On Feb. 29, U.S. District Judge Melinda Harmon held a hearing on the $7.2 billion Enron class-action settlement and a record $688 million attorneys' fee request, but she did not immediately issue a ruling.

During the 4 1/2 hour fairness hearing in Houston, Harmon heard arguments for and against final approval of the distribution plan and attorneys' fee award. The judge said she would issue her ruling as soon as possible, according to news reports.

The hearing is the latest chapter in investors' efforts to recover the more than $40 billion they lost after Enron, once the seventh-largest U.S. company, collapsed into bankruptcy in 2001. The bulk ($6.6 billion) of the $7.227 billion settlement would be funded by three of the energy company's former investment banks: Citigroup, Canadian Imperial Bank of Commerce, and JP Morgan Chase. Other settling defendants include former Enron auditor Arthur Andersen, Andersen's worldwide affiliate, Bank of America, Lehman Brothers, Enron's former outside directors, and the law firm of Kirkland & Ellis.

Patrick Coughlin, a partner with Coughlin Stoia Geller Rudman & Robbins who represents the class of investors, argued that the settlement is fair and reasonable given the complexity of the lawsuit and the firm's risk in taking on the case. While the fee award would be the largest ever in a securities case, Coughlin noted that the award would amount to 9.52 percent of the total settlement. “This is the largest class (action) settlement ever. There is no case comparable to this result,” he said.

Coughlin told the judge that his firm spent $100 million while researching and preparing the case against Enron's banks; the firm billed 247,000 hours, took more than 300 depositions from witnesses, submitted 5,700 filings, and reviewed 70 million documents. “The one thing we could not do was settle it for a nominal amount. We went all out,” Coughlin said, according to Bloomberg News. “We risked $100 million, and we could've gotten zero.”

The fee request was based on a retainer agreement that the San Diego-based law firm reached with the lead plaintiff, the University of California. The agreement provided for a sliding fee scale from 8 to 10 percent, with the fee percentage increasing based on the size of the recovery.

Ari Garbow, an attorney for Fiduciary Counselors, which oversees Enron's retirement and savings plans, said the fee request is “grossly out of sync with comparable cases,” according to the Houston Chronicle. He proposed that the award be cut to about $400 million, or 5.65 percent of the settlement. In the WorldCom class action, the $336.1 million fee award amounted to 5.5 percent of the overall $6.1 billion settlement.

Lawrence Schonbrun, a lawyer for an individual investor, said the fee request was “an affront to every working person in this country,” according to the Associated Press.

Coughlin Stoia bolstered its fee request with supporting declarations from Columbia University Law Professor John C. Coffee Jr., Harvard University Law Professor Lucian Bebchuk, a former federal judge, and several officials with the University of California.

In his declaration, Coffee said the Enron case was risky for Coughlin Stoia to bring because the investor plaintiffs were relying on a novel “scheme to defraud” theory that had been rejected by other federal courts (and was later rejected by U.S. Court of Appeals for the Fifth Circuit, which oversees appeals from the federal courts in Texas). The firm “was able to induce some of the largest, most sophisticated financial institutions in the world to settle for record amounts, based on a novel theory that other plaintiffs' counsel might have overlooked or been unable to articulate convincingly,” Coffee wrote. “Unlike other recent mega-fund cases--most notably WorldCom--[Coughlin Stoia] lacked the overwhelming legal leverage in this case that compelled the defendants in WorldCom to settle.”

Coffee noted that Coughlin Stoia helped Enron investors recover 8.3 percent of their market capitalization losses, 2.86 times the 2.9 percent recovery obtained by WorldCom investors. He pointed out that only 20.9 percent of the WorldCom settlement “was actually paid to shareholders”--the rest of the settlement went to note purchasers. “Viewed in this light, [the Enron settlement] recovered for shareholders almost six times as much as WorldCom--and in the face of higher risk,” he concluded. To review Coffee's declaration and other settlement documents, click here.

The Enron settlement is open to investors who bought company stock or related securities between Sept. 9, 1997, and Dec. 2, 2001. Under the distribution plan, holders of Enron's common shares would receive $6.79 per share, while holders of preferred stock would get $168.50 per share.

The investors are still pursuing claims against Merrill Lynch, Credit Suisse Group, and Barclays. On Jan. 22, the U.S. Supreme Court rejected the investors' request to review the Fifth Circuit ruling that barred them from bringing class-action claims against three banks. The high court's decision wasn't a surprise after the justices ruled in a separate case that Charter Communications shareholders could not sue two of the company's former vendors.

Trey Davis, a spokesman for the University of California, said the investor plaintiffs are considering their options and will present them to Judge Harmon, the Houston Chronicle reported. The Enron investors also have claims pending against former CEO Jeff Skilling, ex-Chief Accounting Officer Richard Causey, the Royal Bank of Canada, Royal Bank of Scotland, and Toronto-Dominion Bank. On Feb. 5, the university announced a $11.5 million settlement with Goldman Sachs over notes issued by Enron.

Friday, January 18, 2008

Trends in Securities Litigation—What You Need to Know for 2008
Submitted by: L. Reed Walton, Staff Writer

How will current lawsuits on the docket and new settlements affect investors in the coming year? Will the credit crisis and market turmoil yield a new wave of settlements? These trends are the subject of an upcoming RiskMetrics Group white paper, part of our What You Need to Know for 2008 educational program.

RiskMetrics Group will also host a webcast exploring securities litigation trends for the upcoming year. Adam Savett, Head of Securities Class Action Services for RiskMetrics Group, will host a panel of noted industry experts, including Stuart Grant, Managing Partner at Grant & Eisenhofer, Lyle Roberts, Partner at Dewey & LeBoeuf, and Kevin LaCroix, Director at OakBridge Insurance Services.

To register for the webcast, please visit here.

Click here to view the full What You Need to Know for 2008 Educational Series.

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Thursday, December 6, 2007

A Change in Federal Enforcement Tactics
Submitted by: Ted Allen, Publications

Five years after the passage of the Sarbanes-Oxley Act, the Securities and Exchange Commission has increased its civil enforcement efforts, but the agency is collecting less in penalties from companies, and federal prosecutors are bringing fewer criminal cases.

During the 2007 fiscal year that ended Sept. 30, the SEC brought 656 enforcement cases, a 14 percent increase from the 574 cases in 2006, according to Bloomberg News. The increase--the first in four years--stems in part from the 24 cases the agency brought over the alleged backdating of stock options.

“There are still more to come,” Linda Thomsen, the SEC’s enforcement director, said at a Nov. 10 law conference in New York, according to Bloomberg News. “My hope is we will get a lot more done” over the next year, she said.

Overall, more than 200 companies have disclosed internal or federal probes into past option grants. However, the SEC has concluded probes at more than 31 firms without recommending any enforcement action--which should be good news for companies and directors who are facing investor lawsuits. Peter Stone, a defense lawyer with Paul Hastings Janofsky & Walker, told The Recorder legal newspaper that “the existence of an ongoing formal SEC investigation is a significant factor in settlement discussions with plaintiffs.”

Among the recently cleared firms are: Electronic Arts, Interwoven, Linear Technology, Zoran, Computer Sciences, PMC Sierra, VeriSign, Sunrise Telecom, and Sunrise Senior Living, according to Bloomberg News.

