Longtime readers may recall that back in 2005, more than 40 mutual fund managers were sued for allegedly failing to file claim forms in settled securities class actions where the fund had eligible transactions. That began our long running series of posts "File Those Claims ... Or Else."

In general, what little litigation there has been over securities class action settlements has been in a fairly similar vein - that is that an entity that had a legal or contractual duty to file claims on behalf of another failed to do so, or did so improperly.

A case filed earlier this month against several Wachovia and Wells Fargo entities attempts to take that line of cases to an entirely different level (Hat Tip: Courthouse News Service).

The allegation is pretty straightforward, and potentially far-reaching. Essentially, a securities class action was filed in 2001 on behalf of purchasers of various securities issued by Asia Pulp & Paper. That case settled in 2006 for $46 million, and in May 2007 a distribution was made to investors that had filed claims.

Here's where Wachovia and Wells Fargo come into the picture, or not as the case alleges.

As with most securities, the majority of Asia Pulp & Paper investors had their securities held in "street name," or the name of a nominee, typically a bank, broker or custodian. Thus, as is customary in most securities class action settlements, the court overseeing the Asia Pulp & Paper litigation ordered these nominee (record, but not beneficial owner) purchasers to either notify their clients of their eligibility to participate in the Asia Pulp & Paper litigation, or to provide the claims administrator with a list of those clients so that the claims administrator could undertake the notification.

The newly filed complaint alleges that Wachovia and Wells Fargo failed to do so, and as a result, their clients were not informed of the Asia Pulp & Paper settlement, did not submit claims forms, and thus did not collect their pro-rata share of the settlement.

Now, the complaint was just filed, and we have no idea how it will shake out, but it should give any institution that holds securities in their own name on behalf of their clients pause. This was a relatively small case, with the net distribution to the class of just under $35 million. That isn't even halfway to being on our SCAS 100 list of the largest securities class action settlements, and a far cry from many of the mega-settlements that have been reached in the last few years. The potential exposure in the larger cases, such as Enron, WorldCom, Adelphia, Tyco, and Nortel is dramatically larger.

I recently chatted with Bruce Carton over at Securities Docket regarding the case. You can see our discussion here.

The trials and tribulations of former plaintiff's lawyer Steven Eugene ("Gene" a/k/a "Geno") Cauley have received a fair amount of ink over the last year, but there is a new twist.

Readers may recall that Cauley was one of the lead counsel in the BISYS securities litigation that settled in 2006 for $65.8 million. Cauley was the sole signatory of the escrow fund in the BISYS litigation, and revealed in April that he was unable to produce the $9.3 million in remaining settlement funds from the BISYS litigation.

Following this disclosure, Cauley resigned from his firm, surrendered his law license, and agreed to plead guilty to one count each of wire fraud and criminal contempt for "failing to safely hold" the settlement funds. His sentencing is scheduled for next week.

Last month, one of Cauley's creditors, Centennial Bank, sued Cauley's former law firm (n/k/a Carney Williams Bates Bozeman & Pulliam, PLLC) and his former partners. According to an article in the Arkansas Business Journal, Centennial is operating under a power of attorney, in the name of Cauley.

According to the article, the firm's defense to the suit is essentially that Cauley forfeited his contingency fee rights when he surrendered his law license in May. The firm's lawyer, Skip Henry, notes that "[b]ecause he is no longer a lawyer, we cannot pay him any contingency fees."

A follow up article from the Arkansas Business Journal also notes that Cauley is a former director of Centennial Bank's holding company, Home BancShares, Inc. (NASDAQ - HOMB) and that Cauley and his various entities (listed here) owe Centennial more $41 million.

More bad news for Cauley - his Gulfstream G450 was repossessed by Wachovia in June.

It has been just one week since we last updated the options backdating numbers. With the recently noticed (hey we're not perfect) settlement last month of litigation involving alleged options backdating at Sonic Solutions, Inc., (NASDAQ: SNIC) for $5 million, it's time to crunch the numbers once more.

Of the 39 options backdating cases that have been filed as securities class actions, 30 have now reached a resolution. Of the resolved cases, 9 of those cases have been dismissed and 21 have settled. This is still in line with historical trends, where settlements outnumber dismissals by approximately 2 to 1.

The twenty one settlements total $1.56 billion, for an average of $74.38 million. But, removing the largest settlement (UnitedHealth Group) lowers the average back to $31.82 million. As could have been expected the averages are slowly creeping down over time, as the UnitedHealth settlement can now be viewed as a fairly clear example of an outlier in terms of the size of the settlement.

As we have previously noted, the options backdating cases have settled more quickly on average, than other cases. The twenty one cases have settled in an average of 639 days. Removing the two outliers, Mercury Interactive, and Brocade, which were filed earlier and added the options backdating allegations in a later amended complaint, drops the average time from filing of initial complaint to tentative settlement for the remaining 19 cases to 606 days. The numbers have been slowly creeping up as the remaining cases linger, but the average is still below historical levels.

As always, our complete analysis can be accessed in this presentation.

