Hanging Out the For Sale Sign

Sad, but true, corporate executives are being required to sell their "trophy properties or luxury toys to pay off legal bills, settle civil lawsuits or meet criminal forfeiture requirements mandated by judges," according to an article in Florida Today ("the Space Coast's daily newspaper") last week.

Among the highlights:

Dennis Kozlowski, the former CEO of Tyco International, Ltd., sold his luxury ski home in Beaver Creek, Colorado (which featured three wine cellars), for $10 million. Two months before that, Kozlowski sold his 130-foot J Class sloop, the Endeavour, for $13 million. His oceanfront mansion on Nantucket, known as Sea Rose Farm, is still on the market for $23 million. Pictured to the left is Koz piloting the Endeavour during happier times.






Bernie Ebbers, the former CEO of WorldCom, sold his Canadian cattle ranch, the Douglas Lake Ranch, for $68.5 million and his Mississippi mansion for $7.5 million. The Douglas Lake Ranch is pictured at left.





Scott Sullivan, the former CFO of WorldCom, sold his 30,000-square-foot mansion in Boca Raton last year for $9 million. The five-building compound has an 18-seat movie theater, two-story boathouse, domed exercise room, art gallery and a wine cellar. The St. Petersburg Times has an in depth article on the house's other features.

Walter A. Forbes, the former chairman of Cendant Corp., has placed his 8-acre estate in New Canaan, Connecticut on the market for $12.5 million (MLS listing here), following his Halloween convictions for conspiracy to commit securities fraud and of making false statements to the Securities and Exchange Commission in connection with a massive fraud that cost Cendant investors $14 billion.

Daily Trivia: The Ebbers ranch was sold to E. Stanley Kroenke, a real estate developer, and owner of the Denver Nuggets, Colorado Avalanche, and part owner of the St. Louis Rams.

World Health Securities Litigation Settles

An article in today's Pittsburgh Post-Gazette indicates that a settlement has been reached in the securities litigation pending against certain former officers of World Health Alternatives, Inc. and the company's former auditor, Daszkal Bolton LLP.

The settlement is valued at approximately $2.7 million, and would be funded by the company's D&O insurance and its former auditors. In addition, the company's former president, Richard E. McDonald, would have to surrender 435,000 shares of stock in three unnamed companies. The article notes that the settlement agreement recognizes that those securities may be unmarketable.

World Health was a Pittsburgh based provider of temporary medical staffing personnel that imploded following the August 15, 2005 resignation of McDonald after questions surfaced regarding his educational background. Just six months later the company filed for Chapter 11 bankruptcy protection, and in April 2006 the company's assets were acquired by Jackson Healthcare Solutions, a former rival based in Atlanta.

Columbus Capital Partners, L.P. and Columbus Offshore, Ltd., a pair of San Francisco based hedge-funds, are lead plaintiffs and Berger & Montague, P.C. and Caroselli Beachler McTiernan & Conboy LLC are lead and liaison counsel, respectively.

A Pittsburgh Tribune Review article details the allegations contained in the consolidated complaint filed in April 2006.

Daily Trivia: One of Jackson Healthcare's divisions is LocumTenens.com "the only free physician job board and full-service recruiting agency on the Web." The company's name means "one filling an office for a time or temporarily taking the place of another -- used especially of a doctor or clergyman."

Therus Kolff, a physician and currently the chairman of VISTA Staffing Solutions in Salt Lake City, is credited with establishing CompHealth, the first locum tenens company in the nation, in 1979.

Predicting Securities Class Actions - Part II

The Pre-Crime Unit, occasionally discussed by Bruce Carton over at the now defunct Securities Litigation Watch, appears to have grown some new legs.

The Corporate Library today announced that it had developed a ratings system to help predict the likelihood that a particular public company will face a securities class action within the next 18 months.

The analysis identifies six factors which, according to the press release

in combination with performance fundamentals such as share price volatility and leverage, provide a reliable tool for assessing the probability of [securities class actions].

The factors include:

• Excessive CEO compensation;
• Director age, tenure, over-commitment, and lack of independence;
• Institutional share ownership;
• Industry-specific risk;
• Company size; and
  
• Share trading volume
  

The group also released a report:

identifying the 75 most likely -- and 50 least likely -- public companies to face a Securities Class Action (SCA) lawsuit within the next 18 months.

The report was authored by Ric Marshall, chief analyst at The Corporate Library, and can be purchased from their online store, here, for $1,100.

An earlier Corporate Library report was discussed in this post, back in August.

A New Twist In Options Backdating Litigation

According to news reports (Long Island Business News) an amended class action complaint filed against Cablevision Systems Corp. (NYSE: CVC) in the options backdating litigation has added Lyons Benenson & Co., the company's compensation consultant, as a defendant.

According to the article, the amended complaint:

is believed to present the first case in the nation to accuse a compensation advisor of taking part in a backdating regime.

And alleges:

that Lyons Benenson & Co. attended meetings in which the backdated options were discussed.