During fiscal 2007, the SEC also filed 47 insider-trading cases over suspicious trading before the release of buyout news; those actions included cases against former employees at UBS, Morgan Stanley, and Bear Stearns, Thomsen said.

The number of SEC actions also was boosted by the 39 orders that the agency issued in September against accounting firms and individuals who allegedly audited public companies without registering with the Public Company Accounting Oversight Board.

At the same time, the agency is collecting less in fines and penalties from companies and corporate officers. During the 2007 fiscal year, the SEC collected $1.6 billion in penalties and illegal profits, down from more than $3 billion in each of the previous three years, Bloomberg News reported, citing an agency report released Nov. 15.

“The cases they're bringing these days are much smaller,” James Cox, a securities law professor at Duke University, told Bloomberg News. “The commission has adopted “a new ethos about penalties,” based on the concern that “savaging” companies with fines amounts to punishing their investors.

The SEC adopted a new corporate penalty policy in early 2006 after corporate advocates and Republican Commissioner Paul Atkins complained that the penalties were disproportionately high and ultimately were hurting shareholders. Earlier this year, Chairman Christopher Cox directed the agency’s enforcement division to obtain commission approval before negotiating corporate fines.

When asked by Bloomberg News about the decline in total fines, Chairman Cox noted that there wasn’t a major corporate fraud settlement this year. In 2006, the agency collected an $800 million penalty from American International Group and obtained a $400 million settlement from Fannie Mae.

The decrease in corporate penalties ultimately is a significant issue for investors, because much of this money is eventually distributed to investors through the SEC’s Fair Fund program, which was created by the Sarbanes-Oxley Act. The SEC has returned more than $3.2 billion to investors since 2002.

A continued decline in corporate penalties may undermine the arguments of class-action litigation critics, who contend that only the government should be permitted to recover damages for investors. Investor lawyers, including Fred T. Isquith of Wolf Haldenstein Adler Freeman & Herz and Jay Eisenhofer of Grant & Eisenhofer, have countered by pointing out that the SEC doesn’t have the resources to fully protect shareholders and that private lawsuits typically generate greater recoveries. (For more on these arguments, please see the March and April 2007 editions of the SCAS Alert.)

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Tuesday, October 9, 2007

Justices to Consider the Liability of Bankers, Vendors
Submitted by: Ted Allen, Publications

The U.S. Supreme Court will hear arguments today in Stoneridge Investment Partners v. Scientific-Atlanta, a high-profile case that concerns the liability of bankers, vendors, and other third parties who help companies commit securities fraud.

The Stoneridge case stems from claims by shareholders of Charter Communications against Motorola and Scientific-Atlanta, which manufactured set-top boxes used by Charter’s cable television subscribers. The investors allege that the two vendors engaged in “wash” transactions in 2000 to help Charter meet its annual operating cash flow goals.

The closely watched case, which one industry group has called “the most important case in a generation,” has attracted 30 amicus briefs from investor advocates, state officials, and industry groups.

The Council of Institutional Investors, the North American Securities Administrators Association, the University of California, the New York State Teachers’ Retirement System, the Change to Win labor federation, and 30 state attorneys general have filed briefs in support of investors. The Bush administration disregarded the recommendation of the Securities and Exchange Commission and filed a brief in support of the Charter vendors.

While the Supreme Court previously barred suits against “aiders and abettors” in its 1994 Central Bank of Denver decision, the Charter investors argue that they should be able to bring “scheme liability” claims against vendors, bankers, and others who knowingly participate in transactions that help companies mislead shareholders, even if the third parties didn’t publicly mislead anyone. Billions of dollars may be at stake in the case, as the high court’s decision likely will have far-reaching implications and affect the ability of Enron investors to pursue a class lawsuit against the company’s former investment banks.

On Sept. 20, the Supreme Court announced that Chief Justice John Roberts would take part in the court’s deliberations in Stoneridge. Roberts, along with Justice Stephen Breyer, earlier recused himself from the high court’s decision on whether to hear the case. Both justices reported in their 2006 financial disclosure forms that they own shares in Cisco Systems, the parent of Scientific-Atlanta, Legal Times reported. The Supreme Court did not disclose the basis for the chief justice’s decision to rejoin the case.

Roberts’ participation in the case presumably will help the defendants. During the past year, the chief justice joined court majorities in several rulings that favored business interests.

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Monday, October 8, 2007

Has the Trend of Fewer Securities Lawsuits Ended?
Submitted by: Ted Allen, Publications

After two years of below-average filings of securities lawsuits, has that trend reversed?

Between Aug. 1 and Sept. 21, investors sued 37 companies, according to The D&O Diary, a weblog written by Kevin LaCroix, a lawyer with OakBridge Insurance Services. That rate of new lawsuits translates to an annual total of 296, which well exceeds historical averages. During the week of Sept. 17 to 21, eight companies were hit with first-time lawsuits, LaCroix noted.

Investors filed most of these new suits against subprime lenders and homebuilders, which saw their shares plunge after the collapse of the subprime mortgage market earlier this year. Investors also have targeted Moody’s and McGraw-Hill, the parent of Standard & Poor’s, accusing the rating firms of giving excessively high ratings to mortgage-backed securities. Investors also sued Bear Stearns, which operated two hedge funds that collapsed after investing in subprime mortgage securities.

In addition, lender Countrywide, homebuilder Beazer Homes, and Freemont General have been sued by their own employees over losses they suffered in their 401(k) accounts through their holding of company shares.

Overall, shareholders had filed 130 federal securities lawsuits as of late September, up from 100 during the same period in 2006, according to Securities Class Action Services data.

Meanwhile, defense law firms, which last year touted new practice groups to address stock option backdating, have been gearing up teams of professionals to address the fallout from the subprime mortgage market.

A Quiet First Half of 2007
This surge in new securities cases follows a rather quiet first six months of 2007, when investors brought lawsuits against 59 companies, according to a mid-year report released in July by Stanford Law School and Cornerstone Research. That total was 42 percent lower than the average filing rate from late 1996 through June 2005, and the first half of 2007 marked the fourth consecutive six-month period when new case filings have trailed that historical average, the report said. (For more on the Stanford-Cornerstone report, please see the August 2007 issue of the SCAS Alert.)

Another group of researchers, NERA Economic Consulting, recorded 76 federal cases as of June 30, and projected a total of 152 cases for the whole year. That total would be 12 percent more than the 136 cases in 2006, but it would still trail the more than 200 cases that were brought each year from 1997 to 2005, NERA noted in its mid-year report, which was released Sept. 13.

History suggests that the recent surge in lawsuits may be a temporary phenomenon, and future case filings may return to 2006 levels after investors file all their subprime-related lawsuits. For instance, the option backdating scandal spawned 22 federal securities lawsuits in 2006, but was the subject of just four lawsuits this year, the NERA report noted.

In 2001, investors filed more than 300 IPO-laddering cases, causing the total case filings to soar to 520, according to NERA. That surge in IPO-laddering cases was short-lived; during the next three years, total cases ranged from 251 to 280 per year, which were only slightly higher than the 237 to 270 cases filed annually in 1998 to 2000.

Unless the subprime mortgage crisis leads to a widespread collapse of corporate credit markets and a broader recession, it appears that the recent flurry of subprime-related lawsuits will result in just a temporary increase in litigation activity.

