle Roberts at 7:01 PM | TrackBack

April 12, 2004

Simpson Thacher's Settlement Decision

The New York Law Journal has an article (via law.com - NYLJ subscrip. req'd) on the tendency of law firms to settle litigation brought against them. The article discusses Simpson Thacher & Bartlett's decision to pay $19.5 million as part of the Global Crossing securities class action settlement. Simpson Thacher was not a named defendant in the case, but had been accused of engaging in an incomplete investigation into certain accounting issues.

Quote of note: "A plaintiff's lawyer who asked to remain unnamed because he is suing a different law firm in a separate class action said the charges against Simpson Thacher were 'mushier' than those brought against other firms in securities actions. It is not clear that Global Crossing's drop in share price stemmed directly from Simpson's alleged mishandling of the Olofson investigation, he explained. More typically, lawyers sued are those who helped prepare disclosure statements to the Securities and Exchange Commission and the investing public."

Posted by Lyle Roberts at 6:39 PM | TrackBack

April 2, 2004

Mutual Fund Cases Get Started

In February, the Judicial Panel on Multidistrict Litigation transfered the mutual fund trading practices cases to the D. of Md. (See this post in The 10b-5 Daily on the JPML's decision.) The Associated Press has an article on today's opening hearing before the court, where the assigned judges dealt with scheduling issues.

Quote of note I: "[District Judge] Motz began by underscoring the importance of the case to investors nationwide. He warned the lawyers, which made up most of the 200 people inside the courtroom here, that the bulk of any money recovered would go to investors who lost money -- not them. 'No one should expect to get rich off of this case,' Motz warned the lawyers."

Quote of note II: "[District Judge] Blake set what she hoped would be a 'reasonably fast schedule' for the case. She gave attorneys two weeks to negotiate who will be the lead attorneys in the huge multidistrict case. If the attorneys can't agree, the court will decide after a May 3 hearing."

Posted by Lyle Roberts at 9:07 PM | TrackBack

March 31, 2004

Option To Sue?

The Wall Street Journal has an op-ed (subscrip. req.) in today's edition by Craig Barrett, the CEO of Intel, arguing that the main beneficiary of a proposed Financial Accounting Standards Board ("FASB") rule requiring companies to expense broad-based employee stock options will be the securities plaintiffs' bar. The problem is that there is no "model that can value options with any degree of accuracy." Companies will therefore have to make choices about how to value their options that can have a substantial impact on reported earnings. "The result," Barrett concludes, "may be a field day for trial lawyers and class action lawsuits."

Quote of note: "Two Columbia University economists, Charles Calomiris and Glenn Hubbard (who served as chairman of President Bush's Council of Economic Advisors from 2001 to 2003), have extensively documented the uncertainty surrounding attempts to quantify options expenses. The Black-Scholes model and its cousin, the binomial method, can be wildly inaccurate. FASB knows this and is, therefore, unlikely to require any single means of calculation. It's all up to corporate financial officers and their auditors, none of whom have a reliable method to account for options. It's the blind leading the blind leading the blind."

Addition: FASB has issued an "Exposure Draft" and background materials for their proposed new standards for expensing options.

Posted by Lyle Roberts at 4:20 PM | TrackBack

March 29, 2004

Still More On Sarbanes-Oxley And The Statute Of Limitations

The 10b-5 Daily continues to avidly follow the district court split over whether the extended statute of limitations for securities fraud in the Sarbanes-Oxley Act of 2002 revives time-barred claims. District courts have gone both ways on this question and the issue is currently before the U.S. Court of Appeals for the 11th Circuit.

Buried in a large Enron decision from last month is a new ruling on the issue. In Newby v. Enron Corp., 2004 WL 405886 (S.D. Tex. Feb. 25, 2004) , the court addressed a motion to intervene by the Imperial County Employees Retirement System. One issue was whether the proposed intervenor's claims would be time-barred. The decision has an extensive discussion of relevant case law and, on the revival of time-barred claims, holds:

"With regard to claims that were time-barred by the shorter one-year statute of limitations under Lampf prior to the enactment of the Sarbanes-Oxley Act, this court agrees with [the decision in Glaser v. Enzo Biochem, Inc., 2003 WL 21960613 (E.D. Va. July 16, 2003] that in what this Court finds is an absence of any expression of specific intent that Sarbanes-Oxley should apply retroactively, either in the Act or the legislative history, the Sarbanes-Oxley Act's extended limitations period cannot revive stale claims."

Posted by Lyle Roberts at 11:22 PM | TrackBack

March 24, 2004

Pay First, Rescind Later

In the wake of recent corporate scandals, directors-and-officers insurance carriers have sought to rescind policies that were allegedly purchased on the basis of misrepresentations. Not surprisingly, this has led to insurance coverage litigation. (The 10b-5 Daily has recently posted about the Cutter & Buck and Rite-Aid cases.)

The Wall Street Journal has an article (subscrip. req'd) on a recent decision by Judge Baylson of the E.D. of Pa. holding that Aegis Bermuda must pay the defense costs for several directors and officers involved in litigation, including a securities class action, over the collapse of Adelphia Communications. Although Adelphia is in bankruptcy proceedings, temporarily preventing Aegis Bermuda from taking legal action to rescind its policy, the court reportedly held that the insurer would have to continue paying legal fees until a judgment permitting recission was obtained.

Quote of note: "'Insurance carriers do not function as courts of law,' U.S. District Judge Michael M. Baylson wrote. 'If a carrier wants the unilateral right to refuse a payment called for in the policy, the policy should clearly state that right. This policy does not do so.'"

Addition: The decision is available on Westlaw - Associated Electric & Gas Insurance Services, Ltd. v. Rigas, 2004 WL 540451 (E.D. Pa. March 17, 2004).

Posted by Lyle Roberts at 7:23 PM | TrackBack

March 12, 2004

Qwest Sets Liability Reserve

The Associated Press reports that Qwest Communications Intl., Inc. is "setting aside a reserve of at least $100 million to cover potential liability from stockholder lawsuits and federal investigations." The announcement was made as part of the company's recent Form 10-K filing, in which Qwest did not specify the exact amount of the reserve, but stated "it is probable that all but $100 million of the recorded reserve will be recoverable out of a portion of the insurance proceeds, but the use and allocation of these proceeds has yet to be resolved between us and individual insureds."

There seems little doubt that any settlement of the securities class action pending against Qwest in the D. of Colo. is likely to be for a significant sum (see this post in The 10b-5 Daily).

Posted by Lyle Roberts at 7:11 PM | TrackBack

March 8, 2004

The Martha Stewart Watch V

Everybody's talking about the Martha Stewart criminal case, but The 10b-5 Daily is primarily interested in the effect it will have on the securities class action pending against Martha Stewart Living Omnimedia, Inc. and certain individual defendants in the S.D.N.Y. (The 10b-5 Daily's most recent post about the class action can be found here.)

While some experts believe that the dismissal of the criminal securities fraud claim against Ms. Stewart will make it more difficult to prevail in the class action, lead counsel for the shareholders held a conference call today affirming that they would press ahead.

Quote of note (from the Crain's article on the conference call): "[Lead counsel] said his civil case remains viable because the burden of proof is lower than in the just-completed criminal proceeding. In civil cases, securities fraud can be demonstrated by a 'preponderance of evidence.' In criminal cases, fraud charges must be proven beyond a reasonable doubt."

Posted by Lyle Roberts at 4:41 PM | TrackBack

March 3, 2004

Don't Miss A Single Post

By popular demand, The 10b-5 Daily is implementing an e-mail notification service to ensure that readers don't miss a single post (unless they want to).

Subscribe by sending an e-mail to the10b5daily-at-hotmail-dot-com with "Add Me" in the subject line. Soon thereafter, each time a new post is added you will receive an e-mail notification entitled "The 10b-5 Daily Update: [Title of Post]," the first 40 words of the post, and a link to the full text.

Posted by Lyle Roberts at 6:17 PM | TrackBack

March 2, 2004

We Have A Winner

The 10b-5 Daily asked readers last week to nominate contenders for the title of "Shortest Class Period Ever In A Securities Class Action." We have a winner.

Last December, a case was filed against the Nasdaq Stock Market on behalf of all persons who traded the stock of Corinthian Colleges, Inc. (Nasdaq: COCO) between 10:46 a.m. and approximately 12:30 p.m. on December 5, 2003. That's a proposed class period of a mere one hour and forty-four minutes.

A number of readers submitted the Nasdaq case, but the quickest was Adam Savett. Honorable mention goes to Bruce Carton over at Securities Litigation Watch, who went to the database to confirm his "final answer." No special prize this time, but The 10b-5 Daily is going to think about Carton's t-shirt suggestion.

Posted by Lyle Roberts at 6:32 PM | TrackBack

February 27, 2004

Shortest Class Period?

In the last few days, securities class actions have been filed against Walt Disney Company (NYSE: DIS) alleging that the company failed to disclose that Comcast Corp. had approached it with a merger offer. The putative class consists of Disney shareholders who sold their shares from Feb. 9 to Feb. 10 - a mere two-day class period.

This has caused The 10b-5 Daily to wonder: what is the shortest class period that has ever been proposed in a securities class action? Readers are encouraged to submit candidates to the10b5daily-at-hotmail-dot-com (please indicate whether you would like to be credited for your efforts).