The litigation is pending in the Commercial Division of Nassau County's (New York) Supreme Court before Judge Stephen Bucaria. An order consolidating the cases can be found here.

The Teachers' Retirement System of Louisiana is lead plaintiff and Grant & Eisenhofer, P.A. is lead counsel in the Cablevision litigation.

Cablevision has a host of options backdating issues to deal with, including the acknowledgement in this 10-Q that one of the company's backdated options grants:

related to an executive officer whose death occurred after the stated grant date of the award and before the actual grant date.

This is not the first time that Cablevision has graced these pages. Back in October, this post discussed the class action litigation related to the $7.9 billion leveraged-buyout offer made by the controlling Dolan family.

Update: The D&O Diary has a post on the Cablevision litigation, here.

Daily Trivia: The Long Island Business News is owned by Dolan Media Group, a Minneapolis based firm that owns legal or business journals in 21 markets. The company is led by President and CEO James P. Dolan who is apparently no relation to the Dolan family that controls Cablevision.

Milberg Weiss Trial Date Set

The New York Times reports that Judge John F. Walter has set a January 2008 trial date in the criminal case pending against class action giant Milberg Weiss Bershad & Schulman, LLP and Milberg partners David J. Bershad and Steven G. Schulman.

Additional defendants in the case include Seymour M. Lazar, the former Milberg client that has been accused of serving as a paid plaintiff and Paul T. Selzer, one of the lawyers accused of helping Lazar to launder the payments.

At a hearing earlier this week, prosecutors said a grand jury was investigating possible new charges that could come in a superseding indictment, but that indictment would not include any new defendants. Prosecutors indicated that if they decide to seek the additional charges, they will do so by April 2007.

The case is pending in the United States District Court for the Central District of California, and a copy of the indictment is available here.

The WSJ Law Blog also has a post, here.

Parmalat - Initial Settlements Roll In - More to Follow?

According to press and wire reports here (Reuters), here (Bloomberg) and here (AFX News via Forbes), Credit Suisse Group (NYSE: CS) and Banca Nazionale del Lavoro SpA (Milan: BNLR), a unit of BNP Paribas (OTC: BNPQY), have each agreed to pay $25 million to settle claims asserted against them in the Parmalat securities class action pending in the United States District Court for the Southern District of New York.

According to the Forbes article:

In addition to the monetary settlement, the two financial institutions agreed to institute changes in their corporate governance that will hopefully prevent future problems, [Plaintiff's attorney Stuart] Grant said. Details of those governance changes have yet to be fully worked out, he added.

The Bloomberg article also notes that:

U.S. District Judge Lewis Kaplan, who is presiding over the case, urged the remaining defendants to enter settlement talks with investors who sued, Grant said. Kaplan temporarily stopped lawyers from engaging in pre-trial discovery so talks can start.

Hermes Focus Asset Management Europe, Ltd. (manager of the Hermes European Focus Funds I, II and III) and Cattolica Partecipazioni, S.p.A., Capital & Finance Asset Management S.A., Societe Moderne des Terrassements Parisiens and Solotrat are lead plaintiffs, and Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Grant & Eisenhofer, P.A. are co-lead counsel in the Parmalat litigation.

A copy of the third amended consolidated class action complaint can be found here.

Update: The 10b-5 Daily has a post on the settlement, here.

Daily Trivia: The Atlanta branch of Banca Nazionale del Lavoro was a key player in the United States' support of Iraq during the Iran-Iraq war, funneling nearly $5 billion to Iraq during the period from 1985 to 1989.

Happy Thanksgiving...

Posts will resume after the holiday weekend.

Best wishes to you and yours!

Yet Another Press Release Permutation

Today, Bernstein Litowitz Berger & Grossmann LLP issued a press release in the SFBC International, Inc. (k/n/a/ Pharmanet Development Group, Inc. (NASDAQ: PDGI)) securities litigation that adds yet another (welcome) wrinkle to our Securities Litigation Universe of [Press] Release Permutations (a/k/a SLURP), first discussed here.

The firm announced that, on behalf of their client (and lead plaintiff), the Arkansas Teacher Retirement System, they had filed a consolidated class action complaint and provided members of the putative class with a direct link to the document.

If more firms would do something similar (issue a release and post the relevant documents on their website) when major litigation milestones are reached, class members would be far better informed of the status of any particular securities class actions.

The SFBC litigation is pending in the United States District Court for the District of New Jersey before Judge Stanley R. Chesler.

Daily Trivia: Judge Chesler is a graduate of Harpur College. Harpur is the "oldest and largest of the five academic units comprising the State University of New York at Binghamton." The college was founded in 1946 as Triple Cities College of Syracuse University to "provide educational opportunities for returning veterans of World War II." Harpur transitioned quickly into an independent entity, finally becoming a university in 1965.

Making Room for More Turkey...

Well, it's time to finish cleaning out the overflowing "to blog about" folder.