“Certainly, the collapse of the 1990s stock market bubble led to an active period of class action litigation filings and settlements--a similar drop in market values in the future might lead to a resurgence in filings, even in a post-[Sarbanes-Oxley Act] world,” the NERA report noted.

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Tuesday, July 10, 2007

U.S. Supreme Court Tightens Pleading Standards
Submitted by: Ted Allen, Director of Publications

In a partial victory for companies, the U.S. Supreme Court tightened the pleading standards for shareholders who file securities class-action lawsuits over corporate fraud.

While the high court ruled for the defendants in Tellabs v. Makor Issues & Rights, most legal observers concluded that the justices took a balanced approach because they did not erect a higher barrier to investor plaintiffs, as industry groups and the Securities and Exchange Commission had asked the court to do.

"This ruling will make the lives of plaintiffs’ lawyers incrementally more difficult, but not impossible. Clearly, this was not a ringing victory for the defense side," James D. Cox, a securities law professor at Duke University, told the SCAS Alert. "All the plaintiffs' lawyers I have talked to are breathing a sigh of relief."

The Supreme Court, in an 8-1 decision on June 21, directed the U.S. Court of Appeals for the Seventh Circuit to reconsider a ruling that allowed shareholders to sue Tellabs, an Illinois-based telecommunications equipment maker. Investors allege that the chief executive misled investors and analysts in 2001 about the prospects for the firm's best-selling product.

The Supreme Court was asked to decide what type of inferences a federal court may consider in determining whether an investor's allegations can meet the requirement of the Private Securities Litigation Reform Act of 1995 (PSLRA) to plead facts "giving rise to a strong inference that the defendant acted" with fraudulent intent.

This case is significant because investor plaintiffs must meet the law’s pleading standards to survive a defendant's motion to dismiss. If investors overcome this hurdle, they can gather pre-trial testimony from executives and force companies to turn over documents. In such cases, companies often will agree to a significant settlement to avoid additional litigation costs and the risk of trial.

Writing for the majority, Justice Ruth Bader Ginsburg noted that private securities litigation is an "indispensable tool" to help defrauded investors and is "crucial to the integrity of domestic capital markets." She also observed that the intent of the PSLRA was "to curb frivolous, lawyer-driven litigation, while preserving investors’ ability to recover on meritorious claims."

Ginsburg said plaintiffs can avoid having their claims dismissed by presenting facts that support an inference of fraudulent intent that is "cogent and at least as compelling as any opposing inference that one could draw from the facts alleged." In other words, an investor must show facts that support an inference of wrongful intent that is at least as likely as inferences that would show that corporate officers did not intend to defraud shareholders.

The case attracted a flurry of supporting briefs on both sides. The Tellab shareholders were supported by the Council of Institutional Investors, the University of California, the New York State Retirement Fund, the labor-affiliated Amalgamated Bank, the National Conference on Public Employee Retirement Systems, and state officials from Ohio and 23 states and territories.

Various industry groups backed Tellabs, including the Securities Industry and Financial Markets Association, the Washington Legal Foundation, the American Institute of Certified Public Accountants, and TechNet, which represents technology executives.

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Tuesday, May 8, 2007

Historic Shell Settlement Sparks Praise and Criticism
Submitted by: Ted Allen, Director of Publications

A group of 50 European institutional investors have reached a $352.6 million settlement with Royal Dutch Shell over the petroleum company's statements about its oil and gas reserves.

The accord is the first large securities class settlement by investors in a European legal proceeding. The settlement, if approved by the Amsterdam Court of Appeals, would resolve claims by non-U.S. investors who purchased the company's shares on European exchanges between April 8, 1999, and March 18, 2004.

"This is truly an unprecedented settlement of a large-scale European shareholder dispute," Jay Eisenhofer, a partner with Grant & Eisenhofer, a U.S. law firm that represents the European investors, said in an April 11 press release.

However, the settlement has been criticized by a lawyer who represents Shell investors in the U.S. class-action litigation, who says the company is attempting to do an "end run" around the U.S. courts and settle for less with European investors, who can't bring a securities class lawsuit in their home countries. "When all you can do is settle, you can't obtain maximum value," said Stanley Bernstein, a partner in the firm of Bernstein Liebhard & Lifshitz, which is lead counsel in the U.S. case.

The investors sued after Shell reduced its oil and gas reserve estimates by more than 33 percent in early 2004, which prompted the company’s shares to fall. The reserve reductions led to the ouster of chairman Phil Watts and two other top executives. Shareholders contend in their lawsuits that Shell inflated its reserves from 1997 to 2003 and overstated more than $100 billion in future cash flows.

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Monday, May 7, 2007

Institutional Shareholder Services to Hold May 9 Webcast on Securities Litigation Trends
Submitted by: Sarah Cohn, Director of Communications

ISS will hold a special Governance Forum webcast, Accountability Goes Global: International Investors and U.S. Securities Class Actions, on Wednesday, May 9 at 9:30 a.m. Eastern Daylight Time.

Recent media reports have noted that the class action concept, while often foreign to non-U.S. investors, is increasingly taking hold worldwide, as investors seize the power that collective action offers to similarly situated litigation groups. During ISS’ forum, panelists Mark Willis, a Partner at Cohen, Milstein, Hausfeld, Toll, P.L.L.C.; and Elli Kioupi, General Counsel at Avalon Holdings, will discuss why international investors are becoming more active in U.S. class action cases. Adam Savett, ISS Vice President of Securities Class Action Services, will moderate the panel and also share some of the key findings from his forthcoming paper, Accountability Goes Global: International Investors and U.S. Securities Class Actions.

To attend the online forum, please register here.

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Wednesday, April 4, 2007

Securities Litigation Watch Update: Q1 Review: New Cases Up, Settlements Even
Submitted by: Adam Savett, Vice President and Product and Market Segment Manager, Securities Class Action Services

A quick review of the SCAS database reveals that 30 new federal securities class actions were filed in the first quarter of 2007. On a pro-rata basis, this would translate to 120 new federal securities class actions for the year. This would represent a slight increase from 2006 securities class action filings, but would still remain below historical levels in the post-PSLRA world.

Additionally, 41 federal securities class action settlements received final approval during the first quarter of 2007. On a pro-rata basis, this would translate to 164 federal securities class action settlements for the year. This would put 2007 within the margin of error for settlements during the last few years.

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Tuesday, March 27, 2007

Supreme Court to Address Scheme Liability
Submitted by: Adam Savett, Vice President, Securities Class Action Services

Yesterday, the Supreme Court granted certiorari to consider whether secondary actors can be held liable to shareholders under a "scheme" liability theory. Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 549 U.S. ___ (U.S. 06-43 Mar. 26, 2007).

The Supreme Court's decision comes hard on the heels of the Fifth Circuit's decision in the Enron litigation last week, which highlighted the growing Circuit split on the issue. The Fifth and Eighth Circuit Courts of Appeal have rejected scheme liability, and the Ninth Circuit has indicated that liability may be found under the theory.

The Eighth Circuit had ruled that a party cannot be liable under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) for engaging in "schemes" to defraud. The Eighth Circuit held that liability under Section 10(b) is limited to those who (1) "make or affirmatively cause to be made a fraudulent misstatement or omission," or (2) "directly engage in manipulative securities trading practices." Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 443 F. 3d 987 (8th Cir. 2006).

