SLW is going into "Operation Shutdown" until 2006.  I thank all of you for reading and contributing to SLW, and I wish you a prosperous New Year.

By the way, until reading the link above I had completely lost sight of the fact that the original Operation Shutdown by Derek Bell (the now immortal "ultimate Pirate") is now in its 45th month!

The National Law Journal has an "NLJ Roundtable" entitled "After Sarbanes-Oxley" that includes some very funny and insightful remarks from MoFo's Jordan Eth.  I urge you to read the whole thing but here are some excerpts:

• "First issue. Fraud is still illegal.... You know how many securities class actions get filed against companies every year? Roughly 200. You know how many before Sarbanes-Oxley? Roughly 200. You know how many before the reform act? Roughly 200. It's the speed of Bill Lerach's printing press. I mean, it's not all these statutes."
• "Here's one thing you've got in Sarbanes-Oxley. You now have a longer statute of limitations. Now, what does that have to do with Enron and WorldCom? It's usually considered slow if a plaintiffs' lawyer files in 48 hours rather than 24 hours. So did we really need a new statute of limitations?"
• "Before Sarbanes-Oxley, about 3% or 4% of cases had class periods of three years or longer. Now, it's about 20%. Nothing like working on a case where you've got a 4 1/2-year class period. And no one who worked there even knows what's going on, and the systems are changed, and the software is different, and the damages are higher, and it's harder for you to insure the risk because you don't even know how long we could be sued for something we said 4 1/2 years ago? What was going on 4 1/2 years ago? Well, that's a problem."
• "As a litigator, I will tell you that you know documents are just the bane of our existence. Never write when you can speak. Never speak when you can wink."
• "Used to be that . . . the SEC had to prove you were substantially unfit to serve as a director, and then you can be barred from doing that in the future. They've gotten rid of the word substantially. I guess now you could be minimally unfit, barely unfit, and they could bar you. "

The SEC announced yesterday that Division of Enforcement Associate Director Lawrence West is leaving the Commission to become a partner in the D.C. office of the law firm Latham & Watkins.  West notably oversaw the SEC's investigation and case against WorldCom.

At Securities Litigation Watch, we pride ourself on spotting trends and we think we're on to one here.  No, not Enforcement officials leaving for private practice--that's way too easy.  What we think we're seeing here is a trend of  Enforcement officials leaving for private practice based solely on the name of the law firm. 

Consider:  Former Director of Enforcement Stephen Cutler went to Wilmer Cutler in the fall of 2005.  Now just a few months later we have Lawrence West going to Latham & Watkins (LW.com) (where with any luck his new email address will be lw@lw.com).

So where does that leave the remaining top Enforcement officials?  Where might they be looking if they ever wish to return to private practice?  The early line based on this trend:

• Walter Ricciardi (Deputy Dir.): Wiley Rein
• Peter Bresnan (Deputy Dir.): Patton Boggs
• Paul Berger (Assoc. Dir. ): Patton Boggs; maybe plaintiffs' law firm Berger & Montague.
• Scott Friestad (Assoc. Dir.): Fried Frank; maybe plaintiffs' law firm Scott + Scott.
• Toni Chion (Assoc. Dir.): Thompson Coburn; maybe Alliance Capital (Ticker Symbol: AC) if she prefers a match for her full name, Antonia.

The toughest to find a suitably matching law firm for seems to be Director of Enforcement Linda Chatman Thomsen.  But what about going in-house at the Lincoln Center Theater (LCT.org)?  Or possibly General Counsel of Living Cell Technologies (LCT.com.au), "a fast growing public bioscience company listed on the Australian Stock Exchange?"

We'll be watching this trend closely.

Compliance Week editor and publisher Scott Cohen provides a humorous look at Sarbanes-Oxley, the SEC, activist investors, and whomever else gets in his way in the holiday-themed poem below. 