CV Therapeutics Settles Class and Derivative Complaints

According to their latest 10-Q, CV Therapeutics, Inc. (NASDAQ: CVTX), has reached a preliminary agreement to settle the class and derivative litigation pending against the company and certain of the company's officers and directors.

The class action is pending in the United States District Court for the Northern District of California before Judge Susan Illston, while the derivative litigation is pending in the Superior Court of Santa Clara County.

The settlement in the securities class action calls for CV's insurers to pay "$13.5 million to settle all claims and to pay the court-approved fees of plaintiff's counsel." Of interest, the 10-Q notes that the company:

will participate in dispute resolution proceedings with an insurer over whether or not we will reimburse that insurer for a portion of the insurer's contribution to the settlement. The amount of our reimbursement will not exceed $2.25 million, and may be a lesser amount or zero.

Under the terms of the settlement in the derivative action, the company has:

agreed to implement certain non-material corporate governance changes, and our insurers will pay the court-approved fees of plaintiff's counsel.

David Crossen is lead plaintiff and Lerach Coughlin Stoia Geller Rudman & Robbins LLP is lead counsel in the CV Therapeutics litigation.

A copy of the consolidated amended complaint in the class action is available here.

Robbins Umeda & Fink LLP is lead counsel in the derivative action.

The CV Therapeutics litigation was last discussed here, regarding a decision by Magistrate Judge Edward M. Chen on electronic discovery back in August.

HCA Settles Merger Related Litigation

It's old news now, given that on Friday the company announced that the merger had been completed, but on November 8, HCA Inc. (NYSE: HCA), announced the settlement of the consolidated class action lawsuit filed in the Chancery Court for Davidson County, Tennessee in connection with the acquisition of HCA by a group of private equity funds and HCA's management.

Barrett, Johnston & Parsley and Lerach Coughlin Stoia Geller Rudman & Robbins LLP are co-lead counsel in the HCA merger litigation

As noted here last week, an antitrust class action has been filed against more than a dozen private equity firms (including the firms involved in the HCA acquisition) alleging that the private equity firms conspired to artificially lower the valuations of corporations that the firms were acquiring.

Bradley Pharmaceuticals State Derivative Lawsuits Dismissed

Earlier this month, Bradley Pharmaceuticals, Inc. (NYSE: BDY) announced the dismissal of a consolidated derivative lawsuit pending against certain of the company's officers and directors in the Essex County (New Jersey) Superior Court.

As noted in Bradley's latest 10-Q, this is hardly the end of Bradley's securities litigation odyssey.

A federal securities class action is still pending in the United States District Court for the District of New Jersey against the company and certain of its officers and directors, and the motion to dismiss the consolidated class action complaint (here, via Stanford) was denied earlier this year.

Lead plaintiffs in the federal class action are the Retirement Plan for Chicago Transit Authority Employees, American Welding Co., Inc. and Edward R. Greene (American's president) and Abbey Spanier Rodd Abrams & Paradis, LLP are lead counsel.

Additionally, a federal derivative lawsuit is still pending in the United States District Court for the District of New Jersey against the company and certain of its officers and directors. Curiously, the company chooses to describe the federal derivative action (but not the state derivative action) as an "alleged derivative complaint."

Motions to Dismiss Largely Denied in Brocade Securities Litigation

According to news reports (San Jose Mercury News) Judge Charles R. Breyer has denied in part and granted in part the motions to dismiss in the consolidated securities class action pending against Brocade Communications Systems, Inc. (NASDAQ: BRCD).

According to these civil minutes, Judge Breyer denied the motions to dismiss filed by Brocade, and Brocade's former CEO, Greg Reyes, and former CFO, Antonio Canova, and granted the motions to dismiss filed by KPMG, LLP and Brocade's audit committee, but granted plaintiffs leave to file an amended complaint.

The Arkansas Public Employees' Retirement System is Lead Plaintiff and Nix, Patterson & Roach LLP and Patton, Roberts, McWilliams & Capshaw LLP are co-lead counsel in the Brocade litigation.

A copy of the consolidated class action complaint in the securities class action is available from Stanford, here.

The lead plaintiff briefing process is fairly unique, in that when the motion is contested, each party files opening, opposition and reply briefs, as opposed to the usual course in federal litigation where one party files an opening and reply brief and the other party files an opposition. A review of the Brocade pleadings available on the Stanford website, here, indicates that the lead plaintiff briefing got somewhat more complicated, with three movants (Intrepid Capital Management; the Arkansas Public Employees Retirement System; and the Oklahoma Firefighters Pension & Retirement System) filing nearly twenty briefs including sur-replies, supplemental briefs, responses to sur-replies, second supplemental briefs, well you get the picture.

Daily Trivia: Ok, so it isn't related to any of the above cases, but it is seasonally topical.

Cranberry sauce was invented by Marcus L. Urann, a lawyer and cranberry grower from South Hanson, Massachusetts in 1912. Urann went on to found what is now known as Ocean Spray with two other farmers in 1930. The jellied variety that will grace millions of tables later this week showed up on the scene in 1941. Thanks to The Birmingham News for the tip.