Oh, and in our defense, the plaintiffs did not issues a press release on the settlement and the company only disclosed it in their recently filed 10-Q.

Thanks to Kevin LaCroix over at The D&O Diary for pointing out the Sonic settlement to us.

Here is the latest round of updates to our securities litigation conferences, webcasts, and other events list.

For the full list, please go here.

As always, readers are encouraged to send information on securities litigation related events to us via the "Contact Us" link on the upper left hand side of this blog.

15th Annual Advanced Forum on D&O Liability

November 30 - December 1, 2009
The Carlton - New York, New York

Highlights:

* Newest trends and developments arising from the wave of securities litigation and how they are impacting D&O coverage and claims
* Harmonizing your company's D&O policies with SEC regulations to avoid conflict
* Assessing how the recent credit crisis is affecting the D&O landscape, and preparing for the rising tide of litigation and class actions

The conference brochure is available here, or for more details, visit the conference webpage.

Madoff Class, Derivative & Insurance Litigation Conference

December 2, 2009
Conference Center - New York, New York

Highlights:

* Ponzi Schemes – Causes of Action and Claims Alleged
* Financial Institutions and Crime Policies - Who is being sued? Who might be sued?
* Financial Institutions & Fidelity bonds

The conference brochure is available here, or for more details, visit the conference webpage.

New Developments in Securitization 2009

December 3 - 4, 2009
PLI New York Center-New York, NY

Highlights:

* Developments in CDO and other RMBS-related litigation and forecasts of future CDO litigation trends
* Issues affecting trustees in RMBS loan repurchase obligations
* Resolving disputes between CDO tranches

No brochure is available, but for more details, visit the conference registration page.

While the Bloomberg story describing it may have been painfully short, the actual report released by Hong Kong's Law Reform Commission to propose allowing multiparty litigation, is shall we say, thorough.

If adopted, the 300+ page consultation paper released last week, would add Hong Kong to the growing list of non-US jurisdictions that allow class actions.

There are a number of differences that would set Hong Kong's proposed class action procedure apart from many of the recently enacted class action statutes in other countries.

Most notably, would be the hybrid approach to determining who will be included in the class. The report recommends that the new class action regime generally would operate under an "opt-out" approach, similar to that used in most US class actions. But, and this is a big one, "[w]here the proceedings involve parties from outside Hong Kong, an 'opt-in' procedure should be the default position (that is, persons will not be included in the class litigation unless they take active steps to 'opt in' to the litigation), with a discretion given to the court to adopt an 'opt-out' procedure if the particular circumstances of the case warrant it."

To the best of our knowledge, this two track model is unique among jurisdictions allowing class actions. It may be an attempt to avoid some of the "f-cubed" issues that we are seeing in US cases, as well as allow most cases to avoid having to undertake an in-depth, country-by-country analysis of comity and other international law issues.

Also of interest, the report suggests allowing contingency fees, third-party litigation funders, and public financing, hitting all three of the major regimes that we have already seen implemented to deal with the funding of class actions.

We would be remiss if we did not note for readers that the

[R]ecommendations in the consultation paper are intended to facilitate discussion and do not represent the sub-committee's final conclusions. The sub-committee would welcome views, comments and suggestions on any issues discussed in the consultation paper, and in particular on the questions set out in Chapter 10. The consultation period will last until 4 February 2010.

Comments should be sent to:

The Secretary
The Class Actions Sub-committee
The Law Reform Commission
20th Floor, Harcourt House
39 Gloucester Road
Wanchai
Hong Kong
Telephone: (852) 2528 0472
Fax: (852) 2865 2902
E-mail: hklrc@hkreform.gov.hk

And for those readers that are still scratching their heads over the title of this post, Hong Kong Phooey was a 16-episode Hanna-Barbera animated series that first aired on ABC in September 1974.

What to do when a federal judge appoints you as lead plaintiff, but another lead plaintiff movant's attorney as lead counsel?

You ask the Court of Appeals for a writ of mandamus, of course.

Nearly 11 months ago, Judge James Ware, appointed two separate movants (Roberto Cohen and New Jersey Carpenters Pension and Annuity Funds) as co-lead plaintiffs in the NVIDIA Corporation (Nasdaq: NVDA) securities litigation, and Milberg LLP and Girard Gibbs LLP as co-lead counsel. Only one problem - Girard Gibbs was counsel for one of the unsuccessful movants, and Mr. Cohen's chosen counsel, Kahn Gauthier Swick, LLC (n/k/a Kahn Swick & Foti) was left out in the cold.

Cohen, and his original counsel, filed a motion, asking Judge Ware to reconsider his decision, and Judge Ware denied the motion. Cohen then filed a petition for a writ of mandamus with the Ninth Circuit, which was granted.

The Court of Appeals, in a surprisingly sharped worded opinion, reversed Judge Ware's selection of lead counsel, ordering him to vacate his order appointing Girard Gibbs as co-lead counsel. The Court did not go as far as Cohen and Kahn Swick desired, leaving it up to Judge Ware solely to approve or disapprove of Cohen's selection of counsel.