Posted by Lyle Roberts at 7:17 AM | TrackBack

February 26, 2004

Bainbridge On The Impact Of Class Action Reform

Professor Stephen Bainbridge (UCLA Law) has a post today on the relationship - or lack thereof - between insider trading enforcement and class action reform.

Quote of note: "[N]obody seriously proposes entirely eliminating either tort or class action litigation, just reforming them. My point here, however, is that even if tort and class action litigation were eliminated, much enforcement activity would remain unaffected."

Posted by Lyle Roberts at 8:47 PM | TrackBack

February 25, 2004

Disclosure To Government Agencies Waives Privilege

In McKesson HBOC, Inc. v. Superior Court of San Francisco County, 2004 WL 318616 (Cal. Ct. App. Feb. 20, 2004), the California Court of Appeal has held that providing an audit committee investigatory report and interview memoranda to the Securities and Exchange Commission and the Department of Justice constitutes a waiver of attorney-client privilege and attorney work product protection under California law.

Quote of note: "We see no real alignment of interests between the government and persons or entities under investigation for securities law violations. Even if we credit McKessons claim that it was interested in rooting out the source of the accounting improprieties, we still find the situation here is not qualitatively different than a defendant sharing privileged material with one plaintiff, but not another. Though McKesson and amicus curiae advance policy arguments for allowing sharing of privileged materials with the government, no one suggests that a defendant facing multiple plaintiffs should be able to disclose privileged materials to one plaintiff without waiving the attorney-client privilege as to the other plaintiffs."

Corp Law Blog has a comprehensive and interesting post on the decision, including links to related materials. Note that the proposed legislation preserving the attorney-client privilege and work product protection for documents shared with the SEC referred to in the post - The Securities Fraud Deterrence and Investor Restitution Act - is still pending in Congress. Although the SEC has come out in favor of the bill, its progress has been stalled because of the provisions affecting state securities regulators. (See this post in The 10b-5 Daily.)

Addition: No sooner said, then done. On Wednesday, the House Financial Services Committee approved the Securities Fraud Deterrence and Investor Restitution Act by a voice vote. The provision concerning document sharing with the SEC remains in the bill; the provision limiting the power of state securities regulators has been dropped. The new version of the bill, with amendments, can be found here.

Posted by Lyle Roberts at 4:34 PM

February 24, 2004

Mutual Fund Cases Find A Home

The answer: The court that will host the numerous federal class actions that have been brought over mutual fund trading practices. The question: What is the District of Maryland?

The Judicial Panel on Multidistrict Litigation held a hearing last month on motions for centralization in cases involving the following fund groups: Janus, Strong, Bank One, Bank of America, Putnam, and Alliance Capital. (See this post in The 10b-5 Daily.) Most of the plaintiffs wanted the cases in the S.D.N.Y., while the funds appeared to favor their local federal districts. The Panel had a different idea.

In an order issued on February 20, 2003, the Panel decided that the D. of Md. will hear the cases. Three judges have been assigned: Judge J. Frederick Motz (D. Md.), Judge Andre M. Davis (D. Md.), and Judge Frederick P. Stamp (N.D. W.Va.). The Panel noted that "no district stands out as the geographic focal point for this nationwide litigation," leading them to choose "a transferee district with the capacity and experience to steer this litigation on a prudent course."

Thanks to Securities Litigation Watch for the link.

Addition: Judge Motz has sent out a letter to counsel discussing organizational issues. Of particular note, the D. of Md. is establishing an area on its website (www.mdd.uscourts.gov - click on "MDLs" on the left-hand side) for the mutual fund litigation.

Posted by Lyle Roberts at 1:16 AM

February 23, 2004

Cutter & Buck Loses Insurance Case

As reported in The 10b-5 Daily, Cutter & Buck, Inc. entered into a settlement of the securities class action against the company last June. The settlement was for $4 million, plus an additional $3 million to come from any recovery of funds from its ongoing suit against Genesis Insurance over the recission of its D&O policy.

That part of the recovery is looking unlikely. U.S. District Judge Marsha Pechman of the W.D. of Wash. recently rejected Cutter & Buck's attempt reinstate the policy. According to an article in the Seattle Times, the court found "Genesis was within its rights to rescind the policy because Cutter & Buck 'made material misrepresentations with an intent to deceive.'"

For more on the potential recission of D&O policies (including some material on the Cutter & Buck suit), AIG/National Union has a recent briefing paper on its website that includes the topic.

Posted by Lyle Roberts at 7:13 PM | TrackBack

February 20, 2004

"Please, Tell Us What You Know"

Last September, The 10b-5 Daily reported that the State of Connecticut, which is acting as the lead plaintiff in a securities class action pending against JDS Uniphase Corp. in the N.D. of Cal., had taken out a newspaper advertisement urging JDS Uniphase employees to disclose what they know about the alleged fraud.

The media campaign apparently has been a success. Counsel for the State of Connecticut announced yesterday that they have anonymously received an internal e-mail written by a JDS Uniphase employee indicating there was a significant disparity between public projections and the business reality the company faced in mid-2000. The press release, which is entitled "JDS Former Employees, Please, Tell Us What You Know," asserts that "dozens of other former employees" have come forward. Interestingly, the law firm also has posted the e-mail in question (with redactions) on its website.

The Canadian Press has an article on the announcement.

Addition: The Toronto Globe and Mail has more on the story, including that the e-mail allegedly appeared at the counsel's office, pre-redacted, in a brown envelope with the name and address written in ransom-note-style cutout letters.

Posted by Lyle Roberts at 5:58 PM | TrackBack

February 17, 2004

Who Is Paying Those Legal Fees?

The Wall Street Journal has an article (subscrip. req.) about the costs to companies (and their shareholders and insurers) of defending executives from fraud charges. The article discusses a Delaware court ruling last October holding that Rite-Aid must continue to advance the defense fees of its former CFO, despite the fact that he has plead guilty to criminal fraud charges, because there has not yet been a "final disposition" (i.e., sentencing) in the case.

Quote of note: "A company's average cost of defending against shareholder suits last year was $2.2 million, according to Tillinghast-Towers Perrin. 'These costs are likely to climb much higher, due to a lot of claims for more than a billion dollars each that haven't been settled,' says James Swanke, an executive at the actuarial consulting firm. Though companies can recoup some defense costs through directors-and-liability insurance, it is rare to collect legal fees already advanced to former officers who have been convicted or pleaded guilty."

Quote of note II: "Seeking to stop payouts to wrongdoers, insurers now want new insurance policies to be written differently than in the past. Instead of making fee payments pending a 'final disposition' in a court case, insurers are suggesting that corporate policies call for payments pending a 'final determination' of a fraud allegation. The upshot: A third-party arbitrator would decide whether an accused individual has committed fraud, rather than waiting for courts to rule."

Posted by Lyle Roberts at 5:33 PM | TrackBack

February 16, 2004

You're No Martha

According to a Reuters report, plaintiffs' counsel in the securities class action pending against Parmalat SpA in the S.D.N.Y. has sought a court order preventing the destruction of documents by the company and its advisors. District Judge Lewis Kaplan was apparently unimpressed with the request. Noting that destruction of documents is a criminal offense and any order would be redundant, the judge suggested at a hearing on Friday that the request for an order was done mainly for the benefit of the media. "If anyone wants to file papers on this, God bless them," Judge Kaplan said. "But don't waste my time."

Quote of note: In response to plaintiffs' counsel's description of the Parmalat case as "unusually high-profile," Judge Kaplan responded - "Not by the standards of this district. There is nobody named Martha in this case."

Posted by Lyle Roberts at 6:47 AM | TrackBack

February 11, 2004

Lucent Sues Fiduciary Insurance Carriers

Reuters reports that Lucent Technologies, Inc. (NYSE: LU) is suing its fiduciary insurance carriers in the wake of its recent $600 million settlement of the securities litigation against the company, including a consolidated securities class action in the D. of N.J., and related ERISA, bondholder, derivative, and other state securities cases. (The settlement included $517 million for the securities class action, making it the second largest settlement of a securities class action in U.S. history.)

According to Lucent's most recent Form 10-Q, it is continuing "to pursue partial recovery of the settlement amount from our fiduciary insurance carriers under certain insurance policies that provide coverage up to $70 million. We have filed a lawsuit against them to recover these amounts. The charge for the settlement will be revised in future quarters if we are able to recover a portion of the settlement from our fiduciary insurance carriers . . . ." The Reuters article states that Lucent has declined to name the insurance carriers that have been sued or where the suit was filed.

Posted by Lyle Roberts at 11:18 PM | TrackBack

February 9, 2004

FDA And SEC Agree To Further Cooperation On Biotech Disclosure Issues

Securities class actions are frequently brought against biotechnology companies, often based on alleged misrepresentations related to the new-drug approval process. As previously reported in The 10b-5 Daily, the Food and Drug Administration ("FDA") and the Securities and Exchange Commission ("SEC") have been in talks on how to coordinate on these disclosure issues.

Last week, the two agencies announced a series of new initiatives, including:

(1) A centralized procedure adopted by the FDA for referring to the SEC staff possible instances of securities laws violations by public companies regulated by the FDA.