For those wanting more trivia tidbits to impress relatives, the University of Maine Cooperative Extension has a cranberry trivia timeline here, and two University of Massachusetts economics professors have authored a paper, The U.S. Cranberry Industry: Historical Changes and the Current Situation that provides a long and thorough history of, you guessed it, the cranberry industry in America.

What a Difference a Day Makes

On Tuesday, The Rosen Law Firm P.A. issued a press release, announcing that it had commenced an investigation into allegations that Bodisen Biotech, Inc. (AMEX: BBC) violated the federal securities laws by failing to adequately disclose certain material relationships the company had with Benjamin Wey a/k/a Benjamin Wei and New York Global Group, Inc.

The very next day, the law firm announced that it had apparently completed its investigation, and had filed a class action charging Bodisen with violations of the federal securities laws.

A copy of the firm's "draft complaint" can be found here.

The response by the company could of course be predicted. They fired back with a press release today, stating:

The Company, Ms. Wang and Mr. Chen intend to defend vigorously the Tabor complaint and any similar complaints that have been filed.

For more on the relationship between Bodisen and Wey, readers should read articles here and here by Herb Greenberg of MarketWatch.com.

Daily Trivia: The Rosen Law Firm has their offices in the Empire State Building. Start to finish - it took only one year and 45 days to build what was at the time the tallest building in the world.

Going Private Deals Maybe Not So Sweet for Shareholders

According to news reports here (Bloomberg) and here (Reuters) a class action complaint (Murphy v. Kohlberg Kravis, 06-cv-13210 (S.D.N.Y.) has been filed against more than a dozen private equity firms, alleging that the plaintiffs did not receive full value for the shares they exchanged because of a conspiracy that violated antitrust laws.

The complaint was filed in the United States District Court for the Southern District of New York by Wolf Haldenstein Adler Freeman & Herz LLP and follows on the heels of reports last month that Department of Justice was investigating this very issue. Both Business Law Prof Blog and Ideoblog have posts on the DOJ's investigation.

As of tonight, a copy of the complaint is not yet available from either the firm's website or the Court's ECF website, but according to the Reuters article, it alleges that the investment firms formed "clubs" among themselves to bid collectively in buyout actions. It also charges that the firms exchanged information and submitted bids at agreed upon prices.

The complaint also alleges that the plaintiffs:

were paid less for their equity shares that they sold to the private equity defendants and their co-conspirators than they would have been paid under conditions of free and open competition.

And according to the Bloomberg article:

Investors in the target company are deprived of the full economic value of their holdings and 'squeezed out' at artificially low valuations.

The class action names many of the largest private equity firms, including:

• Apollo Management
• Bain Capital
• The Blackstone Group
• The Carlyle Group
• Clayton, Dubilier & Rice, Inc.
• Kohlberg Kravis Roberts & Co.
• Madison Dearborn Partners
• Providence Equity Partners, Inc.
• Silver Lake Partners
• Texas Pacific Group Ventures Inc.
• Thomas H. Lee Partners, L.P.
  
• Warburg Pincus, LLC
  

The plaintiffs are individuals who own shares of Univision Communications Inc. (NYSE: UVN) (which agreed in June to a $12.3 billion buyout by four private equity firms), HCA Inc. (NYSE: HCA) (which agreed to be acquired by an investor group that includes Bain Capital, KKR, and Merrill Lynch & Co. for about $21 billion) and Harrah's Entertainment Inc. (NYSE: HET) (which is reviewing a buyout offer worth $15 billion from Apollo Management and Texas Pacific Group).

Daily Trivia: One of Madison Dearborn Partners portfolio companies is WM. Bolthouse Farms, Inc., the leading North American producer of carrots and carrot-related products. The Bolthouse family created the so called "Baby-cut Carrots" in 1990, which much to the surprise of children everywhere are really just cut and peeled full-size carrots. The leftover carrot pulp is recycled into cattle feed.

Immune Response Settles Class and Derivative Litigation

The Immune Response Corporation (OTC: IMNR) announced today that the company has reached an agreement to settle the consolidated federal securities class action pending against the company in the United States District Court for the Southern District of California as well as the related derivative lawsuit pending in the Superior Court of San Diego County.

The settlement in the class action is valued at approximately $9.6 million, and will be paid entirely by the company's insurers.

The derivative complaint, which was filed nearly four years after the securities complaints, will be settled for $250,000, and will also be funded entirely by the company's insurers.

Michael Baghdoian and Scott Carroll are lead plaintiffs and Weiss & Lurie (as successor to Weiss & Yourman) and Lerach Coughlin Stoia Geller Rudman & Robbins LLP (as successor to Milberg Weiss Bershad Hynes & Lerach, LLP) are lead counsel in the Immune Response litigation.

A copy of the amended consolidated complaint in the securities class action is available from Stanford, here.

Daily Trivia: Immune Response was co-founded in 1986 by Dr. Jonas Salk, inventor of the polio vaccine.