The Eighth Circuit affirmed dismissal of securities fraud claims asserted by shareholders of Charter Communications (NASDAQ: CHTR) against two of Charter's vendors, Scientific-Atlanta, Inc. and Motorola, Inc. (NYSE: MOT). Charter’s shareholders alleged that the two vendors had entered into sham transactions while knowing that Charter intended to account for the transactions improperly. Neither Scientific-Atlanta nor Motorola made or affirmatively caused to be made any allegedly misleading statements directly to Charter's shareholders about those transactions. Charter's shareholders had alleged that the two vendors could be liable for participating with Charter in a "scheme" to defraud Charter's shareholders. The vendors allegedly deceived Charter's shareholders because the "sham" transactions artificially inflated Charter's cash flow by about $17 million in one quarter, which thereby inflated revenue forecasts and Charter's stock price.

In rejecting scheme liability, the Eighth Circuit relied on the Supreme Court’s earlier decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 191 (1994). In Central Bank, the Court held that there was no aiding and abetting liability for claims brought under Section 10(b) and Rule 10b-5. The Court in Central Bank did not foreclose all liability for secondary actors, noting that the absence of aiding and abetting liability "does not mean that secondary actors in the securities markets are always free from liability."

A dozen years after Central Bank, the federal courts are increasingly divided on whether "scheme" claims against secondary actors are different from claims for aiding and abetting against those same actors. Although the Eighth Circuit ruled that "scheme" liability cannot be squared with Central Bank's prohibition on aiding and abetting liability, the Ninth Circuit has ruled that it can under limited circumstances. Last year, the Ninth Circuit held that secondary actors can be liable for participating in a scheme to deceive investors if they engaged in conduct that had the “principal purpose and effect of [creating] a false appearance of revenues” even if they did not make misleading statements. Simpson v. AOL Time Warner, Inc., 452 F.3d 1040, 1048 (9th Cir. 2006). And last week, the Fifth Circuit expressly rejected the Ninth Circuit’s standard and joined the Eighth Circuit in rejecting “scheme” liability for secondary actors. Regents of The University of California v. Credit Suisse First Boston (USA), Inc., et al., No. 06-20856 (5th Cir. Mar. 19, 2007).

The actual question presented for review:

Whether this Court's decision in Central Bank, N.A. v. First Interstate Bank, N.A., 511 U.S. 164 (1994), forecloses claims for deceptive conduct under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5(a) and (c), 17 C.F.R. 240.l0b-5(a) and (c), where Respondents engaged in transactions with a public corporation with no legitimate business or economic purpose except to inflate artificially the public corporation's financial statements, but where Respondents themselves made no public statements concerning those transactions.

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Wednesday, March 7, 2007

Guest Commentary: A SEC Monopoly Will Not Work
Submitted by: Fred T. Isquith, Wolf Haldenstein Adler Freeman & Herz

"Of all the forms of tyranny, the least attractive and the most vulgar is the tyranny of wealth," Theodore Roosevelt famously said.

The decline in the number of securities class-action lawsuits filed in the federal courts is well documented. Similarly well documented is that investor losses in these cases, measured by the fall in the stock prices, have also declined since the boom market of the late 1990s.

A number of theories have been suggested by legal and economic observers for the decline in litigation activity. Some have suggested that the law should be changed so investors could no longer seek recovery of losses, even where fraud has occurred. Instead, these columnists suggest that the Securities and Exchange Commission alone be permitted to determine when, if at all, to challenge corporate misconduct. Wall Street would like nothing better.

Rising stock prices of the bull market can conceal many sins. When increasing price of securities is coupled with the U.S. Supreme Court's decision in Dura Pharmaceuticals, requiring plaintiffs to describe in their pleading the economic theory of loss, and the uniquely restrictive pleading requirement of the 1995 amendments to the securities laws (passed over the veto of President Bill Clinton, and being interpreted restrictively by a business friendly judiciary), one would expect to find fewer cases and lessened amounts recovered than immediately following the collapse of the "tech bubble years." Lawyers representing investors, impaired in their ability to collect for investor overpayments of securities caused by corporate malfeasance, would naturally seek other outlets for their time and talents.

Other hypotheses, including that there is "less fraud," seem highly problematic. According to this hypothesis, the government has supposedly been more aggressive in pursuing criminal and civil enforcement. Therefore, management has seen the light; natural human greed has been suppressed, and mankind has been improved. From this nearly theological statement of faith, there also arises the revealed command that the entire area of enforcement be left to the SEC, an agency nearly in thrall to Wall Street and corporate America. Neither of the hypotheses nor the perceived benefits of reserving to the SEC a monopoly of investor protection has real world justification.

Corporate malfeasance is based upon human nature: the acquisitive instinct and the desire for social status that accompanies riches regardless of how earned. Corporate greed exhibits the incentives of the free market without moral restraint. As water finds it own level and leaks out, so does money. No matter what reforms are then passed, the presence of large sums of money find a way of inducing some managers, directors, and Wall Street to take more than is properly theirs to take. Sooner or later, these managers and directors begin to think that corporate assets are their own, regardless of their lack of entrepreneurial risk in developing the business, and that the shareholders (and employees) are just in their way.

The lack of control by shareholders over the management of public corporations has been widely documented. Hiding troubling developments in a business and creating false pictures of success are natural. Self-congratulation is far preferable to embarrassing truth. Whether it is engaging in self enrichment through Wall Street manipulations, or the backdating of stock options, or otherwise enhancing already enormous compensation and benefit packages, or concealing their own embarrassment in making poor decisions that impact the business negatively, management will not be self-restrained. The money to be made is too big.

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Tuesday, March 6, 2007

The SCAS 50 for 2006
Submitted by: Adam Savett, Vice President of Securities Class Action Services

For the fourth year, my company (ISS' Securities Class Action Services) has issued its "SCAS 50" report. Based on data from the SCAS database, the SCAS 50 lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2006 in which the law firm served as lead or co-lead counsel.

The full report is available here.

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Wednesday, February 21, 2007

Options Backdating Securities Class Actions: The List - Update
Submitted by: Adam Savett, Vice President, Securities Class Action Services

The first order of business - our options backdating securities class action list has been updated to add Amkor Technology (NASDAQ: AMKR), Apollo Group (NASDAQ: APOL), Hansen Natural Corporation (NASDAQ: HANS), Quest Software (NASDAQ: QSFT) and Sunrise Senior Living (NYSE: SRZ). The number of companies on the list now stands at 25.

We will continue to update and maintain this list to track all newly filed securities class actions that have options backdating related allegations. The list will also include any previously filed cases that have recently added options backdating allegations.

Another excellent resource is The D&O Diary's list of options backdating related derivative lawsuits, here.

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Friday, February 9, 2007

More Korean Firms Could Face Securities Lawsuits
Submitted by: Ted Allen, Director of Publications

More South Korean companies are bracing for the possibility of securities class-action lawsuits now that a legal grace period has expired.