(2) Identification of contacts in each of the FDA's main organizational components (known as Centers) to serve as points of contact for the SEC and its staff to use in requesting information from FDA. These individuals would be responsible for assuring that such requests are handled promptly and thoroughly.

(3) The continued sharing of non-public information by the FDA with the SEC, consistent with FDAs current practice, and a commitment to endeavor to take steps to further expedite this process.

According to an article in the Boston Globe on the announcement, "some in Congress questioned whether the FDA and SEC were cooperating quickly enough. But in an interview yesterday, Representative James C. Greenwood, a Pennsylvania Republican whose committee oversees the FDA, said he was 'very impressed and encouraged' by the new steps." The FDA apparently does not plan to change its procedures on what information will be made public as part of the new-drug approval process.

Posted by Lyle Roberts at 6:35 PM | TrackBack

February 2, 2004

Forbes Profiles Milberg

Forbes has a cover story on Milberg Weiss, widely recognized as the leading plaintiffs' securities class action firm, in its February 16, 2004 edition.

Posted by Lyle Roberts at 2:11 PM | TrackBack

January 30, 2004

South Korean Companies Troubled By Prospect Of Securities Class Actions

As reported in The 10b-5 Daily, last December the South Korean legislature passed a bill establishing a private securities class action system. The bill was subject to a contentious debate and, with the new system scheduled to go into effect in 2005, the debate is not over yet. An article in the Korea Times states that companies are demanding a statutory exception for accounting frauds that occured prior to 2005.

Quote of note: "In a seminar on the prospects of class action lawsuits, hosted by the Federation of Korean Industries (FKI), Moon Tack-kon, vice chairman of the Korean Institute of Certified Public Accountants, said considering the accounting features, it is difficult to clean up past accounting books a year before the 2005 introduction of the class action lawsuit. 'Past accounting frauds tend to be reflected in the next period's financial report,' Moon said."

Posted by Lyle Roberts at 10:26 PM | TrackBack

January 29, 2004

Coordinating The Mutual Fund Cases

The Wall Street Journal reports (subscription required) that the Judicial Panel on Multidistrict Litigation will hold a hearing today to consider which court (or courts) should handle the numerous federal class actions that have been brought over mutual fund trading practices. The hearing session order states that motions for centralization will be heard for cases involving the following fund groups: Janus, Strong, Bank One, Bank of America, Putnam, and Alliance Capital.

Quote of note: "The panel could assign the cases to federal court in Manhattan or scatter them to federal courts close to the fund companies' headquarters around the country. Fund firms prefer a home-field approach, while attorneys for fund investors generally favor having cases handled in Manhattan, where courts have extensive experience in securities-fraud cases."

Posted by Lyle Roberts at 12:56 PM | TrackBack

January 27, 2004

Senator Kerry And The PSLRA

The New Republic Online has a column strongly criticizing Democratic presidential contender Senator John Kerry for his vote in favor of the Private Securities Litigation Reform Act of 1995. Noting that Senator Kerry frequently talks about corporate accountability and has expressed shock over the Enron scandal, the author states: "But Kerry shouldn't be shocked at all. Back in 1995, he backed a controversial measure that severely limited the ability of investors to sue companies engaged in fraudulent accounting practices--a legal change widely believed to have contributed to the accounting scandals of the last few years."

The charge that the PSLRA has made it more difficult to bring securities class actions, and therefore has contributed to recent corporate scandals, is controversial. The New Republic Online column has led to a blog debate on the topic between Mickey Kaus (first item on Jan. 25) and Professor Stephen Bainbridge. What does The 10b-5 Daily think about all of this? As previously posted, the statistics appear to speak for themselves.

Posted by Lyle Roberts at 12:04 AM | TrackBack

January 26, 2004

Biotech Hit Hard

A feature article in today's San Francisco Chronicle discusses the rise in securities class actions brought against biotechnology companies. The article notes that although biotechnology companies make up only 2% of the publicly-traded companies in the U.S., they were served with 17% of all securities class actions filed in 2003 (as compared to 9% in 2002). The 10b-5 Daily has recently posted about biotech disclosure issues.

Quote of note: "Without discussing the merits of any specific case, [Biotechnology Industry Organization President Carl] Feldbaum said the wave of lawsuits is a 'growing, malignant phenomenon' that could hamper the discovery of life-saving remedies. 'The victims of choice seem to be small companies that may be on the verge of success, and that is a potentially crippling development,' he said.

Quote of note II: "Kevin Roddy, president-elect of the National Association of Shareholder and Consumer Attorneys, said biotech advocates shouldn't be seeking special protection from investor suits on grounds that they are working on badly needed medicines. 'They want to be above the law, because they think there's something special about what they do,' Roddy said. 'If they want to go out and raise money from the public, they have to tell the truth.'"

Posted by Lyle Roberts at 1:47 PM | TrackBack

January 20, 2004

More On Sarbanes-Oxley And The Statute Of Limitations

The 10b-5 Daily has been following the district court split over whether the new statute of limitations in the Sarbanes-Oxley Act of 2002 revives time-barred claims.

Sarbanes-Oxley extends the statute of limitations for federal securities fraud to the earlier of two years after the discovery of the facts constituting the violation or five years after such violation. Although the legislation clearly provides that it "shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act [July 30, 2002]," left unresolved is whether Congress intended to revive claims that had already expired under the earlier one year/three years statute of limitations. District courts have gone both ways on this question and the issue is currently before the U.S. Court of Appeals for the 11th Circuit.

There has been another relevant district court opinion out there for over a year, but it has only recently appeared on Westlaw (and in F. Supp. 2d). The court in In re Heritage Bond Litigation, 289 F. Supp. 2d 1132 (C.D. Cal. 2003) addressed whether the statute of limitations barred the plaintiffs' Section 20(a) claims for control person liability based on statements made more than three years before the initial filing of the suit. The plaintiffs first asserted the claims in a complaint filed on July 24, 2002, a few days before the passage of Sarbanes-Oxley, and then filed a new and separate complaint asserting the same claims on August 30, 2002. In an opinion issued last January, the court held that "while the amended statute of limitations may apply to proceedings filed after passage of the Act, it cannot apply to claims already barred at the time of its enactment, regardless of the filing date." Accordingly, the plaintiffs' Section 20(a) claims were dismissed.

Posted by Lyle Roberts at 8:25 PM | TrackBack

January 12, 2004

Biotech's Disclosure Issues

Biotechnology companies are frequent defendants in securities class actions, with the plaintiffs' allegations often focusing on statements related to the new drug approval process. An article in today's Boston Globe notes that the Food and Drug Administration ("FDA") and the SEC "are in talks to develop new guidelines on cooperation" concerning disclosure issues. Last summer, the FDA announced that it has begun making referrals to the SEC when it believes its discussions with a company are being misrepresented to the public markets.

Quote of note: "Just how the FDA and SEC should interact is among the most sensitive issues for biotechnology companies. Their fortunes depend largely on showing investors they are making progress getting approvals for drugs that can cost hundreds of millions of dollars to research. Yet many executives believe that the two agencies work at cross-purposes. While securities rules require wide disclosure, repeating all of the technical detail the FDA conveys about an experimental drug can make a stock extremely volatile, said Carl B. Feldbaum, president of the Biotechnology Industry Organization, a trade group in Washington. 'I think we need to come up with a coherent system where biotech CEOs aren't cross-cut, like logs, between the FDA and the SEC,' Feldbaum said."

Posted by Lyle Roberts at 10:53 PM | TrackBack

January 11, 2004

The Atlanta Bar Speaks Out

The Atlanta Journal-Constitution has a feature article on securities class actions. The article profiles the viewpoints of two prominent local securities litigators.

Quote of note: "A fraction of the 200-plus public companies in Georgia have been sued by shareholders in recent years. But the list includes names like Coca-Cola, BellSouth, Mirant, WestPoint Stevens, and most recently, Amvescap's Invesco Funds Group, and Friedman's, one of the largest retail jewelry chains in the country. All are defendants in pending cases."

Posted by Lyle Roberts at 11:23 PM | TrackBack

January 8, 2004

Who Benefits From Class Action Reform?

The New York Lawyer has an article (via law.com - free regist. req'd) on the Class Action Fairness Act, which looks like it has a chance of passing in the Senate this year. (See this post in The 10b-5 Daily). The legislation applies some of the reform concepts in the PSLRA and SLUSA to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court. As in the field of securities class actions, one of the beneficiaries of the legislation will be large, national plaintiffs' firms that have the resources to bring these cases.

Quote of note: "The burden on federal judges arising from any legislation that moves class actions to the federal courts has raised concerns among judicial administrators who express concern about the additional caseloads. Because of the added delays and expenses, the cumulative effect of the legislation may cultivate a new generation of stronger plaintiffs' firms that can match their counterparts in size and expertise."

Posted by Lyle Roberts at 7:37 PM | TrackBack

January 6, 2004

Plaintiffs' Bar Goes Global

As previously reported in The 10b-5 Daily, the number of securities class actions filed against foreign issuers has been on the rise. The Recorder has an article (via law.com - free regist. req'd) discussing this trend and the challenges posed by the cases.

Quote of note: "The suits represent a clash of business cultures. Few nations have financial regulations as stringent as those of the United States, and none has a plaintiffs bar as active. While American companies have grown used to investor class actions, viewing them as a cost of doing business, European executives see them differently."