Gilat Drops Vigorous Defense, Settles Class Action

Today, Gilat Satellite Networks Ltd. (Nasdaq: GILT) announced that the company, along with certain former officers, had reached a proposed settlement in the consolidated securities class action lawsuit pending in the United States District Court for the Eastern District of New York.

While the amount of the settlement was not disclosed, according to the release, "the entire amount...will be covered by Gilat's insurance carriers."

The Leumi PIA Sector Fund, Leumi PIA World Fund, and Leumi PIA Export Fund were previously appointed lead plaintiffs and Bernstein Liebhard & Lifshitz, LLP, Cohen, Milstein, Hausfeld & Toll, P.L.L.C., and Glancy Binkow & Goldberg LLP were appointed lead counsel in the Gilat litigation.

The class action complaint alleged that the company's 1999-2001 revenues:

were fueled by knowing or reckless accounting practices that included: premature revenue recognition; boosting revenues with undisclosed related party income; failure to properly reserve for doubtful accounts; converting uncollectible accounts receivable into equity (and subsequently recording a capital loss); failing to write-off uncollectible accounts receivable as bad debts, and/or failing to timely do so.

A copy of the amended consolidated complaint is available here.

Daily Trivia: Shortly after the filing of the initial complaints back in 2002, Gilat issued an announcement that was both familiar and interesting. The familiar part:

The Company intends to vigorously defend its position in this litigation.

The interesting part:

The Company has not received the complaints to date but has reviewed one of the complaints available online and believes that the lawsuits are without merit.

While it is not uncommon for a company to say that it has not yet been served with a class action complaint, I cannot recall another example of a company affirmatively indicating that they had gone to a plaintiff-side firm's website to obtain a copy of a complaint.

Settlements, Dismissals, and Newly Filed Complaints, Oh My

This will be the first of a series of quick posts cleaning out the overflowing "to blog about" folder.

Mamma.com Settles Securities Class Action

Mamma.com Inc. (NASDAQ: MAMA) announced last week that it has entered into an agreement to settle the class action securities litigation pending against the company and certain officers and directors in the United States District Court for the Southern District of New York before Judge Harold Baer, Jr.

The settlement is valued at $3.15 million, $2.5 million of which will be paid by the company's insurance carrier and $650,000 from the company.

Five individuals are lead plaintiffs and Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Milberg Weiss Bershad & Schulman LLP are lead counsel in the Mamma.com litigation.

A copy of the consolidated amended complaint can be found here.

This blog previously discussed the Mamma.com litigation here.

Barrier Therapeutics Litigation Voluntarily Dismissed

Last week, Barrier Therapeutics, Inc. (NASDAQ: BTRX) announced that the putative securities class action lawsuit filed against the company, certain of its officers and certain of the underwriters for the company's 2004 initial public offering and 2005 secondary offering has been voluntarily dismissed, in its entirety and with prejudice, by the lead plaintiffs' counsel.

The Barrier litigation was pending in the United States District Court for the District of New Jersey before Judge Joel A. Pisano.

Five individuals were appointed lead plaintiffs by the Court and Lerach Coughlin Stoia Geller Rudman & Robbins LLP and the Rosen Law Firm P.A. were appointed co-lead counsel.

According to the release, lead counsel submitted the stipulation of dismissal "without any payment by the company or any of the defendants to the plaintiffs or their counsel. The company expects the court to enter an order with respect to the submission promptly."

Intergraph Settles Merger-Related Class Actions

Also last week, Intergraph Corporation (NASDAQ: INGR) announced that Intergraph and the other named defendants have entered into a memorandum of understanding with plaintiffs' counsel to settle two purported class action lawsuits pending in the Chancery Court for the State of Delaware in and for New Castle County that have been filed in connection with the proposed acquisition of Intergraph by an entity primarily owned by entities affiliated with Hellman & Friedman LLC and Texas Pacific Group.

Under the terms of the settlement, Intergraph has agreed to provide additional information to shareholders in order to supplement the proxy statement that was previously provided to Intergraph's shareholders in connection with the special meeting of stockholders concerning the proposed merger as to the following matters, among others:

• Projected financial information considered by Intergraph's Board of Directors;
• Certain intellectual property litigation updates; and
• Certain of Intergraph's non-core assets, including real estate and an equity investment in Bentley Systems, Inc.

Additionally, Intergraph has agreed to pay the legal fees and expenses of plaintiffs' counsel, subject to the approval by the court.

Gateway Announces the Filing of a Derivative Complaint

According to this 10-Q filed by Gateway, Inc. (NYSE: GTW), a derivative lawsuit was filed in Orange County (California) Superior Court against the individual members of Gateway's board of directors and Gateway (as a nominal defendant) alleging that the board members breached their fiduciary duties in connection with the Gateway's September 1, 2006 announcement that it had rejected an earlier offer by shareholder Lap Shun "John" Hui to acquire Gateway's retail operations for approximately $450 million.