A sample of his SOX-flavored version of "'Twas the Night Before Christmas":

Constructed in summer and fostered in fall,
'Twas daring, audacious ... the nerve and the gall!
A plan based on timing, by my own admission,
advanced by the exodus from the Commission.

Yes, SEC veterans, bailing, they flew,
On Goldschmid! On Cutler! On Donaldson, too!
With turnover rampant, and chaos set in,
at last my deception, my scam, could begin!

My goal was pure evil, a dastardly deed,
a scandalous racket inspired by greed.
'Twas really quite simple, but one that still shocks:
to undermine every provision of SOX.

The entire "Ode To A Fraud; A Humorous Take On SOX" is available here.

Guest Post by Adam T. Savett:

Score one for Merck on the securities class action front. The Third Circuit has affirmed the District Court's dismissal of the securities class actions related to Merck's planned 2002 initial public offering of its wholly owned subsidiary, Medco Health Solutions, Inc., and Medco's aggressive revenue-recognition policy. Of note, the Court was faced with the question of whether a lead plaintiff can retain new counsel for an appeal without securing court approval - an apparent issue of first impression for an appellate court.

The lead plaintiff, Union Investments Privatfonds GmbH, a German asset manager, had selected (and the District Court approved) Bernstein Litowitz Berger & Grossmann LLP as lead counsel for the class. After the District Court dismissed the complaint, the lead plaintiff retained Milberg Weiss Bershad & Schulman as "appellate counsel" but had neither sought nor obtained the District Court's approval of Milberg Weiss as class counsel. Merck challenged Milberg Weiss' ability to prosecute the appeal without court approval. The Third Circuit allowed Milberg Weiss to act as appellate counsel, but issued a bright line ruling for future litigants, holding that:

"all retentions of class counsel by the lead plaintiff - whether lead counsel, trial counsel, or appellate counsel - require court approval under the PSLRA."

The full opinion is available here.

The same Third Circuit panel also remanded the District Court's dismissal of the related derivative cases for conversion to a summary judgment motion. The Court's opinion in the derivative case is available here.

The securities class actions related to Merck's alleged failure to disclose problems with VIOXX are still pending before Judge Chesler in the District of New Jersey, the same judge who had dismissed the Medco related actions. Milberg, Weiss, Bershad & Schulman and Stull, Stull & Brody are co-lead counsel in the VIOXX related securities case.

Costello: Look, you gotta outfield?
Abbott: Sure.
Costello: The left fielder's name?
Abbott: Why.
Costello: I just thought I'd ask you.
Abbott: Well, I just thought I'd tell ya.
Costello: Then tell me who's playing left field.
Abbott: Who's playing first.
Costello: I'm not... stay out of the infield! I want to know what's the guy's name in left field?
Abbott: No, What is on second.
Costello: I'm not asking you who's on second.
Abbott: Who's on first!
Costello: I don't know.
Abbott & Costello Together: Third base!

I've jokingly complained here before about foreign countries such as the Philippines, Thailand, Bangladesh, and Nigeria which refer to their governments'  securities regulator as the "Securities and Exchange Commission" or the "SEC," maliciously complicating my efforts to generate relevant, key-word generated news alerts about the U.S. Securities and Exchange Commission.

Well, the other entity that tries hard to mess with my news aggregating capabilities is the Southeastern Conference, an athletic conference for NCAA teams that, of course, has the acronym SEC.  (To make this culprit even more troublesome, the "athletic SEC," like its securities law-related namesake, also has (1) a "commissioner"; (2) "officials"; and (3) occasionally conducts "investigations; and (4) involves "conferences." 

For years I have dutifully ignored or skimmed past all the Southeastern Conference news stories that pour into the Securities Litigation Watch supercomputers ... until now.  Unexpectedly, these two SECs have collided.  As discussed in this article,

SEC basketball official Travis Correll of Atlanta has resigned in wake of a civil action filed against him by the U.S. Securities and Exchange Commission.