South Korea adopted securities class-action legislation in 2004 that was modeled in part on U.S. laws. However, the Korean legislation contained various hurdles that have deterred class claims. The law exempted firms with less than 2 trillion won ($2 billion) in assets from lawsuits over conduct before Jan. 1, 2007. "Now that the grace period has ended, all [listed] companies should prepare for a possible class action," attorney Chung Dong-yoon warned in a recent article in The Korea Herald.

Based on U.S. litigation trends, the attorney estimates that Korea’s 1,600 listed firms could face about 30 securities class-action suits each year. So far, no successful class suits have been filed.

The Korean law still contains other requirements that discourage lawsuits. To file a class suit, an investor must assemble a group of 50 shareholders who collectively hold at least .01 percent of a firm’s outstanding shares.

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Thursday, January 4, 2007

Appeals Court Rejects Class Certification in IPO Litigation
Submitted by: Ted Allen, Director of Publications

On Dec. 5, a U.S. appeals court ruled that a judge improperly granted class-action status to investors' claims against Wall Street banks over their underwriting of initial public offerings by technology firms in the late 1990s.

The investors, who previously reached a tentative $1 billion settlement with 310 Internet companies, contend that the banks manipulated IPOs to maximize their fees. The shareholders alleged that the banks created an artificial demand for the shares of these technology firms by requiring IPO clients to buy more stock later at higher prices.

A three-judge panel of the U.S. Court of Appeals for the Second Circuit ruled that the investors' claims weren't similar enough to be tried together in the same class. A federal judge certified the class based on six "focus cases."

The ruling is a significant victory for Morgan Stanley, Credit Suisse Group, and 10 other Wall Street firms, because many of the individual investors in the rejected class won't bother to pursue their claims separately or have the leverage to force the banks to agree to a generous settlement.

"Someone with a loss of $5 per share on a couple of hundred shares isn't going to waste the time and effort it takes to sue all these folks," Lawrence Hamermesh, a law professor at Widener University, told Bloomberg News. "When you combine all those losses together into $10 billion, then people have enough of a stake to keep going."

Melvyn I. Weiss, the lead lawyer for investors, said he would appeal the ruling. "It's not over," Weiss said, adding that the ruling applies only to the six focus cases and that other cases could meet the standards for class certification, The New York Times reported.

"The judges really are leaving some people who have been injured without any remedy," Weiss told Bloomberg News.

According to The New York Times and The Wall Street Journal, the appellate ruling may also jeopardize the $1 billion settlement with the IPO issuers and a separate $425 million tentative accord that investors reached with JP Morgan Chase in April. Neither settlement has received final court approval.

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Tuesday, December 26, 2006

Judge Dismisses Enron Investors' Claims Against Alliance
Submitted by: Ted Allen, Director of Publications

A federal judge has dismissed claims by Enron investors against Alliance Capital Management that arose from the service of Alliance executive Frank Savage on the energy company's board.

The investors argued that Alliance should be held liable because Savage signed a registration statement for a $1 billion Enron bond offering that incorporated the company's false financial statements for 1998 to 2000. Alliance, a New York-based money manager, is now known as AllianceBernstein.

U.S. District Judge Melinda Harmon in Houston rejected that argument after concluding that there was "no evidence that Alliance had any authority to influence, supervise, or determine Savage's actions at Enron," The Wall Street Journal reported. She also said there was no evidence that Savage knew or should have known that he had signed a false registration statement.

Jim Hamilton, an analyst at Wolters Kluwer Law & Business, noted the significance of the ruling in a posting on his Web log. Had the judge held Alliance liable based on Savage's service on Enron's board, "the effect would be to chill the willingness of qualified individuals to serve on boards of public companies as independent directors," Hamilton wrote.

In an unusual move, the judge ordered Lerach Coughlin Stoia Geller Rudman & Robbins, the lead counsel for the investors, to pay part of Alliance's legal fees and expenses. In her Nov. 30 ruling, the judge said investors' lawyers should have realized that their claims had no merit before Alliance had to ask the court to dismiss those claims, Bloomberg News reported. The fees will be limited to those incurred by Alliance during the summary judgment phase of the litigation, attorney Lyle Roberts noted in his 10b-5 Daily Web log.

Harmon's order was noteworthy because defendants in U.S. securities lawsuits typically pay their own legal fees even when they persuade a court to dismiss a case. Investors, who generally have contingency fee arrangements with their attorneys, generally have their legal fees paid through a percentage of the settlements that they obtain.

William Lerach said his firm would pay the fees if it does not prevail on appeal or fails to persuade the judge to change her mind, the Journal reported. Savage, along with other former Enron directors, previously reached a settlement with investors, without admitting wrongdoing.

Lerach Coughlin so far has obtained $7.1 billion in settlements on behalf of the University of California and other investors who lost money during Enron's collapse into bankruptcy in 2001. Investors have reached accords with Citigroup, JP Morgan Chase, and three other investment banks and are still pursuing claims against Merrill Lynch, Credit Suisse, Toronto-Dominion Bank, Royal Bank of Scotland Group, Royal Bank of Canada, Goldman Sachs Group, and the law firm of Vinson & Elkins, according to Bloomberg News. Judge Harmon previously dismissed investors' claims against Deutsche Bank and Barclays.

A trial is scheduled for April, but a federal appeals court is reviewing a challenge by Merrill Lynch and other defendants to Judge Harmon's class certification order, Bloomberg News reported.

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Monday, December 4, 2006

Europeans Take a More Active Role in U.S. Cases
Submitted by: Ted Allen, Director of Publications

More European investors are realizing that it makes sense to participate in U.S. securities class-action cases by serving as lead plaintiffs, or by filing claims for their share of billions of dollars in settlements.

"There has been a sea change in interest among European investors filing claims and claiming money that is rightfully theirs," Mark S. Willis, a partner with Cohen, Milstein, Hausfeld & Toll, a law firm that represents investors, said during a SCAS Web cast in September. "And there's also been an interesting change in the attitude toward institutional investors here in Europe about taking an activist role in U.S. class actions."

One prominent example of a U.S. case where European institutional investors are serving as lead plaintiffs is the Parmalat Finanziara class action. The lead plaintiffs include Hermes Focus Asset Management Europe, Cattolica Partecipazioni, Societe Moderne des Terrassements Parisiens, and Capital & Finance Asset Management. (A Hermes affiliate is a part owner of ISS.)

Earlier this year, a group of 26 Dutch pension funds led by Stichting Pensioenfonds filed a securities lawsuit against Royal Dutch Shell. The lawsuit, which is pending in federal court in New Jersey, was filed separately from the consolidated class action that was brought earlier by two Pennsylvania pension funds and other investors. A Canadian institution, the Ontario Teachers' Pension Plan Board, served as a lead plaintiff in the Nortel Networks litigation that resulted in a $2.47 billion settlement in February.

European and other international investors also have joined in derivative lawsuits that seek corporate governance changes. In October 2005, U.K. and Dutch pension funds were part of an international coalition of institutions that sued News Corp. in Delaware court over the company's decision to extend its "poison pill" defense without seeking shareholder approval. After surviving a motion to dismiss, the investors reached a settlement with the media company in April.

In addition, AP7, a Swedish pension fund, is serving as a lead plaintiff in a derivative lawsuit by Viacom investors that seeks to recover compensation paid to top executives, according to Keith Johnson, a Wisconsin-based lawyer who advises foreign pension funds.