A review of the docket reveals that the plaintiff is represented by the Johnson Law Firm and the defendants are represented by Sheppard, Mullin, Richter & Hampton LLP. According to his bio, name partner Frank J. Johnson is a former partner at Sheppard Mullin.

Daily Trivia: Gateway's famous corporate symbol - the black and white cows, are both real, and were chosen for a reason other than whimsy. According to this 1996 annual report, the three official mascots are Holstein cows named Bonnie, Hanako and Colleen that joined Gateway in 1996. Gateway was founded in 1985, which was the Chinese Year of the Cow.

Some Light Reading Before You Sign...

In has been four years since the passage of the Sarbanes-Oxley Act of 2002 (SOX), and courts are continuing to address the liability that potentially stems from false or fraudulent Section 302 certifications by corporate officers.

Plaintiffs began pleading Section 302 violations both as separate, substantive false statements and as evidence of scienter (see complaints here (Lattice Semiconductor) and here (Virbac)), and federal securities regulators and prosecutors have been making use of 302 certifications in bringing actions against CEOs and CFOs.

A recent article, Minding Your 302s: Assessing Potential Civil, Administrative and Criminal Liability for False Financial Statement Certifications, from a Practising Law Institute program of the same name (course information here) provides a good resource for practitioners seeking guidance on both civil and criminal liability for filing false or fraudulent Section 302 certifications.

The article was written by Timothy P. Harkness, a litigation partner at Kramer Levin Naftalis & Frankel LLP, Celiza P. Braganca, senior counsel at Sperling & Slater, P.C., and John Bessonette, a corporate associate at Kramer Levin Naftalis & Frankel LLP. While it was published before the 11th Circuit's recent decision in Garfield v. NDCHealth Corp., 2006 WL 2883238 (11th Cir. Oct. 12, 2006) (holding that SOX certifications are "only probative of scienter if the person signing the certification was severely reckless in certifying the accuracy of the financial statements"), it is still a good starting point for anyone researching in this area.

In the context of private securities litigation, the authors conclude that inaccurate Section 302 certifications:

do not give rise to independent private claims under the securities laws, nor do they appear to alter the fundamental standards that are applied in Section 10(b) actions.

Rather, they are viewed by courts in the overall context of a case and only bear on civil liability when other pleaded facts create a strong inference of scienter against the 302 certifier.

In the context of liability in government actions, the authors conclude that:

302 certifications do not substantially change the potential liabilities of certifying CEOs and CFOs, with two important exceptions.

The first exception:

a certifier who can prove a thorough [internal controls] evaluation done in good faith is more likely to avoid being charged with filing a false 302 certification than a certifier who cannot do so.

The second exception:

certification of immaterial misstatements or omissions may subject a certifier to liability to the extent that they are part of a larger fraudulent scheme.

Daily Trivia: NDCHealth Corporation (NYSE: NDC) merged in early 2005 with Per-Se Technologies, Inc. (NASDAQ: PSTI), which in turn announced this week that it was being acquired by McKesson Corporation (NYSE: MCK) in a transaction valued at approximately $1.8 billion.

No Discovery Yet in Discovery Labs Class Action

Today Discovery Laboratories, Inc. (NASDAQ: DSCO) announced the dismissal, without prejudice, of the securities class action pending against the company and two of its executive officers in the United States District Court for the Eastern District of Pennsylvania.

The "Mizla Group" (Joseph, Denise, Alan, Erin and Julia Mizla) was appointed as the lead plaintiff and Chimicles & Tikellis LLP was appointed as lead counsel in the securities class action.

A copy of the consolidated amended complaint is available here.

The decision is not yet available online, but will be posted here when it is.

A pair of derivative actions remain pending in the Eastern District of Pennsylvania against the company and certain current and former officers and directors of the company. According to this 10-Q:

The parties have entered into a stipulation providing that the Company is not required to respond to these consolidated complaints until 60 days following defendants' answer or a dispositive ruling on a motion to dismiss filed in response to the consolidated amended complaint in the class actions.

Daily Trivia: Five Chimicles & Tikellis lawyers were named to the list of Pennsylvania Super Lawyers. Distributed by the publishers of Law & Politics and Philadelphia Magazine, the list is a cousin to the New Jersey Super Lawyers list that New Jersey's Committee on Attorney Advertising ruled violates state rules of professional conduct. The WSJ Law Blog has a post on the New Jersey decision here.

In response to the New Jersey decision, the Super Lawyers publishers have created a website, www.superlawyersfacts.com, whose tagline is Setting the Record Straight: The Truth About Legal Marketing in New Jersey. It may remind readers of www.milbergweissjustice.com, the website created by Milberg Weiss Bershad & Schulman LLP to respond publicly to the firm's indictment.

Yukos Securities Litigation Dismissed

Last month Judge William H. Pauley III, granted the defendants' motion for reconsideration in the In re Yukos Oil Company Securities Litigation, essentially dismissing all of the remaining claims in the litigation.

A copy of Judge Pauley's opinion is available here.