Correll was listed in a civil action filed by the commission on Dec. 7 in the United States District Court for the Eastern District of Texas. The suit alleges Correll and others ran a fraudulent investment scheme, which has raised more than $36 million since July 2004, according to the suit.

"He (Correll) has resigned and will no longer officiate in the Southeastern Conference," SEC commissioner Mike Slive said Tuesday evening. "If he had not resigned, he would have been prevented from officiating in this league."

To recap, we have the SEC commissioner commenting on the conduct of an SEC official relating to a civil action by the SEC, which was announced by the commission and SEC officials here. 

All I can say to that is, "Third base!!"

Please disabuse me of my naiveté if I'm wrong here, but I have to think something is lost in the translation in the statement below from this article published in the Canadian Gazette.

The article discusses the current fever pitch of Canadian class actions and states:

In the U.S., the situation can be much more extreme.

New York firm Milberg Weiss set up a system where as soon as the stock price of a company falls more than a certain percentage on the markets in one day, a class action suit is automatically filed.

I'm not even sure what an "automatically filed lawsuit" would be, but I'm quite dubious of this statement.  Please weigh in if anyone out there  can clarify, confirm or deny.

The Denver Post has this article following up on the recent chatter in the securities litigation blogosphere over a particularly "honest" footnote in the Molson Coors opinion written by Judge Jordan of the federal court in Delaware.  In case you missed it, the Court characterized the pending motion for appointment of lead plaintiff and approval of counsel in that case as a decision on "which of the plaintiffs' law firms will win the money race," and continued at some length to air its views on whether the Congressional goal of making class action securities cases more client-driven and less lawyer-driven has been realized.

The article has some choice quotes from lawyers, academics, and yours truly:

• Bill Lerach of Lerach Coughlin: "It is one judge's opinion. It is one out of 200 or 300 judges. I don't happen to agree with what he says. In my own experience, the clients are very much involved in the case."

• Joe Grundfest, professor of law and business at Stanford Law School: "I think the judge has hit the nail squarely on the head. In the vast majority of cases, the lawyers are almost certainly in the driver's seat and the clients exert little if any meaningful supervision over the negotiation of fees or over the substantive litigation."

• Bruce Carton, vice president of Institutional Shareholders Services' Securities Class Action Services: "Whoa, who slipped the truth serum to Judge Jordan of the federal court in Delaware?" (quoting from this post on  Securities Litigation Watch).

TypePad, the service that hosts this blog, was down and out for pretty much the whole day.  Even now, none of the posts from this week are showing up on SLW (only the posts from December 8 or earlier are appearing below as I type this). 

Please check back--hopefully they'll get their act together soon.

UPDATE:  All posts are now appearing.... 

Reuters reports that the SEC's commissioners have devoted significant amounts of time and discussion recently to the subject of corporate penalties, an issue that divided past SEC commissioners.

"We've been spending a great deal of time on it," [SEC Chairman Christopher] Cox told reporters after an SEC meeting. "It's helped all of us form our own and perfect our own views. The next step is, to the extent possible, to formalize that understanding in the form of guidance."

According to the report, Cox added that the ongoing discussion is meant "to demystify the process both internally for our professional staff in enforcement around the country, and externally for the regulated community that seeks to understand how the commission operates" and that the SEC may ultimately provide guidance in the form of case decisions or an interpretive release.

This is not a first--I posted here about a similar case back in August 2003--but it is highly unusual for the SEC to go after a public company's outside directors for financial shenanigans or fraud at the company.  Yet that is what the SEC is reportedly doing with respect to three high-profile outside directors (two current, one former) of Hollinger International Inc. who served on the company's audit committee.  According to a Bloomberg report discussed here,

the SEC has sent Wells notices to James Thompson, Richard Burt, and Marie-Josee Kravis.  Thompson, the chairman of law firm Winston & Strawn, had served as Hollinger's audit committee chairman.  He still serves on the board, as does Burt, a former U.S. ambassador to Germany. Kravis, a director of Ford Motor Co. since 1995 (and the wife of buyout icon Henry Kravis), resigned from the Hollinger board in 2003.