International investors have also joined together to lobby for U.S. governance changes, such as majority voting in board elections. In October, pension funds from the Netherlands, Sweden, the United Kingdom, Canada, and Australia urged U.S. regulators to allow shareholders to put proxy access proposals on corporate ballots in 2007.

As Johnson noted, many European investors traditionally have been reluctant to sue companies, because they come from cultures that rely far less on litigation than in the United States. "I don't see a mad rush to doing this, but I do see a slow trend, which will gradually increase in the next few years," he told the SCAS Alert.

Johnson said European investors have become more interested in litigation as several European nations have taken limited steps to enhance the rights of shareholders to sue. Last year, Germany passed legislation to allow investors or companies to seek model case proceedings to resolve common factual or legal questions in shareholder lawsuits. In November, a new British law took effect that allows shareholders to sue directors who "don't promote the success of the company." However, American legal rules remain far more favorable to investors, so European institutions will continue to bring securities claims in U.S. courts when possible.

Continue reading "Europeans Take a More Active Role in U.S. Cases
Submitted by: Ted Allen, Director of Publications" »

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Thursday, October 19, 2006

Buried Notice Will Not Die
Submitted by: Bruce Carton, Vice President of Securities Class Action Services

Let's put it this way. My company, ISS' Securities Class Action Services, has an entire business that focuses on researching and identifying new securities class actions. We have a team of people whose JOB is to research this stuff every day, 24X7. However, until today we did not have any record of a case filed October 2, 2006 against Forward Industries, which was the subject of a "notice" published to the class announcing the filing of the complaint. How is this possible?

Because the notice used was what many refer to as "buried notice," buried in the back pages of the Investors Business Daily. As I wrote almost two years ago,

Yes, the PSLRA does allow for notice by "widely circulated national business-oriented publication" or "wire service." As I have argued in the links above, however, (1) the industry standard in the year 2005 is to place such notices on a national business wire, and (2) there is no legitimate reason to deviate from this standard by providing "stealth" (but apparently legally adequate) notice through some random hard copy business publication such as IBD.

Two years later, this is even more true. Everyone who is interested in learning about securities class action filings monitors the wire services for announcements about such filings. No institutions or anyone else that I know of scans all of the "widely circulated national business-oriented publications" looking for random hardcopy announcements, nor should they be required to do so.

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Wednesday, September 27, 2006

The Milberg Effect? Not So Much
Submitted by: Bruce Carton, Vice President, Securities Class Action Services

The WSJ had a Review and Outlook piece earlier this month entitled "The Milberg Effect," which argues that the projected drop-off in securities class action cases in 2006 suggested by a recent study is due to a reduction in the number of cases filed by the law firm Milberg Weiss. According to the WSJ piece,

According to Cornerstone, a research firm that tracks litigation, law firms filed 179 class actions last year. The first six months of this year saw only 61, a rate that would result in about 123 class actions for the year -- or a decrease from 2005 of 56 suits. Meanwhile, according to publicly available press releases, Milberg Weiss filed 91 of last year's suits. Yet in the first six months of this year, having come under prosecutorial scrutiny and lost many lawyers, the firm has filed only 17. At this rate, Milberg would tally about 34 suits for the year -- or 57 fewer than 2005.

These numbers are more than a coincidence, and should put to rest the assumption that Sarbanes-Oxley or
better corporate governance standards are producing fewer causes of legal action. Securities lawyers have
long understood that most class actions have little or no substance but are manufactured by the plaintiffs bar to pad their own pocketbooks.

This is simply wrong. Contrary to the conclusion in the piece above, the projected overall drop-off of 56 class actions in 2006 and the projected Milberg drop-off of 57 class actions filings is a coincidence. The flaw in the WSJ's analysis is that it rests on the false assumption that each of the companies that are the subject of a securities class action are sued by only one law firm. That is not the case.

To develop this point a bit, the Cornerstone study projects that at the current rate, 123 companies will be the subject of a securities class action lawsuit this year--56 fewer than in 2005. It is critical to note here, however, that virtually all (let's conservatively go with 90%) of these 123 cases will involve multiple complaints filed by multiple law firms. Indeed, many companies will be sued by a dozen or more different law firms. Using this conservative 90% figure, if Milberg does file 57 fewer complaints in 2006, this drop-off will only impact the total number of companies that are the subject of a securities class action in the 10% of Milberg's filings where it is the only law firm to file a complaint. So we're looking at a possible reduction of 5 or 6 cases (5.7 to be exact), not 57 cases.

The Milberg Effect? Not so much.

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Thursday, September 7, 2006

Has SOX Led to Fewer Lawsuits?
Submitted by: Ted Allen, Director of Publications, and Tad Kopinski, Staff Writer

Are governance improvements by U.S. companies leading to less securities litigation?

The number of new securities class-action lawsuits this year is on pace for a 31 percent decline from 2005, according to a mid-year report by Stanford Law School and Cornerstone Research.

"While we lack the data necessary to determine the precise cause of the slowdown, the most intriguing hypothesis is that extensive and expensive corporate efforts to improve governance and accounting have reduced plaintiffs' ability to allege fraud," Stanford Law Professor Joseph Grundfest, who is a former commissioner of the Securities and Exchange Commission, said in a press release on the report.

As of June 30, investors had filed 61 "traditional" securities class actions (which excludes IPO, analyst, mutual fund, and derivative cases), the Stanford-Cornerstone report stated. At that pace, 123 cases will be brought this year, down from 179 securities lawsuits in 2005 and 213 cases in 2004. That 2006 total would be 36 percent less than the historical average of 194 cases per year from 1996 to 2005, according to the report.

Most U.S. companies have significantly improved their governance practices to comply with the Sarbanes-Oxley Act of 2002 and the stricter New York Stock Exchange and Nasdaq listing standards.

"I think companies are a lot more careful than they were a couple of years ago," Charles Elson, a law professor at the University of Delaware who also serves on company boards, told SCAS Alert. "The reason [class action suits] are down is it's like the python absorbing the mouse. It took a while for Enron and the other cases to filter their way through the pipeline."

Continue reading "Has SOX Led to Fewer Lawsuits?
Submitted by: Ted Allen, Director of Publications, and Tad Kopinski, Staff Writer" »

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Wednesday, August 23, 2006

Securities Class Action Rumblings in Europe
Submitted by: Bruce Carton, Vice President of Securities Class Action Services

This article (subscription req'd) entitled "Head of the Class" in the August 18, 2006 issue of TheDeal.com suggests that the long-standing aversion to securities class actions in Europe may soon become a thing of the past. According to the article,

"Within the past year, several European Union countries have either enacted laws or considered legislation that would pave the way for class actions. Last summer, a new Dutch law authorized associations representing injured parties to collectively negotiate settlements; in July, a group of French investors followed up with a class action in a Dutch court. The target: Airbus parent European Aeronautic Defence and Space Co., or EADS, whose stock recently collapsed. In the past 12 months, Germany and Spain began to permit collective shareholder action under certain circumstances. In July, the center-left government of Italian Prime Minister Romano Prodi passed a decree explicitly authorizing class actions; if parliament does not approve the law by September, it will expire. France's center-right government is considering a similar statute."