Yukos Oil Company (OTC: YUKOY) was one of Russia's leading vertically-integrated oil companies, and one of the world's largest non-state owned oil companies, both in terms of reserves and market capitalization, until the October 2003 arrest of the company's CEO and December 2004 forced sale of Yukos' main production unit, to recover alleged tax debts.

Judge Pauley's prior opinion (In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243 (WHP), 2006 WL 800736 (S.D.N.Y. Mar. 30, 2006)) is available here.

In the prior opinion, Judge Pauley, granted defendant Group Menatep Limited’s motion to dismiss and also granted in part and denied in part a motion to dismiss by defendants Yukos and Bruce K. Misamore (Yukos' former CFO).

In essence, the defendants raised three principal arguments in their motions to dismiss and for reconsideration.

First, that the District Court must abstain from deciding the merits of the case under the "act of state" doctrine. The doctrine prevents United States courts from "question[ing] the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders." Republic of Austria v. Altmann, 541 U.S. 677, 700 (2004).

Judge Pauley rejected this argument, holding:

this Court is not being called on to either invalidate or enforce the Russian Federation's measures, nor will the validity of those sovereign acts have any bearing on Defendants' motions to dismiss or on questions likely to affect the merits of this litigation . . . As such, the act of state doctrine does not warrant abstention.

Second, the defendants asserted a lack of federal subject matter jurisdiction for claims of two of the three lead plaintiffs. Judge Pauley found that the conduct at issue was insufficient under either the "conduct test" or the "effects test," and dismissed the claims of the foreign plaintiff (Roxwell Holdings) that purchased Yukos common stock on the Russian Trading System Stock Exchange and those of the American plaintiff (Parsimony) that purchased the equity-linked bonds on the Luxembourg Stock Exchange that were restricted from being "offered, sold or delivered within the United States or to U.S. persons."

Finally, the defendants argue that the complaint fails to state a claim for either primary violations of the securities laws or control person liability. Judge Pauley found that plaintiffs had failed to adequately plead any material misrepresentation and further failed to adequately plead scienter. Having found that the complaint failed to state a claim for primary liability, Judge Pauley further found that the defendants were not subject to control person liability on those claims.

Roxwell Holdings Limited and Mykola Buinyckyi are the lead plaintiffs for the putative sub-class of purchasers of Yukos common stock and ADRs and Lerach Coughlin Stoia Geller Rudman & Robbins LLP is lead counsel for the sub-class.

Parsimony Ltd. is the lead plaintiff for the putative sub-class of purchasers of Yukos' equity linked convertible bonds and Murray Frank & Sailer LLP is lead counsel for the sub-class.

A copy of the consolidated amended complaint is available here.

Technically, three defendants remain in the case - Mikhail B. Khodorkovsky (Yukos' former president, CEO and largest shareholder), Platon Lebedev (Menatep's CEO), and PricewaterhouseCoopers Russia. As noted in Judge Pauley's opinion however, all three were not served with the consolidated amended complaint, thus for all intents and purposes, absent an appeal by the plaintiffs, the litigation is over.

Daily Trivia: Taking a page from embattled American executives, both Khodorkovsky and Lebedev have created websites to take their case to the people. Khodorkovsky's site can be found here and Lebedev's can be found here. You can find additional information on the prison camps they are being held in using this interactive map.

Revenge of the Bees, Err Trial Lawyers

Last week, we poked some good-natured fun at Xethanol Corporation (AMEX: XNL) for their odd press release lambasting plaintiff's counsel for issuing the required PSLRA notice.

Thanks to a tip from an astute reader, we get to poke a little more fun at Xethanol. Earlier this week, the company issued an "Open Letter to Shareholders Regarding Recent Lawsuit Filings."

It is a "Dear Shareholder" letter, though it is intended to be the opposite of a "Dear John" letter.

The letter, signed by Louis Bernstein, the company's president, interim CEO, and a board member, is, shall we say interesting:

First, a few words about the recent spate of lawsuits. As a lawyer with more than 25 years' experience managing the defense of various types of litigation, I assure you that the pattern you see here unfortunately has become the norm.

Like bees drawn to honey, law firms from near and far will file these kinds of lawsuits, trolling for clients as well as for prospective lead plaintiffs, and ultimately seeking to serve as lead plaintiffs' counsel in order to gain the largest possible share of attorneys fees at the end of the case - assuming their side prevails in the litigation.

While it is true that the PSLRA only requires the first plaintiff filing a securities class action to put out a notice (see Section 21D(a)(3)(A)(ii) of the Securities Exchange Act of 1934, here), assuming that subsequent notices comport with the applicable rules of professional conduct, there is nothing untoward about those notices.

Hey, at least he didn't call trial lawyers cockroaches.

Mr. Bernstein goes on to note:

Again, Xethanol is committed to defending these and any future similar lawsuits vigorously. To that end, the company is carefully considering our choice of defense counsel and we will inform you once we have made that decision.

So, we can look forward to a future "Scary Defense Counsel" press release from Xethanol.