Posted by Lyle Roberts at 11:01 AM | TrackBack

December 29, 2003

South Korea Passes Securities Class Action Legislation

After two years of debate, the South Korean legislature has finally passed a bill establishing a private securities class action system. The Korea Times reports, however, that the bill contains phase-in and standing requirements that may limit its effectiveness. (The 10b-5 Daily has posted frequently about the debate over this legislation, most recently here.)

Initially (commencing in Jan. 2005), suits will be limited to companies with assets of more than 2 trillion won ($1.67 billion). Only about 80 of the 1500 publicly-traded South Korean companies meet this benchmark. Smaller companies can be sued starting in July 2007. Also, a suit will only be permissible if more than 50 shareholders, owning at least 0.01% of the outstanding shares of the company, agree to bring the case.

Quote of note: "Civic organizations described the revised bill as a 'toothless tiger,' pointing out it completely blocks the possibility for suits against big business conglomerates. For example, they said, shareholders might need to amass stocks worth more than 7 billion won to meet the 0.01 percent requirement in a file against Samsung Electronics."

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December 22, 2003

The Big Breakup In Action

The future is now for Milberg Weiss, which has been in the process of splitting into two separate firms for the past six months. (For the latest on the split, see this recent post.) Milberg's New York and San Diego offices are about to face off over lead plaintiff/lead counsel status in the securities class actions filed against the NYSE specialist trading firms.

As reported in The Recorder (via law.com - free regist. req'd), in October Milberg's New York office filed suit on behalf of Generic Trading of Philadelphia against the specialist trading firms, while last Tuesday Milberg's San Diego office filed suit on behalf of CalPERS against the same firms and added the NYSE as a defendant. (The 10b-5 Daily has posted about the CalPERS suit.) A spokesman for CalPERS stated that the timing of the state's suit was intended to meet the 60-day deadline for moving for lead plaintiff status triggered by the original suit. Both Generic Trading and CalPERS have filed motions to be appointed lead plaintiff -- putting the two Milberg offices into an adversarial position even before the split is official.

Quote of note: "There are signs that the divorce has been completed in spirit, if not on paper. East Coast and West Coast partners are already competing for clients, said a lawyer who did not wish to be named. Also, the New York office recently filed a securities fraud class action in San Francisco, leaving any mention of the firm's San Francisco office off their filings."

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December 17, 2003

The Big Breakup Is Moving Slow

The National Law Journal has an article (via law.com - free subscrip. req'd) on the status of the previously announced breakup of Milberg Weiss, widely recognized as the leading plaintiffs' securities class action firm, into two separate law firms. (See this post for background information on the split.)

Quote of note: "According to attorneys inside the firm as well as attorneys who have left, Milberg Weiss had hoped to finalize the restructuring by the end of 2003, with an outside date of February. 'We are 85 percent of the way through,' a lawyer close to the negotiations said. 'We just need more time to reconcile the accounting, and we are now looking at March.'"

Posted by Lyle Roberts at 12:12 PM | TrackBack

December 16, 2003

CalPERS Sues NYSE And Seven Specialist Firms

The 10b-5 Daily does not normally post about the initial filing of a securities class action (or that's all it would have time to do), but sometimes an exception is warranted. The Associated Press reports that the California Public Employees Retirement System (CalPERS) has brought a class action suit against the New York Stock Exchange and seven specialist trading firms (who make a market in NYSE stock assigned to them by matching buyers and sellers). The suit alleges that the specialists failed "to fill outstanding buy-and-sell orders at the best prices and routinely and unnecessarily intervened in trades, earning fees for themselves and the exchange at the expense of investors" and that "stock exchange officials hid the extent of the practices from investors."

CalPERS has issued a press release and posted the complaint on its website. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and breach of fiduciary duty against all of the defendants and violation of Section 6(b) of the Exchange Act against the NYSE. CalPERS appears to rely heavily on information from a November 3, 2003 Wall Street Journal article discussing a confidential SEC report about NYSE trading practices and exchange oversight.

Quote of note (Associated Press): "'We're convinced, and we will seek to prove in court, that the New York Stock Exchange not only knew of these rampant problems, and knew they existed, but also perpetuated them,' [Sean Harrigan, President of CalPERS] said. Officials said they decided to sue, rather than rely on the U.S. Securities and Exchange Commission, which is conducting its own investigation into floor-trading, because the SEC has not done its job."

Addition: The Recorder has an article (via law.com - free regist. req'd) discussing CalPERS decision to hire Milberg Weiss to bring the suit.

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December 15, 2003

South Korea Considers How To Structure Its Securities Class Action System

The South Korean legislature is still debating over legislation that would permit investors to bring securities class actions. The Korea Times reports that conservative lawmakers are seeking to limit the scope of the planned class action system to companies with more than 2 trillion won in assets (i.e., very large companies). Opponents argue that most of companies investigated for stock price manipulation and accounting fraud, based on a sample from 1998 to 2001, do not meet this test.

The 10b-5 Daily has been following this story intently (see posts here and here for details on the legislative proposals). Not surprisingly, South Korea appears interested in learning from the U.S. experience with securities class actions -- the Korea Times describes a a public hearing hosted by the Korea Development Institute (KDI) that included a discussion of the pros and cons of a U.S.-style system.

Quote of note: "The system entails considerable cost, so it is imperative for South Korea to consider its economic reality before taking this step, [Professor Stephen Choi of U. of Cal., Berkeley] added. However, Choi said though there were problems related to class action suits, the experience of the U.S. following the passage of its Private Securities Litigation Reform Act in 1995 offered some reference for reform measures that could be carried out here."

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December 11, 2003

Curative Notice In WorldCom Case Approved

The solicitation dispute in the WorldCom case pending in the S.D.N.Y. has a new development. As previously reported in The 10b-5 Daily, the WorldCom court has found that Milberg Weiss engaged in an "active campaign" to encourage pension funds to file individual actions related to the main securities class action against WorldCom and is running the individual actions as "a de facto class action." Moreover, the firm's communications resulted in "some confusion and misunderstanding of the options available to putative class members."

As a result of this determination, on November 17 the court ordered that a curative notice be sent to all investors who have filed individual WorldCom actions. Since that ruling, the court also has dismissed a Securities Act claim (based on a 1998 bond offering) brought by an individual investor because it was time-barred under the applicable statute of limitations. (The 10b-5 Daily has posted a summary of the decision in the State of Alaska Dept. of Revenue v. Ebbers case.)

The curative notice has been signed by the court and can be found here. The notice discusses: (1) the court's findings concerning Milberg Weiss's solicitation of individual investors; (2) the potential negative impact on individual actions of the State of Alaska decision (in addition to the statute of limitations decision concerning the 1998 bond offering, the court made other rulings that might discourage the bringing of individual actions); and (3) some of the additional burdens and costs that could result from bringing an individual action.

Addition: The controversy is evidently causing some of the individual investors to rethink their strategy. According to a Dow Jones Newswires article (subscrip. required) from late last week, the Asbestos Workers Local 12 Annuity fund has instructed Milberg Weiss to voluntarily dismiss its individual suit and is requesting that the court not prevent the fund from joining the main class action.

Quote of note (Dow Jones): "[District Judge] Cote has not yet been called on to formally decide whether funds that want to opt back into the class would be permitted to recover through the class action, lawyers involved in the case said. In the notice being sent to individual action plaintiffs, Cote said that defendants in the case have contended that even if claims are dismissed without prejudice, such investors shouldn't be allowed to recover funds under established legal doctrine."

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December 5, 2003

"Puncturing The Myths Of Opting Out"

The Securities Litigation Watch has an interesting article (from the December 2003 edition of ISS's SCAS Alert) on the recent trend of insitutional investors opting out of high-profile securities class actions.

Quote of note: "Does an institutional opt-out in favor of an individual state court action really provide institutions with these and other advantages? While there are theoretical arguments in support of individual actions, the advantages sought by institutions often do not materialize in practice. Indeed, both plaintiffs' counsel and defense counsel at the recent Institutional Investor Forum in New York agreed that individual state court actions make sense only in rare instances."

Posted by Lyle Roberts at 5:53 PM | TrackBack

Race To The Courthouse

Although the PSLRA was supposed to stop the race to the courthouse in securities class action litigation by creating a formal lead plaintiff selection process, anecdotal evidence suggests that plaintiffs' firms continue to believe there is an advantage to being the first filer. The Denver Post examines how it is that Invesco Funds Group was sued almost immediately following the announcement of an investigation by the New York Attorney General into the organization's trading practices.

Posted by Lyle Roberts at 5:09 PM | TrackBack

The Enron Watch VIII

The Associated Press has an interesting article on the bankruptcy examiner report in the Enron case. The report is sharply critical of Enron's banks and auditors, who are alleged to have assisted the company in its fraudulent transactions. The bankruptcy examiner, Neal Batson, has made some controversial requests of the court including that he and his team be protected from having to produce documents or be questioned by third parties.

Quote of note: "Batson, in his lengthy final report, blamed top company executives as well as former directors, accountants, attorneys and some large investment banks for the energy trading firm's financial collapse. Plaintiffs in class-action lawsuits want Batson to be available for subpoena because he could potentially be an important witness as a result of his reports."