The article states that this possible "change of heart" in Europe may be the product of a recent spate of scandals that have harmed European investors, including "the December 2003 insolvency of [Italian] dairy company Parmalat Finanziaria SpA, which collapsed with some 14 billion Euros ($18 billion) in debt, and the 2002 demise of canned food maker Cirio SpA, which defaulted with more than 1 billion Euros in outstanding obligations. More than 100,000 Italian investors held Cirio and Parmalat bonds."

These and many other international developments in securities class actions were the subject of a February 2006 ISS Corporate Governance Forum webcast entitled "Securities Class Action Litigation Moves Beyond US Borders," which featured attorneys representing eight countries. An archived version of that webcast is available here.

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Thursday, August 17, 2006

Options Backdating Securities Class Actions: The List-Update
Submitted by: Bruce Carton, Vice President, Securities Class Actions

Our options backdating securities class action list has been updated to add Witness Systems, Inc. The number of companies on the list now stands at 13.

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Thursday, August 10, 2006

Comverse Execs Face Criminal Charges
Submitted by: Bruce Carton, Vice President, Securities Class Action Services

The Criminal Complaint filed today by federal prosecutors against three former executives of Comverse Technology (the former CEO, CFO and General Counsel) for options backdating is available here, courtesy of the WSJ Law Blog.

Before your eyes glaze over and you hit the "Back" key to go read about something less arcane than strike dates, compensation accounting rules, etc., just know that the stuff in the Criminal Complaint is pretty fascinating. The FBI agent providing the statement in the Criminal Complaint gets deep into the details of the alleged scheme at Comverse, including the creation of a secret slush fund account called Phantom in which options to fictitious employees were stashed and later awarded to favored employees for recruitment and retention.

The Criminal Complaint also details the alleged cover-up of the scheme when the WSJ started asking questions about options grants in March 2006, which according to the complaint included evidence tampering and numerous misstatements and half-truths to company lawyers, the company's auditors, the WSJ, and the Special Committee hired to investigate the matter.

One of the more interesting statements in the Criminal Complaint is that according to the defendants, the backdating practice was shut down in April 2002 because of "the advent of Sarbanes-Oxley and a more stringent enforcement 'environment.'"

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Wednesday, July 5, 2006

State of the (Securities Litigation) Union
Submitted by: Bruce Carton, Vice President, Securities Class Action Services

Each year the president of the United States provides the nation with a "State of the Union" address that provides an update on the status of our country. Given the many recent developments, industry reports, and high-profile cases that have resulted in a flurry of discussion concerning the health, status, and future of securities class action litigation, we offer this State of the Union for securities litigation:

It's about the same as it's been for the last 10 years.

At least that's how we see it, despite some curious media pronouncements this year about the supposed demise (or at least the supposed decline) of securities litigation.

Already in 2006, Stanford University/Cornerstone Research, NERA Economic Consulting, and PricewaterhouseCoopers have published interesting studies presenting securities litigation statistics and analysis of possible trends. These studies, combined with notable events such as the high-profile settlements in the Enron case, as well as the criminal indictment of powerhouse plaintiffs' law firm Milberg Weiss Bershad & Schulman, have provided the press and pundits with numerous opportunities to opine on where securities litigation is headed.

Continue reading "State of the (Securities Litigation) Union
Submitted by: Bruce Carton, Vice President, Securities Class Action Services" »

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Wednesday, June 14, 2006

The Trifecta
Submitted by: Bruce Carton, Vice President of Securities Class Action Services

As stated in this press release last week by the SEC, the disbursement of $750 million to Bristol-Myers Squibb shareholders began on Thursday, June 8. This $750 million includes (1) $150 million BMS paid to settle the SEC's case against it, (2) $300 million BMS paid to settle a related securities class action, and (3) $300 million BMS paid in a deferred prosecution agreement with the U.S. Attorney's Office in New Jersey to address the company's criminal liability. The combined $750 million in funds from the SEC case, civil action and criminal case is being distributed all at once to shareholders who filed a claim last year with the claims administrator--The Garden City Group--in the BMS securities class action settlement.

As a result, we have what I believe to be the first claims filing "trifecta"--civil, SEC and criminal settlement money all rolled into one giant distribution. Shareholders who filed a timely proof of claim in the BMS securities class action settlement will actually receive a share of $750 million, not just the $300 million from the civil settlement. Conversely, shareholders who fail to file a claim in the BMS civil settlement miss out on the money from that settlement, as well as the additional $450 million from the SEC and criminal settlements.

The moral of the story, as usual: File those claims.

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Thursday, June 1, 2006

The Growing Role of Institutions in Securities Litigation
Submitted by: Ted Allen, Director of Publications

In 1995, Congress enacted the Private Securities Litigation Reform Act (PSLRA), which sought to encourage institutional investors to serve as lead plaintiffs in securities class action lawsuits. More than ten years later, it appears that many labor and public pension funds have answered that call.

Of the 108 settlements announced last year, union and public pension funds served as lead plaintiffs in a record 35 settlements, according to the recently released "2005 Securities Litigation Study" by PricewaterhouseCoopers (PwC). To download the study, please click here.

This participation by labor and public pension funds significantly exceeds the 26 settlements in 2004, the 19 accords in 2003, and 13 settlements in 2002, where those institutions served as lead plaintiffs. In addition, the PwC study projects that union and pension funds will serve as lead plaintiffs in 68 of the 168 new lawsuits filed in 2005. That total would be less than the all-time high of 71 cases in 2004, but it would surpass the 49 cases in 2003 and 59 in 2002 where those institutions served as lead plaintiffs.

These findings are consistent with other research. A recent study by NERA Economic Consulting found that 38 percent of the settled cases in 2005 had an institution serving as a lead plaintiff, up from 14 percent in 2000.

Continue reading "The Growing Role of Institutions in Securities Litigation
Submitted by: Ted Allen, Director of Publications" »

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Wednesday, May 24, 2006

Judge Gives Final Approval to $6.6 Billion in Enron Settlements
Submitted by: Bruce Carton, Vice President of Securities Class Action Services

According to an Associated Press article today by Kristen Hays, a federal judge in the Enron securities class action case gave final approval to the $6.6 billion in settlements reached with defendants Citigroup Inc., J.P. Morgan Chase & Co. and the Canadian Imperial Bank of Commerce. In addition to the $7 billion (and counting) in Enron settlements, the SCAS database shows another U.S. $7 billion in pending securities class action settlements from shareholder actions at Sears, Nortel, AIG, HealthSouth, FreddieMac, the IPO Securities Litigation, Time Warner and dozens of other cases.

With over $14 billion in the settlement pipeline, there is now a huge amount of money waiting to be claimed by eligible shareholders. The "fun" part now for institutions is tracking these settlements, identifying the claim deadlines, and filing the proof of claims with the claims administrators.

Notably, however, a recent study by Professors Cox and Thomas entitled "Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implication of the Failure of Financial Institutions to Participate in Securities Class Action Settlements" concluded, based on data from 118 settlements, that on average, roughly just 28% of eligible institutional investors filed claims in these securities class action settlements! 28%! Download file here to read the study.

The study further found that the institutions' mean loss was a very substantial $850,000, and the average median loss was roughly $275,000. Perhaps most importantly, the study showed that had these institutions filed claims, the average mean recovery would have been approximately $280,000 and the average median recovery would have been more than $90,000.

By almost any standard, those are big bucks to be leaving on the table time after time.