The article states that the Hollinger audit committee approved more than $275 million in payments to former Hollinger chairman Conrad Black, his business partners, and to Ravelston Corp., a separate company they controlled.

The report of these Wells calls comes almost simultaneously with comments made yesterday by the SEC's Peter Bresnan, Deputy Director of Enforcement, that the Enforcement Division would be recommending that the SEC bring actions against against outside directors in certain cases currently on the agency's calendar.  According to BNA's Securities Law Daily, Bresnan stated on an ABA webcast yesterday that the Enforcement Division

will pursue cases in which the outside director "has taken no care in ensuring the accuracy of the statement [he or she] make[s]." He added, "When they sign something, it has to have some basis."

Fortune has an excellent, in-depth article on SEC Chairman Christopher Cox entitled The Stock Cop.  The article provides a detailed view of Chairman Cox and his life experiences, and includes the following description of a framed check that Cox keeps on the wall of his office at the SEC:

That's the message on the wall of his tenth-floor office in the SEC's sun-washed new Washington headquarters, where Cox has assembled a makeshift shrine.  It consists of a framed check made out to his grandfather alongside a plaque depicting the notorious Samuel Insull, whose empire of utility companies collapsed in 1929, taking with it the money of countless investors, including Cox's grandfather.  Insull's chicanery helped inspire the creation of the federal regulatory apparatus, including the SEC, that sprang up during the Depression.  But the lesson here isn't historical as much as it is personal.  Cox's grandfather lost $6,000–or $70,000 in today's dollars–and the check was intended to compensate for the loss. It's for $3.36.  Cox's message: Investors, I'm on your side.

Talk fast when you're seeking advice from Benjamin Civiletti, Chairman of the Baltimore law firm Venable.  Bloomberg reports that Civiletti, a former U.S. attorney general whose practice now focuses on areas including white-collar crime, government regulation, and corporate governance, is the first U.S. lawyer to charge $1,000 an hour.

On the bright side, the round number should make it quite easy to calculate the bill.

Forbes has this interesting article about the most recent flurry of maneuverings amongst plaintiffs' lawyers hoping to win the money race, er, I mean be appointed lead plaintiff in the Refco securities class action.  The article notes that today is the deadline by which "law firms jockeying for control of the Refco securities litigation must submit their applications for lead counsel."

Among the many reported contenders:

• Lerach Coughlin: filing on behalf of the city of Pontiac, Michigan.
• Scott+ Scott: filing on behalf of the Frontpoint Financial Services Fund.
• Grant & Eisenhofer: filing on behalf of the Pimco funds group.

The article notes that other law firms are waiting until the last minute--i.e., today--to file the lawsuits that will reveal their institutional plaintiffs.

I have no idea what to make of this. 

An organization called  "VelvetRevolution.us, a coalition of more than 130 progressive organizations demanding electoral reform," issued this press release today stating that it is

seeking plaintiffs for a potential class action securities litigation against Diebold, Inc. (stock symbol: DBD).  The class for the suit will involve shareholders who purchased or owned stock in the Ohio-based company any time between Oct. 22, 2003 and Sept. 21, 2005. The lawsuit will involve securities fraud violations and other troubling matters by the controversial company, its CEO, and other current and former members of its Board of Directors.

A visit to the VelvetRevolution.us website provided a bit more information.  Citing exclusive information from the Brad Blog, the coalition's home page states that the case is a "developing potential class action securities litigation" against Diebold that is "currently being drawn up."  It further states that those who owned or purchased Diebold stock are asked to contact VelvetRevolution.us "where contact information submitted may be turned over to attorneys currently working on the case for possible addition to the plaintiff class."

It will be interesting to see which plaintiffs' attorneys, if any, surface as the recipients of the information resulting from this effort.  In the meantime, heads up Diebold, the VelvetRevolution is after you!