Posted by Lyle Roberts at 4:47 PM | TrackBack

December 1, 2003

Conseco Case To Proceed

The securities class action against Conseco, Inc. (NYSE: CNO) in the S.D. of Ind. had been stayed pending the completion of the company's bankruptcy. (See this earlier post about objections to the bankruptcy reorganization plan made by plaintiffs' counsel for the class action). The Indianapolis Star reports, however, that the case is now back on track and a consolidated complaint has been filed.

Posted by Lyle Roberts at 6:31 PM | TrackBack

Class Action Reform Is Back On The Legislative Agenda

When The 10b-5 Daily last posted about the Class Action Fairness Act, it had been left for dead on the U.S. Senate floor - the victim of a Democrat-led filibuster. The Washington Times reports, however, that a compromise has been reached with a few Senate opponents that will revive the bill for a vote early next year.

Quote of note: "Three Democratic senators changed their stances after language was inserted they say better protects consumers while still reining in many frivolous lawsuits and preventing lawyers from "venue shopping" in search of sympathetic judges and juries that award the biggest settlements. Those supporters now include Democratic Sens. Charles E. Schumer of New York, Christopher J. Dodd of Connecticut and Mary L. Landrieu of Louisiana, all of whom opposed the bill last month."

The Senate Committee Report on the bill can be found here.

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November 24, 2003

Fighting Fraud In Florida

The Boca Raton News offers a roundup of Milberg Weiss' securities class actions, especially those filed in Florida, in this Sunday feature article.

Posted by Lyle Roberts at 11:42 AM | TrackBack

November 17, 2003

The Perfect Storm Moves On

Class certification has been granted in the Interpublic Group ("IPG") securities class action pending in the S.D.N.Y. The case is the result of a restatement IPG announced in August 2002 for the five years from 1997 to 2001, which corrected inter-company charges that had been wrongly declared as income for the European offices of one of IPG's agencies. The only dispute on class certification was the length of the class period, which the court resolved in favor of the plaintiffs (the court's order can be found here).

The 10b-5 Daily has previously discussed (in a post entitled "The Perfect Storm"), the court's May 2003 denial of the motion to dismiss in this case.

Posted by Lyle Roberts at 8:18 PM | TrackBack

November 11, 2003

Loss Causation Still In The Spotlight

The summer of loss causation cases has turned into the fall of loss causation articles examining those decisions.

A column in the October 24, 2003 edition of the New York Law Journal focuses on the decisions in Broudo (9th Cir.) and Merrill Lynch (S.D.N.Y.), The authors conclude that the "fraud on the market theory should not be expanded to enable plaintiffs to establish both transaction and loss causation." (For The 10b-5 Daily's take on Broudo and Merrill Lynch - see here and here.)

Quote of note: '[I]f the fraud on the market theory can serve double duty in this way, then the distinction between these two forms of causation will have collapsed. This is inappropriate. The PSLRA expressly codifies loss causation as a separate, free-standing element of a Section 10(b) claim."

Not to be outdone, the November 6, 2003 edition of the New Jersey Law Journal has its own article (via law.com - free registration req.) on loss causation. The article discusses the recent Emergent Capital (2d Cir.) decision and finds that the Second Circuit "has now plainly ruled that purchase-time price inflation is not enough and the plaintiff must in all cases plead a causal link between the complained-of omissions and the economic loss that was ultimately suffered." (For The 10b-5 Daily's take on Emergent Capital - see here.)

Quote of note: "In many cases, it may be that the same omission or misrepresentation that allegedly caused price inflation at the time of the transaction in fact also caused a subsequent decline in the securities' market value when the misrepresentation becomes apparent or the undisclosed problem wreaks injury. But the lesson of Emergent Capital (and Semerenko in the 3rd Circuit) is that such a causal link cannot be presumed; it must be pleaded and proved."

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November 10, 2003

Short Sellers Drive Down Stock Price, Then Sue Based On Loss In Hedge Position

The San Franciso Chronicle has a fascinating article on the Terayon Communication Systems, Inc. (Nasdaq: TERN) securities class action pending in the N.D. of Cal. Terayon is a Santa Clara-based maker of cable modem equipment. The case, originally filed in April 2000, is based on allegedly misleading statements made by the company in connection with its ability to obtain certification for its technology.

The lead plaintiff (or one of them) in the case is Cardinal Investment Co. According to the article, court records reveal that Cardinal was a massive short seller of Terayon stock (hundreds of thousands of shares) and in early 2000 began a campaign to flood the market with negative information about the company. The campaign included phone calls to the certification entity, starting Internet chat room rumours, letters to the SEC, and contacts with financial reporters. At the same time, Cardinal apparently hedged its short position by purchasing 6000 shares of Terayon stock.

On April 11, 2000, the same day as a Terayon earnings conference call during which the company's executives were sharply criticized by short sellers using phony names, an investor plaintiff signed a sworn statement authorizing the filing of a complaint that "repeated almost verbatim the accusations contained in Cardinal's letters to the SEC." It was not until the next day, however, that the price of Terayon's stock dropped significantly. The highly detailed complaint was filed on April 13. Cardinal also brought a suit and later successfully moved to act as a lead plaintiff in the case based on the losses in its hedge position.

The motion to dismiss in the case was denied by District Judge Patel in early 2002. Discovery, however, has apparently revealed Cardinal's role in the company's downfall. Terayon has asked Judge Patel to remove Cardinal as a lead plaintiff.

Quote of note: "On Sept. 8, during a hearing on Terayon's request, Patel sounded receptive to the company's arguments, noting that Cardinal's partners 'were doing just about everything they could to make sure the (stock) price went down.' But her sharpest comments concerned the puzzling events that led to Cardinal's lawsuit. 'I think it's utterly amazing,' she told the opposing attorneys, 'that we have this lengthy complaint, and with all of these excruciating details, and the stock just drops the day before.' It 'raises some very serious questions.'"

Posted by Lyle Roberts at 8:45 PM | TrackBack

October 29, 2003

Mutual Funds Under Fire

The Wall Street Journal has an article (subscription required) in today's edition on the record numbers of mutual-fund investors bringing arbitrations against their brokers. The article discusses the recent mutual fund trading scandal but concludes: "Individual investors aren't likely to bring arbitration claims related to the explosive allegations involving rapid-fire trading from New York Attorney General Eliot Spitzer. That's because the damage to any one investor is relatively small, and it's hard to blame your broker for fund-company practices. Instead, these allegations are more likely to provide fodder for class-action lawsuits." (The WSJ should catch up with current events, the class action suits are already here and more are being brought every day.) The article goes on, however, to describe some of the other mutual-fund practices being investigated by the regulators that may lead to even more individual, and perhaps class action, claims.

Posted by Lyle Roberts at 9:26 PM | TrackBack

October 28, 2003

How A Contract Case Led To A Securities Class Action

The Delaware Law Weekly has an article (via law.com - free regist. required) on the D. of Del.'s recent grant of class certification in the Tyson Foods. Inc. case. The plaintiffs, a group of hedge funds who were seeking to arbitrage a merger between Tyson and IBP, Inc., allege that on March 29, 2001, Tyson falsely stated that it was backing out of the merger with IBP due to a government investigation into accounting discrepancies at one of IBP's units. (The 10b-5 Daily has previously posted about the class certification decision.)

The article offers a thorough overview of the numerous cases that have been brought as a result of the IBP acquisition. Interestingly, the genesis of the securities class action appears to be some of the findings in the Delaware Chancery Court's order directing Tyson to perform on its contract and complete the merger.

Quote of note: "The parties ultimately argued their cases before Vice Chancellor Leo E. Strine Jr., who, on June 15, 2001, ordered specific performance of the merger agreement. Strine determined that Tyson tried to back out of the merger due to buyer's remorse and not the SEC's inquiries into IBP's subsidiary. In an opinion dated June 18, 2001, Strine said Tyson wished it had paid less for IBP, particularly in view of both companies' poor performances in 2001. Strine also called into question Tyson's claims that it had relied on misleading information about the SEC inquiries, and thereby was inappropriately induced into the merger. Less than 10 days after the Delaware Chancery Court ordered specific performance of the companies' agreement, Robinson's opinion states that the first of several class actions was filed in the matter in the Delaware District Court."

Posted by Lyle Roberts at 6:34 PM | TrackBack

October 27, 2003

Court Grants Class Certification In WorldCom Case

Class certification in the WorldCom securities class action has been granted for all purchasers of the company's stock from April 29, 1999 to June 25, 2002. In a 91-page ruling, District Judge Cote of the S.D.N.Y. rejected numerous arguments by the defendants against class certification, including an argument by Salomon Smith Barney ("SSB") and its telecommunications analyst, Jack Grubman, that a Rule 10b-5 claim "cannot apply to expressions of opinion by a research analyst since it is not probable or likely that such opinions would affect the market price for WorldCom securities."

The SSB defendants appear to have relied on Judge Pollack's decision in the Merrill Lynch research analyst cases in making their reliance/loss causation arguments. In that decision (referred to as the Merrill Lynch III opinion by Judge Cote), Judge Pollack found that because there was no alleged connection between the Merrill Lynch analyst reports and the companies' financial troubles or the collapse of the overall market, the plaintiffs failed to meet their pleading burden. (The 10b-5 Daily has previously discussed Judge Pollack's ruling at length.)