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Wednesday, May 3, 2006

Securities Class Action Services (SCAS) Ranks the Top 50 Plaintiffs Law Firms for 2005
Submitted by: Bruce Carton, Vice President of Securities Class Action Services

ISS' Securities Class Action Services (SCAS) has released its annual list of 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 firms served as lead or co-lead counsel.

Topping the 2005 list for the second year in a row was Bernstein Litowitz Berger & Grossman, which served as lead or co-lead counsel in final settlements totaling $3.74 billion--almost 50 percent of the record $7.6 billion in securities class action settlement dollars obtained in 2005. Rounding out the Top 5 in ISS' SCAS 50 were Barrack, Rodos & Bacine (#2 for the second year in a row at $3.67 billion); Lerach Coughlin Stoia Geller Rudman & Robbins ($1.8 billion); Milberg Weiss Bershad & Schulman ($637 million); and Grant & Eisenhofer ($322 million). Bernstein Litowitz and Barrack Rodos' top standing in 2005 was fueled in large part by their performance as co-lead counsel in the massive WorldCom securities class action.

Continue reading "Securities Class Action Services (SCAS) Ranks the Top 50 Plaintiffs Law Firms for 2005
Submitted by: Bruce Carton, Vice President of Securities Class Action Services" »

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Tuesday, April 25, 2006

More on Insider Trading Bounty Hunters
Submitted by: Bruce Carton, Vice President of Securities Class Action Services

William P. Barrett of Forbes has this article updating the SEC's seldom-used insider trading "bounty" program. The bounty program began in 1988, when Congress optimistically passed Section 21A(e) of the '34 Act, which authorizes the SEC, in its discretion, to award a bounty to a person who provides information leading to recovery of a civil penalty from an insider trader, a person who "tipped" information to an insider trader, or a person who directly or indirectly controls an insider trader. The bounty may be up to 10% of the civil penalty actually recovered in the SEC's action.

As discussed in this SLW post from December 2003, however, only three bounties had ever been awarded at that time, and only one known recipient existed: one "John L. Skipper," who received a check in the amount of $29,000 according to this SEC Litigation Release.

The Forbes article notes that an an additional $17,000 bounty was paid in 2005, and that the grand total for the four payments to date under the bounty program is now at a not-so-whopping $67,570.

According to SEC spokesman John J. Nester, the four payments since 1988 are as follows:

1989: $3,500
2002: $18,000
2002: $29,000 (to Mr. Skipper)
2005: $17,000

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Wednesday, April 5, 2006

Supreme Court Closes Off a State Court "Loophole"
Submitted by: Ted Allen, Director of Publications

In a victory for securities firms and business groups, the U.S. Supreme Court has ruled that investors who hold on to stock based on a company's fraudulent statements may not bring a class-action lawsuit in state court.

Continue reading "Supreme Court Closes Off a State Court "Loophole"
Submitted by: Ted Allen, Director of Publications" »

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Wednesday, March 15, 2006

Commentary: Two for the Price of One
Submitted by: Bruce Carton, Vice President, Securities Class Action Services

Filing Claims in Securities Class Action Cases can Help Investors Also Get a Share of SEC Settlements

On Feb. 24, the Securities and Exchange Commission filed a motion with the court handling its case against Qwest Communications International requesting approval of a plan to distribute a $250 million settlement in a way that reflects an important and growing practice at the SEC.

The plan calls for the money to be distributed through the claims administration process that is underway in a completely separate securities class action settlement involving Qwest. Under this proposal, by filing a single proof of claim in the $400 million Qwest securities class action settlement (deadline: May 2, 2006), an institutional investor will also be able to recover its share of the $250 million SEC settlement. No part of the $250 million will be used to pay fees or expenses of counsel in the securities class action.

Continue reading "Commentary: Two for the Price of One
Submitted by: Bruce Carton, Vice President, Securities Class Action Services" »

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Tuesday, March 7, 2006

More Nations Open the Door to Securities Lawsuits
Submitted by: Ted Allen, Director of Publications

While there have been few significant securities class-action settlements outside the United States, a growing number of countries have enacted legislation in the past few years to allow shareholders to join together to bring claims over investment losses.

Among those nations are South Korea, Israel, Sweden, Germany, Italy, and the Netherlands. While there have been no billion-dollar settlements, investors have obtained settlements reaching $100 million in Canada and Australia.

Continue reading "More Nations Open the Door to Securities Lawsuits
Submitted by: Ted Allen, Director of Publications" »

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Friday, February 24, 2006

File Those Claims...
Submitted by: Bruce Carton, VP, ISS' Securities Class Action Services

I've been writing about this for a while over at the Securities Litigation Watch blog (see my posts here and here, for example), but the SEC provided institutional investors with yet another reminder today of the importance of filing claims in securities class action settlements.

As stated in this Litigation Release, the SEC today filed a motion with the federal court in Colorado requesting approval of its distribution plan for the over $250 million settlement reached in its financial fraud investigation of Qwest Communications International. Notably, the SEC proposes to distribute the $250 million via a completely separate securities class action settlement involving Qwest Communications International.

The SEC proposes that the claims administrator handling the securities class action settlement (Gilardi & Co.) also handle the distribution of its settlement. The SEC is increasingly using class action claims administrators to distribute SEC settlements wherever possible because it is a "win-win" for both the SEC and investors. Specifically:

--the SEC does not have to serve as, or hire, a separate claims administrator, saving both time and money;
--using this method, investors should only need to fill out one claim form to recover in both the securities class action and SEC settlements; and
--no attorneys fees are deducted from the SEC money ($250 million in this case) added to the settlement pot.

The SEC's proposal today regarding Qwest shows that investors who fail to file claims in securities class action settlements increasingly risk not only leaving this class action money on the table, but also significant sums of money from SEC settlements.

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Wednesday, February 22, 2006

Interesting Twist to Nortel Settlement
Submitted by: Bruce Carton, Vice President, Securities Class Action Services

As widely discussed in articles such as this one, Nortel has agreed to pay $2.4 billion to settle securities class action lawsuits concerning accounting irregularities. According to the SCAS database, the settlement will be the 5th largest ever, behind only Enron ($7.14B), WorldCom ($6.15B), Cendant ($3.18B) and AOL Time Warner ($2.65B).

According to Nortel's press release on the settlement and published reports, the settlement will also include an interesting (especially if you work at ISS) corporate governance-related term. In its press release, Nortel states that:

The proposed settlement is also conditioned on Nortel and the lead plaintiffs reaching agreement on corporate governance related matters and the resolution of insurance related issues.

Nortel is committed to benchmarking its corporate governance practices to those of companies ranked in the top quartile by Institutional Shareholder Services. "The Board of Directors strongly believes that sound and responsible corporate governance is integral to Nortel's future," said Harry Pearce.

While it is not completely clear from the quote above that the benchmarking to ISS' ranking is a term of the settlement, articles such as this one in the E-Commerce Times suggest that this is the case:

In addition to the payments, the agreement will likely include some requirements that Nortel adhere to certain corporate governance standards going forward....

***

Nortel said while details were still being hammered out on the corporate governance terms of the agreement, it was comfortable being compared to the top-ranked publicly traded companies in terms of corporate governance as measured by Institutional Shareholder Services.

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