Daily Trivia: Mr. Bernstein is indeed a licensed attorney in the State of New York, though he should probably update his registration, which still indicates that he is with Pfizer Inc. (NYSE: PFE).

Snohomish. Gesundheit!

According to news reports (King County Journal), two shareholders have filed class action lawsuits against ICOS Corporation (NASDAQ: ICOS), Eli Lilly and Company (NYSE: LLY) and certain ICOS officers and directors.

The complaints seek to enjoin the proposed acquisition by Eli Lilly of ICOS' outstanding common stock, announced on October 17, 2006, and allege that the ICOS defendants breached their fiduciary duties by adopting the merger agreement and approving the proposed acquisition.

Lilly and ICOS have been partners in Lilly ICOS LLC, a joint venture that manufactures, markets and sells Cialis, the erectile dysfunction treatment.

In a 10-Q filed today, ICOS offered the now ubiquitous explanation:

ICOS believes the lawsuits are without merit and intends to defend the actions vigorously.

The cases were both filed in Snohomish County (WA) Superior Court, the day after the acquisition was announced. Though complete dockets are not available online, a review of available information indicates that both plaintiffs are represented (at least as local counsel) by Clifford A. Cantor.

According to additional news reports (MarketWatch) HealthCor Management L.P., the owner of 3.3 million shares of ICOS indicated that it will vote against the proposed acquisition. HealthCor delivered a letter to the board of directors suggesting that a more appropriate price was "well in excess of $40 per share," and noting:

Although the proposed purchase price represents a premium over the recently depressed share price, the proposed purchase price represents a:

• zero premium over the ICOS stock price from one year and two years ago;
• 30% discount from ICOS share prices seen three years ago;
• 50% discount from ICOS share prices seen five years ago; and
• 30% discount from June 1999 when Paul Clark joined ICOS as President and Chief Executive Officer.
  

The letter goes on to state:

THE BOARD OF DIRECTORS IS SELLING ICOS FOR A DISCOUNT BID, NOT A PREMIUM. (emphasis in original)

Daily Trivia: Eli Lilly and Company was founded in May 1876 by Colonel Eli Lilly, a pharmaceutical chemist and a veteran of the Union Army. Colonel Lilly was apparently influenced by the premature malaria-related death of his wife.

Mmmm, Donuts!

Yesterday, Krispy Kreme Doughnuts, Inc. (NYSE: KKD) announced that the company had entered into an agreement to settle the securities class action and derivative litigation that were pending against the company and certain current and former officers and directors in the United States District Court for the Middle District of North Carolina.

The settlement in the securities litigation is valued at approximately $75 million, consisting of:

• $34,967,000 in cash from the company's directors' and officers' insurers;
• $200,000 in cash from John W. Tate, the former Chief Operating Officer and Randy Casstevens, the former Chief Financial Officer;
• $4,000,000 in cash from PricewaterhouseCoopers LLP, the company's outside auditors; and
  
• Common stock and warrants to purchase common stock to be issued by Krispy Kreme having an aggregate value of $35,833,000.

The settlement in the derivative litigation provides for:

• Messrs. Tate and Casstevens each agreed to contribute $100,000 in cash to the settlement of the securities class action;
• Mr. Tate's agreement to cancel his interest in 6,000 shares of company stock;
• Messrs. Tate and Casstevens agreed to limit their claims for indemnity from the Krispy Kreme in connection with future proceedings before the Securities and Exchange Commission or the United States Attorney for the Southern District of New York to specified amounts.

Additionally the derivative claims against Scott A. Livengood, Krispy Kreme's former Chairman and Chief Executive Officer have not been resolved, and "counsel for the derivative plaintiffs are deferring their application for fees until conclusion of the derivative actions against Mr. Livengood."

Lead plaintiffs in the class action are the Alaska Electrical Pension Fund, Pompano Beach Police & Firefighters Retirement System, City of St. Clair Shores (Mich.) Police and Fire Pension System, City of Sterling Heights (Mich.) General Employees Retirement System, and Jason Hennessy, and lead counsel is Lerach Coughlin Stoia Geller Rudman & Robbins LLP.

Daily Trivia: Mr. Tate's (the former COO) employment contract, provides that Tate is not permitted to:

engage in the business of making and selling doughnuts and complementary products

(a) within a 100 mile radius of any place of business of the Company (including franchised operations) or of any place where the Company (or one of its franchised operations) has done business since the Effective Date of this Agreement,

(b) in any county where the Company is doing business or has done business since the Effective Date, or

(c) in any state where the Company is doing business or has done business since the Effective Date.

According to the company's store locator, Alaska, Maine, Montana, New Hampshire, Vermont, and Wyoming, are the only states that Mr. Tate could possibly sell donuts in during the period of his non-compete.

This is a theoretical statement, as a) there is no indication that Mr. Tate has any interest in hawking donuts and b) the 100 mile restriction would likely knock out New Hampshire and Vermont due to their proximity to Canadian, New York, and Massachusetts locations.