According to Judge Cote, however, the SSB defendants "neglect to mention that . . . the Merrill Lynch III opinion distinguishes between the analyst report allegations in the WorldCom Securities Litigation and the inadequate allegations in the Merrill Lynch III complaint." In particular, Judge Pollack had noted that the WorldCom plaintiffs "alleged that the analyst, among other things, was aware of and concealed the alleged accounting irregularities that directly led to the losses incurred by plaintiffs." Under these circumstances, Judge Cote evidently did not find the SSB defendants' reliance on the Merrill Lynch decision persuasive.

Quote of note: "Nothing in the defendants' briefs addressed why Grubman was paid approximately $20 million a year in compensation by SSB to be its telecommunications analyst if his analyst reports were irrelevant to the market."

Addition: According to a Reuters report, the lead plaintiff in the case, the New York State Common Retirement Fund, has asked the judge to set the case for trial in October 2004.

Posted by Lyle Roberts at 8:12 PM | TrackBack

October 23, 2003

The Future of Securities Class Actions

The American Lawyer looks at the future of securities class actions (from the plaintiffs' perspective) in its Fall 2003 special edition on litigation. [Unfortunately, the website currently does not have the article posted.] The article focuses on the lead plaintiff provisions of the Private Securities Litigation Reform Act of 1995 ("PSLRA") and discusses, in depth, the growing role of public pension funds in assuming the leadership of large suits. A number of issues are touched upon, including the effectiveness of the PSLRA, how plaintiffs' firms attract public pension fund clients, and the statistical trends in this area of the law. Simply put, it's a must-read article.

Quote of note: "Some thought that major mutual funds would consistently serve as lead plaintiff. The haven't. And some thought that the number of class actions would steadily decline. Wrong again. But eight years after [the PSLRA's] passage, the act is making good on its promise to involve institutions. Instead of professional institutional investors, however, its primarily public pension funds that are serving as lead plaintiffs in megaclass actions."

Quote of note II: "What will be the effect of the Sarbanes-Oxley Act of 2002 and the myriad regulatory corporate governance changes? Will they stifle corporate fraud or will the new causes of action spawn more suits? The early indicators don't suggest much change in any direction. A recent study by NERA Consulting shows little uptick since the blow-up of Enron and the passage of Sarbanes-Oxley. No increase. No decrease. Just a steady stream of suits."

Posted by Lyle Roberts at 10:28 PM | TrackBack

October 22, 2003

Class Action Fairness Act Will Not Receive A Floor Vote

Senate Democrats have successfully blocked a floor vote on the Class Action Fairness Act, which almost certainly would have been approved. Proponents of the bill only managed to muster 59 votes in favor of invoking cloture -- a one-vote loss. The Associated Press reports that the bill is likely dead for the year. (The 10b-5 Daily has been following the progress of the Class Action Fairness Act through Congress - see posts here, here, and here.)

Addition: Here is the roll call vote.

Posted by Lyle Roberts at 2:52 PM | TrackBack

October 20, 2003

Democrats May Block Class Action Fairness Act

The Associated Press reports that Democrats may succeed in blocking Senate approval of the Class Action Fairness Act. The bill was passed by the House of Representatives on June 12.

As discussed previously in The 10b-5 Daily, the Class Action Fairness Act applies some of the reform concepts from securities law (the PSLRA and SLUSA) to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court.

Quote of note: "But most of the 48 Senate Democrats oppose the legislation to place all national class action lawsuits into the federal system, enough to filibuster if necessary, Democratic leaders say."

Quote of note II: "Under both the House and Senate versions of the bill, class-action lawsuits in which the primary defendant and more than one-third of the plaintiffs are from the same state would still be heard in state court. But if less than one-third of the plaintiffs are from the same state as the primary defendant, the case would go to federal court. Also, at least $5 million would have to be at stake for a class-action lawsuit to be heard in federal court. The House version would apply to all lawsuits, including ones being argued in court now, but the Senate version is not retroactive. It also would apply only to class action lawsuits and not to similar actions, including lawsuits consolidated into one case or state attorney general actions."

Posted by Lyle Roberts at 10:25 PM | TrackBack

Don't Wait By The Mailbox

The U.S. News & World Report has an article in its Oct. 27 edition stating that investors have yet to see much of a return from the various Wall Street suits and settlements. The article discusses the research analyst cases (Judge Pollack is dismissing them), the WorldCom and Enron cases (hard to collect), and the IPO allocation cases (a guaranteed payment of $1 billion, but it may take a while to resolve the claims against the investment banks). The author also notes the potential connection between Judge Schendlin's recent attorneys' fees decision and the IPO allocation cases (perhaps he reads The 10b-5 Daily -- see this post from a few weeks ago).

Quote of note: "In June, insurers for the 309 companies [named in the IPO allocation cases] agreed to pay up to $1 billion to compensate investors--establishing a minimum recovery fund--depending on how much money Weiss wrestles from the investment banks. 'It's in the banks' interest to drag it out, to raise the cost to the other side,' says one executive in the case. Still, he and others predict Weiss could ultimately settle with the Wall Street firms for $3 billion to $5 billion--partly because the iconoclastic Pollack isn't handling the case."

Posted by Lyle Roberts at 7:49 PM | TrackBack

October 17, 2003

A Billion Here, A Billion There . . .

The Rocky Mountain News has an article on Qwest Communications Int., Inc. (NYSE: Q) and the completion of its $2.5 billion financial restatement. The 10b-5 Daily has been following the securities class action filed against Qwest in the D. of Colo. with interest. As part of yesterday's Form 10-K filing, the company disclosed that "lead counsel for the plaintiffs has indicated that plaintiffs will seek damages in the billions of dollars." Qwest has moved to dismiss the fourth amended complaint in the case and that motion is currently pending before the court.

Posted by Lyle Roberts at 4:02 PM | TrackBack

October 15, 2003

The High Cost Of The Mutual Fund Trading Scandal

A column in today's National Post discusses the potentially enormous costs of the mutual fund trading scandal, including the expense of defending against "the inevitable wave of class-action lawsuits." The author notes that Bank of America, which is one of the known targets of the New York Attorney General's investigation, has announced the creation of a $100 million fund for direct costs and the increase of its litigation reserves by $75 million.

Posted by Lyle Roberts at 7:58 PM | TrackBack

October 9, 2003

Hedge Funds Cleared To Bring Class Action Against Tyson

An interesting twist on the normal securities class action. The Associated Press reports that Judge Robinson of the D. of Del. has granted class action status to a suit against Tyson Foods, Inc. (NYSE: TSN) alleging securities fraud in connection with Tyson's 2001 acquisition of beef-packing giant IBP Inc.

The plaintiffs, a group of hedge funds who were seeking to arbitrage the merger, allege that on March 29, 2001, Tyson falsely stated that it was backing out of the merger with IBP due to a government investigation into accounting discrepancies at one of IBP's units. As a result, Tyson artificially deflated the price of IBP's stock. Tyson eventually completed the acquisition in September 2001. The plaintiffs seek to represent all IBP shareholders who bought on or before March 29, 2001, and then sold their shares following Tyson's announcement.

Quote of note: "In her 20-page opinion, Robinson said Tyson had contended the lead plaintiffs' sophistication 'cuts against a finding that a class action is a superior forum' for resolving such claims. But she said that argument conflicts with Congress' intent. 'Federal securities laws do not protect investors any differently, and certainly no less, simply because they engage in more complicated investment strategies,' she wrote."

Posted by Lyle Roberts at 9:42 PM | TrackBack

October 8, 2003

The Martha Stewart Watch IV

Although The 10b-5 Daily has not been following all of the twists and turns of the Martha Stewart case, it has perked up when the topic is the securities class action against Martha Stewart Living Omnimedia Inc. and certain individual defendants in the S.D.N.Y. (see this post on the court's decision to deny the motion to dismiss).

The New York Law Journal has an interesting article (via law.com - free registration required) on the U.S. Attorney's attempt to block discovery in the case because "allowing the prompt depositions of 15 people in the civil securities fraud cases would give Stewart's criminal defense lawyers an unfair preview of the obstruction of justice case, set to go to trial in January." Judge Sprizzo rejected this request, citing the apparent weakness of the government's case and the fact that the government had already, in his view, previewed its arguments in the press.

Quote of note: "A stay had already been granted for Stewart in the civil case, Seymour [head of the Criminal Division of the Southern District U.S. Attorney's Office] said, and she was merely requesting a 'limited' stay on the depositions of about four and a half months. Sprizzo, who served five years as an Assistant U.S. Attorney in the Southern District in the 1960s, said he had 'seen a lot more serious obstruction cases.' 'This is not the strongest obstruction case I have ever seen,' he said. 'Just going by your own U.S. attorney's comments on it. This is not John Gotti.'"

Posted by Lyle Roberts at 11:55 PM | TrackBack

October 6, 2003

What's In It For The Investors?

The St. Louis Post-Dispatch ran a feature article in Saturday's edition that was sharply critical of securities class actions. Among other things, the author discusses the low rates of recovery for investors.

Quote of note: "Many institutional investors get involved in lawsuits as a last resort, but, some say, the suits are not by any means a panacea for wronged shareholders. 'If we are a long-term holder of a security, our real interest is in having the company turn around,' said Gary Findlay, executive director of the Missouri State Employees' Retirement System. 'If we sue the company, aren't we suing ourselves? They spend our money to defend themselves against us and buy insurance. ... Whatever comes out of that, comes out of my pocket.'"