The legal technology bloggers write often about "Web 2.0" and the various ways that it will transform everything, including the legal profession.  I'm not even close to being on the cutting edge of this revolution--indeed, I really just started to appreciate the power of RSS in the past few months.

But let me blow your mind a bit by applying some Web 2.0 tools to the securities litigation world that are really quite cool .  Here we go....

Let's say you are a loyal reader of the 10b-5 Daily, the PSLRA Nugget and Securities Litigation Watch.  In the old days (2004 for some of you, this morning for others!) you'd have these sites bookmarked and you'd visit them when you felt like it.  Sometimes there would be new content posted for you to read, but other times there would not be.

Then, however, you learned about RSS.  You set up a free RSS feed reader such as Bloglines and entered the RSS feeds for these blogs into the "My Feeds" section.  Your blog reading habits changed at this time because instead of going from blog to blog, you now simply went to Bloglines, saw which of your favorite blogs had new posts, and read those posts through Bloglines.

NOW... It gets even more interesting, and this is where some of the Web 2.0 concepts come in.  A service like Supr Glu will permit you to create your own personal website that "glues" your favorite feeds together.  A website is worth a thousand words in explaining this so just go to this Supr Glu link ("Securities Litigation World") that I created yesterday in about 5 minutes.  Go ahead... Look.  Ponder.  Marvel... Now all of your favorite blogs are consolidated and updated in real-time in one place!

AND FINALLY ... Notice that the Supr Glu site that I created has its own RSS feed.  So you can have a feed coming from the newly created  "Securities Litigation World" that combines posts from all three of the blogs above and send it to your My Yahoo! page or wherever you want.

I know that I am only scratching the surface here.  I would love to hear from anyone out there who can expound on any of this.

Whoa, who slipped the truth serum to Judge Jordan of the federal court in Delaware?  As discussed in detail in this post on the PSLRA Nugget blog, the Court used the opportunity of a motion for appointment of lead plaintiff and approval of counsel in the Molson Coors case (or as the Court put it, a decision on "which of the plaintiffs' law firms will win the money race") to air its views on whether the Congressional goal of making class action securities cases more client-driven and less lawyer-driven has been realized.

See if you can read the tea leaves and divine the Court's opinion via this snippet:

The market's response to the news from Molson Coors was not kind. Shares of the company immediately fell by nearly 20%, the fifth-largest loss that day among New York Stock Exchange listed companies. (Id. at   62.)

Price shifts of the magnitude experienced by Molson Coors stock on April 28 do not go unnoticed by securities litigators.  In short order, suit was filed....

Check out footnote 4 of the opinion (2005 WL 3271488) for more of the court's "honest[y] about what appears to be at stake." 

UPDATE:  A copy of the Court's opinion is available here, courtesy of Adam T. Savett.  Thanks, Adam!

The WSJ has an interesting article about a new service called RetailRoadshow.com that "provides electronic roadshows for individual investors seeking information about public offerings."  Such a service is available for the first time because of new SEC rules that went into effect on December 1.  Prior to these rules, publicly available roadshows would have been prohibited as "gun jumping."

The RetailRoadshow.com service is pretty impressive, not to mention free.  Pick a company from their list of those that are about to go public and within seconds you are watching the CEO deliver a roadshow-type performance, complete with PowerPoint-type slides that track the presentation.

A couple other quick thoughts and observations:

1. What is the over/under date for statements made during one of these roadshows showing up in a securities class action complaint?  By the power vested in me, I'm setting it at June 30, 2006.  I should point out that I set the over/under date for statements made in a corporate executive blog showing up in such a complaint at December 31, 2005, and, so far, it is looking like those who took the over are going to win.
2. Speaking of that, look who is the star of the Buy.com roadshow...yes, that's CEO Scott A. Blum.  Remember him?  Business Week does:

"You may remember Blum from his previous venture, storage systems maker Pinnacle Micro. In 1997, he consented (without admitting or denying wrongdoing, as they say) to a cease and desist order from the Securities and Exchange Commission, which charged that Pinnacle Micro had improperly recognized revenue."