Citing extensively to the Ninth Circuit's prior opinion in In re Cavanaugh, 306 F.3d 726 (9th Cir. 2002), the Court noted that while "the PSLRA's provisions on selection of lead plaintiff and lead counsel, although containing many requirements, are 'neither overly complex nor ambiguous," and notes that the most adequate plaintiff (or, the putative lead plaintiff) is "the actor that 'select[s] and retain[s]' class counsel. Although this power is subject to court approval and is therefore not absolute, it plainly belongs to the lead plaintiff."

The Court goes on to note:

Nor does the statute, framed in mandatory language, designate any other actor as authorized to select lead counsel or suggest that the district court may appropriate this authority. It would be difficult for the statute to be more clear that it is the lead plaintiff who selects lead counsel, not the district court.

The Court did not go as far as Kahn Gauthier asked, but instead, remanded the case to Judge Ware, and asking him "to consider, using appropriate deference, whether [Kahn Swick] was an unreasonable choice of lead counsel under the circumstances."

Here at SLW we continue to find humor in the somewhat mundane parts of the PSLRA that continue to generate judicial opinions 14 years after the statute went into effect.

A new securities class action filed last week in the Southern District of California caught our eye, and the more we dug, the curiouser things became.

The complaint (here) was filed against Avanir Pharmaceuticals, Inc. (NASDAQ: AVNR) and several current and former officers and directors of Avanir. Much of the allegations are standard run-of-the-mill allegations for a securities class action against a smaller pharmaceutical company, namely they involve FDA approval (or lack thereof) of a new drug. Some of the allegations center around alleged breaches of fiduciary duty by Avanir's former CEO and president, Gerald Yakatan.

But what really made us sit up and say "hmm," is the class period that is alleged in the complaint, the date the complaint was filed (10/30/09), and the relationship of that class period (and the filing date) to the applicable statutes of limitations and repose. The complaint was filed on behalf "of all those who purchased the Common Stock of Avanir...between July 1995 and October 31, 2006, the date the Company filed its form 10-K with the SEC for its fiscal year ending 2006."

As Kevin LaCroix has noted, there has been a recent surge of '34 Act securities class actions filed at or near the two year statute of limitations for bringing such claims, but this one seems to push the envelope a bit further.

Prior to the enactment of the Public Company Reform and Investor Protection Act of 2002 (a/k/a Sarbanes-Oxley), 28 U.S.C. § 1658(b), there was no congressionally created limitations period for federal securities fraud claims arising under section 10(b) of the '34 Act. The pre-Sarbanes-Oxley statutes of limitations and repose were one year and three years, respectively. But instead of a congressionally created limitations period, both the statutes of limitation and repose resulted from the Supreme Court's decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991). The Lampf Court viewed the then 3-year
limit as a "period of repose," intended to impose an "outside limit" on the cause of action, not subject to tolling principles.

Sarbanes-Oxley of course extended the statutes of limitations and repose for '34 Act claims to two and five years, respectively.

The application of the extended statutes has been a heavily litigated issue, with a number of appellate decisions having been handed over the ensuing years.

But no court that we are aware of has yet ruled that the extended statutes of Sarbanes-Oxley will reach 14 year old conduct, or save a case that was filed two years and 364 days after the end of the class period, which coincides with the "discovery" of the alleged fraud in the Avanir case.

The complaint was filed by two San Diego based law firms, the Dreher Law Firm and Aguirre, Morris & Severson LLP, both names that were initially unfamiliar to us. After a quick review of their respective websites, we have some interesting tidbits to report. Scott Dreher (the eponymous owner of the Dreher firm) left what was then known as Milberg Weiss Bershad Hynes & Lerach to found his own firm back in 1996. Dreher counts Bill Lerach among his mentors, and bears a stunning resemblance to Jimmy Neutron: Boy Genius.

UPDATE: Kevin LaCroix also has a post on the Avanir complaint, here.

It has been more than four months since we last had to update the options backdating numbers. With the settlement this week of litigation involving alleged options backdating at Quest Software, Inc., (NASDAQ: QSFT) for $29.4 million, it's time to crunch the numbers once more.

Of the 39 options backdating cases that have been filed as securities class actions, 29 have now reached a resolution. Of the resolved cases, 9 of those cases have been dismissed and 20 have settled. This is still in line with historical trends, where settlements outnumber dismissals by approximately 2 to 1.

The twenty settlements total $1.55 billion, for an average of $77.8 million. But, removing the largest settlement (UnitedHealth Group) lowers the average back to $33.23 million.

As we have previously noted, the options backdating cases have settled more quickly on average, than other cases. The twenty cases have settled in an average of 634 days. Removing the two outliers, Mercury Interactive, and Brocade, which were filed earlier and added the options backdating allegations in a later amended complaint, drops the average time from filing of initial complaint to tentative settlement for the remaining 18 cases to 599 days. The numbers have been slowly creeping up as the remaining cases linger, but the average is still below historical levels.

As always, our complete analysis can be accessed in this presentation.