Posted by Lyle Roberts at 4:05 PM | TrackBack

September 26, 2003

Going After The Mutual Funds

As stated previously in The 10b-5 Daily, securities class actions against mutual funds are the new new thing. The New York Times (free subscrip. required) agrees in this article from Wednesday's edition, noting that nearly a dozen plaintiff firms have brought suits against companies that manage mutual funds in the three weeks since Eliot Spitzer, the attorney general of New York, announced his investigation into unfair trading practices. The article speculates that plaintiffs may be able to bring actions under the Investment Company Act and Investment Advisors Act, thus avoiding the heightened pleading requirements of the PSLRA.

Quote of note: "The lawsuits challenge the practices identified by Mr. Spitzer and federal regulators. Those practices include allowing favored investors to trade after hours and to buy and sell mutual fund shares over short periods to turn a quick profit, a practice known as timing. In the eyes of plaintiffs' lawyers, the potential settlements could dwarf the biggest paid by corporate defendants (and their insurers) in shareholder lawsuits to date."

Posted by Lyle Roberts at 11:58 AM | TrackBack

September 18, 2003

Polaroid Bankruptcy Filings Raise Questions

Former shareholders of Polaroid, Inc. recently filed a securities class action against KPMG, Inc. in New York federal court alleging that the accounting firm violated industry guidelines in its 2000 audit of Polaroid's finances, leading to misstatements in the company's Form 10-K (prior to the declaration of bankruptcy). The Associated Press reports that bankruptcy court filings by the successor entity to Polaroid are fueling additional questions over whether funds were improperly diverted from Polaroid pension plan participants and shareholders as part of the sale of the company's assets.

Posted by Lyle Roberts at 10:27 PM | TrackBack

September 17, 2003

No Freeloading Allowed

Should opt-out plaintiffs be forced to contribute to the attorneys fees of the lawyers running the class action? According to a recent article in the Legal Intelligencer (via law.com - free regist. required), a federal judge has ruled that a group of plaintiffs who recently opted out of a class action antitrust case to pursue their own claims must set aside a percentage of any recovery to compensate the class action plaintiff lawyers. The case is Re: Linerboard Antitrust Litigation and is being heard before Senior District Judge Dubois in the E.D. of Pa.

The Linerboard plaintiffs had been litigating the case for five years, and were just about to conclude discovery, when a group of big-name plaintiffs decided to opt out of the class and file their own lawsuits. Judge Dubois "found that the opt-out plaintiffs have benefited from the years of work already done by the lead lawyers on the case and therefore must pay for that benefit."

Judge Dubois' opinion may have ripple effects in other areas of class action law. The recent decision by a few public entities to bring separate suits in prominent securities fraud cases, for example, certainly raises the possibility that the class attorneys in the relevant class actions will attempt to achieve a similar recovery of fees. (The 10b-5 Daily has posted about the bringing of separate suits by Ohio and California here and here.) Stay tuned.

Quote of note: "'This is the rare antitrust case in which major entities and their counsel awaited the development of the case by designated counsel and only filed suit on the eve of the conclusion of discovery,' DuBois wrote. DuBois ordered the lead lawyers and opt-out lawyers to meet and attempt to reach an agreement on the percentage of funds that should be sequestered from the opt-out plaintiffs' recoveries."

Posted by Lyle Roberts at 6:21 PM | TrackBack

September 11, 2003

Corporate Governance Activist Group Proposed

At the Council of Institutional Investors fall meeting last week, New York State Comptroller Alan Hevesi proposed the formation of an activist group dedicated to promoting corporate governance reforms, regulation, and legislation. The group will be called the National Coalition of Corporate Reform (NCCR) and there are plans to have an organizing meeting in October. Other public institutions, along with the president of the AFL-CIO, have expressed their support for the proposed group.

Reuters ran an article on the proposal and Hevesi has issued a press release.

Quote of note: NCCR's agenda, Hevesi announced, includes - "Lobbying efforts will target changes in the Private Securities Litigation Reform Act of 1995, the Sarbanes-Oxley Act of 2002, the Class Action Fairness Act of 2003, SEC regulations, and state laws, where imbalances exist with respect to shareholder rights and corporate obligations."

Posted by Lyle Roberts at 7:16 PM | TrackBack

September 10, 2003

Mutual Funds Are The New New Thing

With the recent announcement of an investigation by New York's attorney general into mutual fund trading practices, there is little doubt that money management firms can expect a wave of securities class actions. Indeed, a number of cases have already been filed.

The 10b-5 Daily will be tracking and reporting the developments in these cases. In the meantime, the Los Angeles Times has a solid primer on what has happened so far.

Posted by Lyle Roberts at 11:23 AM | TrackBack

Conseco Bankruptcy Approved Over Objections Of Class Action Plaintiffs

A federal judge has approved Conseco, Inc.'s (OTCBB: CNCEQ) bankruptcy reorganization plan over the objections of counsel in the securities class action against the company. Conseco is an Indiana-based insurance company that has been dogged by finanical difficulties over the last few years. According to a report in the Indianapolis Star, the plan includes broad legal protections for directors and officers. The plan, and related documents, can be found here.

Quote of note: "[A]t least two parties -- including plaintiffs of a yet-to-be-certified class-action suit against Conseco -- filed similar last-minute objections. They questioned [Judge] Doyle's authority to allow such broad releases as well as whether they actually served Conseco's long-term interest. . . . Doyle countered that federal appeals courts do allow broad legal releases as long as they are consensual to all parties, while Conseco attorneys said the releases will save the company significant costs in time and money that would be spent on legal issues."

Posted by Lyle Roberts at 10:59 AM | TrackBack

Getting A Helping Hand

A column by Maggie Mulvihill in yesterday's Boston Herald concludes that the state government probes into the financial services industry have been a boon for the securities plaintiffs' bar.

Quote of note: "Bill Galvin. Drew Edmondson. Elliot Spitzer. To big business, they are bloodsucking fiends intent on using corporate finance scandals to advance their own political positions. But to plaintiffs' lawyers, these guys are a dream come true. Their state probes and lawsuits are already opening the floodgates of hard-to-get corporate data - not to mention emboldening civil litigators to start papering courthouses with lawsuits against the financial services industry."

Posted by Lyle Roberts at 10:17 AM | TrackBack

September 2, 2003

South Korean Debate Over Securities Class Actions Continues

The South Korean legislature continues to debate over legislation that would permit investors to bring securities class actions. The Korea Herald reports that South Korea's major business lobbying groups have urged the government to "think twice" before implementing the change, which "could hamper business activities."

The 10b-5 Daily has been following this story intently (see posts here and here for details on the legislative proposals). South Korea is starting with a blank slate, with full knowledge of the pros and cons of the U.S. securities class action system. It will be interesting to see what the final legislation looks like.

Posted by Lyle Roberts at 10:23 PM | TrackBack

August 27, 2003

Oxford Health Settles Insurance Claims

Oxford Health Plans Inc. has been in a dispute with its excess insurance carriers over their contribution to the company's March 2003 settlement of a securities class action for $225 million. According to an article on the Dow Jones Newswires (suscrip. required), the company has agreed in principle to settle $17.9 million of its claims against the insurers for a total of about $14.3 million, which will be reflected in its third-quarter earnings. An additional claim for $23.9 million against one insurance carrier is still outstanding.

Posted by Lyle Roberts at 7:29 PM | TrackBack

August 20, 2003

Analysis Of The Milberg Weiss Breakup

The August 18, 2003 edition of the Legal Times has an article (via law.com - free subscrip. required) on the previously announced breakup of Milberg Weiss Bershad Hynes & Lerach, widely recognized as the leading plaintiffs' securities class action firm. (The 10b-5 Daily posted extensively on this development back in June, starting with this post.) The front page story by Andrew Longstreth (of The American Lawyer) takes a comprehensive look at the issues that may have led to the split.

Posted by Lyle Roberts at 3:42 PM | TrackBack

New York Pursues Claims

The Associated Press reports today that the New York State Comptroller has released a report claiming that corporate scandals have cost New York nearly $13 billion over the last two years in reduced economic performance, tax revenues, and pension fund value. The article also notes that New York's pension fund is the lead plaintiff in several securities class actions.

Posted by Lyle Roberts at 3:21 PM | TrackBack

August 11, 2003

Ohio Sues Freddie Mac

The state of Ohio, on behalf of its pension funds, continues to supplement pending securities class actions with its own individual suits. Over the weekend, the Washington Post reported that Ohio has both individually sued Freddie Mac and certain former officers for securities fraud and filed a motion asking that it be named lead plaintiff in the securities class action. The state currently has individual suits pending against AOL Time Warner (discussed in The 10b-5 Daily here), Enron, and WorldCom and is the lead plaintiff in a securities class action against Global Crossing.

Quote of note: "'I don't mean be excessively litigious, but I think in terms of what we've seen, we need to see more corporate accountability,' [Ohio Attorney General Jim Petro] said."