"Caus·tic" (kô'stĭk) adj.: Corrosive and bitingly trenchant; cutting.

BNA reports that at a D.C. Bar luncheon program held yesterday, SEC Chief Litigation Counsel Mark Kreitman remarked that the recent decision in Rockies Fund Inc. v. SEC (discussed in this guest post) was a "caustic" opinion. He added that "[D.C. Circuit Judge David B.] Sentelle doesn't like the commission, and everybody knows that." 

According to BNA, Kreitman further stated that

"It sends a message. I don't want to trivialize it." He noted that the court found that "the commission had failed to articulate substantial evidence in support of its decision." The most immediate impact of the decision at the commission, Kreitman said, is that the agency will take "greater care in articulating reasons for the remedies" it imposes.

The following article appears in the December 2005 SCAS Alert.  To me, it is just another great example of the power of the blog as a marketing tool.  Our monthly newsletter goes out to hundreds if not thousands of institutional investors, lawyers, accountants, consultants and so on, all of whom have now been "referred" by a source they trust (I hope) to the lawyers and professors who write the blogs below.  With two exceptions (Lyle and Broc) I have never met any of the bloggers below personally, yet I feel like I have a good sense of their expertise, creativity and initiative through their blogs.  There are no doubt many securities lawyers out there with similar expertise, creativity and initiative, but the bottom line is ... I've never heard of you.

Enter the Securities Litigation Blogosphere
by Bruce T. Carton

Sure, you have your once-a-month dose of securities litigation news from the SCAS Alert, but what else is out there that can help you keep up with developments in this area each day?

Increasingly, institutions, issuers, law firms and others that need to stay on top of this area are turning to web logs, or "blogs," for timely information and analysis. The great news is that these blogs are completely free and, for the most part, are thoughtfully written by lawyers and others who are experts in the field. With respect to these blogs, the expression, "You get what you pay for" is quite off-target.

Below is my list of the best blogs in the securities litigation world:

• Securities Litigation Watch: In the interest of full disclosure, this blog is actually written by me. But don't let that stop you. SLW, which I started in August 2003, strives to be a valuable, timely, and sometimes even humorous resource for anyone interested in developments involving securities class actions, SEC enforcement and the overall securities litigation "business."

• The 10b-5 Daily: This blog is written by Lyle Roberts of the law firm Wilson Sonsini Goodrich & Rosati, and was, to my knowledge, the first blog published on the subject of securities litigation (it dates back to May 2003). In its own words, The 10b-5 Daily "is devoted to tracking news and events relating to securities class actions brought on behalf of investors against companies, with an emphasis on judicial developments."

• The PSLRA Nugget: This blog, a relative newcomer that debuted in June 2005, is written by Christopher Jones of the law firm Milberg Weiss Bershad & Schulman. "The Nugget" focuses on securities class action case law, and typically features and analyzes one judicial opinion each day.

The three blogs above are the only ones, to my knowledge, that focus solely on securities litigation. However, the blogs listed below also feature securities litigation-related posts from time-to-time, and are very much worth tracking:

• TheCorporateCounsel.net: Former SEC attorney Broc Romanek writes this popular blog that focuses on corporate and securities law.

• Houston's Clear Thinkers: Houston attorney Tom Kirkendall writes this blog that focuses on law and business.

• ProfessorBainbridge.com: UCLA Corporate Law professor Stephen Bainbridge writes this blog that he describes as an "eclectic mix" of law, business, politics and many other subjects.

If you are new to the world of blogs and wish to broaden your sources of securities litigation news and analysis, I recommend that you start with the blogs featured above. I think you will quickly see that blogs such as these can be an invaluable tool for keeping up with this area and the industry.