Posted by Lyle Roberts at 6:11 PM | TrackBack

August 6, 2003

The Rent-Way Story

The Eire Times News is running an interesting series of articles on the financial fraud at Rent-Way, Inc. (NYSE: RWY), one of the nation's largest rent-to-own retailers. The articles detail both the fraud, which was first revealed in Oct. 2000, and the legal consequences for the company and its officers. The first article in the series can be found here (links to subsequent installments are at the bottom of the page).

Posted by Lyle Roberts at 2:26 PM | TrackBack

August 5, 2003

Journal Roundup

Looking for some fun beach reading this summer? Stay away from these articles! But if you want some interesting examinations of securities class action law, here are a few of the latest offerings.

1) The Santa Clara Law Review has an empirical study entitled "Securities Class Action Settlements" by Mukesh Bajaj, Sumon Mazumdar, and Atulya Sarin (43 Santa Clara L. Rev. 1001 (2003)). The authors studied 1203 federal case filings and 92 state court filings, spanning from 1988 to 1999, to draw conclusions about dismissal and settlement trends.

Quote of note: Among other conclusions, the authors found: (a) "The settlement process, as well as the rate of dismissals, has declined since the passage of the PSLRA;" (b) "Quick settlements generally involve relatively small settlement amounts;" (c) "Mean and median settlements have increased in the post-PSLRA period;" and (d) "Cases naming accounting firms as co-defendants, while relatively rare, involve average and median settlements that are greater than the sample as a whole." Many of these results are similar to those in the recent NERA study (discussed in The 10b-5 Daily here).

2) The ALI-ABA has published an article entitled "Central Bank is Alive and Well: Defense Strategies for Defeating 'Scheme To Defraud' Allegations in Private Securities Litigation" by Brian Pastuszenski, Christopher Robertson, and Jason Frank (SHO83 ALI-ABA 439 (May 8-9, 2003)). The authors focus on plaintiffs' recent attempts to use the holding in SEC v. Zandford, 535 U.S. 813 (2002), where the Supreme Court found a broker liable for engaging in a "scheme to defraud" under Rule 10b-5 when he misappropriated funds from a customer's account, to avoid the prohibition on "aiding and abetting" liability found in the Court's earlier holding in Central Bank. Recent district court decisions (notably in the Enron case) "have allowed claims to proceed against secondary actors who were not alleged to have made any actual misstatements relied on by plaintiffs, but instead were alleged only to have participated in certain transactions underlying the alleged misstatements."

Quote of note: "Successfully arguing a motion to dismiss based on Central Bank, however, requires articulating clearly the difference between (a) a 'misstatement' case in which plaintiffs complain about the purchase of stock at inflated prices as a result of allegedly false and misleading statements and (b) a case that alleges other forms of 'deception' that caused plaintiffs harm . . . In the typical class action case, only the defendant who actually made the offending statements themselves has any potential liability after Central Bank." (A discussion of another recent article on this general topic, with a different viewpoint, can be found in The 10b-5 Daily here.)

3) The same ALI-ABA "course of study" has an article on "Anonymous Informants: How Identifiable Must They Be Under The PSLRA" by Peter Saparoff and Justin Kudler (SH083 ALI-ABA 479 (May 8-9 2003)). The authors survey the recent case law on this contentious issue.

Quote of note: "The trend in the case law now has solidified around providing a description of the informant, but not necessarily his or her name, in a complaint alleging violations of the federal securities laws that was pleaded under the PSLRA."

Posted by Lyle Roberts at 7:15 PM | TrackBack

July 31, 2003

Rising Cost Of D&O Insurance

Today's Wall Street Journal (subscrip. req.) has a feature article on the rising cost of directors and officers liability insurance (for more on this topic see this post in The 10b-5 Daily). Insurers are both raising premiums and "holding firm on many of their efforts to rein in the generous terms and conditions they adopted during a price war in the late 1990s." A side graph identifies AIG (34% of premiums; 19% of policies) and Chubb (16% of premiums; 21% of policies) as the D&O insurance leaders.

Quote of note: "And while the reforms of the Sarbanes-Oxley corporate-governance act may reduce corporate scandals, in the near future they could prove expensive. For example, the law increases the responsibility of audit-committee members for overseeing the company's audits, potentially raising the stakes for individual committee members if problems are later found. 'There's a general confusion about what Sarbanes-Oxley really means,' says Bill Cotter, chief underwriting officer for National Union Fire Insurance Co., of Pittsburgh, a unit of American International Group Inc., the leading underwriter of D &O insurance. 'The fear is that it will be defined through litigation.'"

Quote of note II: "Companies have a variety of options to mitigate higher costs. These include buying less coverage and retaining more of their risk with higher deductibles or co-insurance, in which the policyholder pays a fixed portion of eventual claims, much as health-insurance often requires patients to pay part of their costs, brokers say. Deductibles, recently $1 million or even lower on even large policies, have risen to as high as $100 million. Co-insurance of 10% to 30% or more has become more commonplace as well."

Posted by Lyle Roberts at 9:05 PM | TrackBack

July 30, 2003

The Fine Line Between Being An "Aider and Abettor" Or A "Primary Violator"

There is an interesting article on the ABA's Business Law eSource (July 2003) entitled "Securities Litigation Against Third Parties: Pre-Central Bank Aiders And Abettors Become Targeted Primary Defendants." The authors, Jay Eisenhofer and Cynthia Calder, offer a comprehensive summary of the post-Central Bank case law on who is a "primary violator" for purposes of Rule 10b-5, including separate sections on cases involving accountants, lawyers, underwriters/investment banks, and ratings agencies.

As noted previously in The 10b-5 Daily, the line between a "primary violator" (liable) and an "aider and abettor" (not liable) is becoming blurred. Eisenhofer and Calder conclude that "accountants, lawyers, and investment bankers ought to be taking a hard look at their relationships with their clients, and their own potential for primary liability under Rule 10b-5 in cases of corporate fraud."

Quote of note: "Although neither has achieved majority acceptance, two different approaches - the 'bright line' and 'substantial participations standards - have emerged from the lower courts. According to those courts that have adopted the 'bright line' standard, only if a defendant actually makes a statement to the plaintiff (or the investing public) which contains a misrepresentation or omission can that defendants be liable. By contrast, under the 'substantial participation' rubric, a defendant that plays a significant role in creating the statement can be held liable."

Posted by Lyle Roberts at 7:26 PM | TrackBack

July 28, 2003

Pollack Keeps Getting Press (Even Overseas)

TheLawyer.Com, a UK website, has an article on Judge Pollack's decision in the Merrill Lynch analyst research cases. Notably, the article contains the words "loss causation."

Quote of note: "Coffee [Columbia University law professor John Coffee] reckons that Judge Pollack's most important line of reasoning is that the plaintiff has to prove 'loss causation'. 'They can't simply prove that the plaintiff was fraudulently induced to buy the stock by the false inflated and insincere recommendation, but rather he has to prove first, and then later, that the recommendation was causally related to the stock's ultimate fall.' That is a very difficult burden for litigators to have to meet, he adds."

Posted by Lyle Roberts at 2:53 PM | TrackBack

July 26, 2003

Baker's Bill Postponed

Reuters reports that Rep. Baker has agreed to postpone a vote on the Securities Fraud Deterrence and Investor Restitution Act of 2003 (discussed in The 10b-5 Daily here).

Quote of note: "The bill is largely aimed at boosting the SEC's powers. But one section of it targets state officials, such as New York Attorney General Eliot Spitzer, by proposing barring them from writing securities law exceeding or adding to federal statute. State securities regulators have attacked the bill as a shield meant to protect Wall Street's largest brokerages from state-level investigations like the one Spitzer mounted recently into stock analyst conduct at Merrill Lynch."

Posted by Lyle Roberts at 12:51 AM | TrackBack

Plaintiffs' Perspective

The Associated Press has a lengthy interview with Mel Weiss of Milberg Weiss, the leading plaintiffs' securities class action firm.

Quote of note:

Interviewer - "How big was the $1 billion settlement for ordinary investors in the IPO fraud case in your view? How much do you hope to get from the brokerages?"

Weiss - "The billion dollars is an expression of concern that these allegations are real and could give rise to staggering liability. It simplifies the litigation in that we can focus our attention on the conduct of the investment banks. The interesting part here is how much broader our inquiries will be than the government's has been because we're covering 55 banks, not 10. It's going to be far more fascinating to demonstrate that the conduct we allege to be serious violations of the law was widespread throughout the entire industry. ... I would be very disappointed if we don't achieve multiple billions (in recovery)."

Posted by Lyle Roberts at 12:26 AM | TrackBack

July 23, 2003

South Korea Proceeds With Plan To Permit Securities Class Actions

As previously posted in The 10b-5 Daily, the South Korean legislature is considering a proposal to permit investors to bring securities class actions. The JooAng Daily reports that the Legislation and Judiciary Committees review subcommittee approved the measure yesterday.

Quote of note: "[T]he proposed legislation only allows filing of such suit for financial fraud complaints: book-rigging, stock price manipulation or false disclosures and audits. At least 50 shareholders who collectively owns either 0.01 percent of a firms shares or own shares valued at 100 million won would be required for a suit to be filed. The court would have the right to investigate the qualifications of shareholders as plaintiffs. The court could also ask for basic information from financial authorities. If a court rejected the filing of a lawsuit, aggrieved shareholders would have the right to appeal the decision. "

Posted by Lyle Roberts at 3:24 PM | TrackBack