Lies, Damn Lies, & Forward Looking Statements

Technorati Update - Please Ignore

2011-12-20T23:09:00.002-05:00

The following is just to update the Technorati profile.

Please ignore.

Thanks!

SWB62JDH5RZH

I've Moved!

2011-12-20T22:40:00.002-05:00

I have started a new financial services boutique, TXT Capital, that focuses on serving the needs of institutional investors with regard to securities litigation issues.

Our primary service, Institutional Liquidity Solutions(SM), allows pension funds to rapidly monetize their portfolio recoveries.

We also offer a variety of other securities litigation related services, such as:

- RFP consulting, design, and evaluation.

- Independent case analysis (merits and/or losses) for lead plaintiff, opt-out, or settlement decisions.

Until our new website is fully operational, you can find me on LinkedIn or Twitter.

Pack Your Bags, We're Going to Lagos

2007-03-26T22:25:00.000-05:00

The following was first published on 3/12 over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

The SCAS Research team informs me that a securities class action has been filed against Cadbury Schweppes Plc's Nigerian subsidiary, Cadbury Nigeria Plc, in what is believed to be the first securities class action ever filed in Nigeria.

The class action relates to the revelations by Cadbury last December that it had discovered "a significant and deliberate overstatement of Cadbury Nigeria results, which had existed over a number of years” after increasing its stake in the Nigerian subsidiary.

The Times of London has a story, here.

One of the plaintiffs in the Nigerian class action is Nsongurua Udombana, a professor of international law at the University of Lagos. According to the Times, Professor Udombana and his fellow plaintiffs "are trying to see if we can establish a precedent and start something that could bring a revolution in corporate governance in Nigeria."

Though best known to many as the producer of the seasonally appropriate Cadbury Creme Egg, the company produces a host of well known brands, from Trident to Dr. Pepper. Cadbury also produces regional brands, such as Bournvita, the "biggest selling food drink in Nigeria."

The SCAS 50 for 2006

2007-03-16T22:43:00.000-05:00

The following was first published on 3/6 over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

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.

2006's Top 10:

RANK	LAW FIRM	SETTLEMENT TOTAL	# OF SETTLEMENTS	AVERAGE
1	Lerach Coughlin Stoia Geller Rudman & Robbins	$7,307,050,000	30	$243,568,333
2	Bernstein Litowitz Berger & Grossmann	$2,634,765,298	9	$292,751,700
3	Heins Mills & Olson	$2,500,000,000	1	$2,500,000,000
4	Milberg Weiss & Bershad	$1,604,608,808	22	$72,936,764
5	Entwistle & Cappucci	$1,100,000,000	1	$1,100,000,000
6	Barrack, Rodos & Bacine	$960,000,000	1	$960,000,000
7	Kirby McInerney & Squire	$650,900,000	5	$130,180,000
8	Abbey Spanier Rodd Abrams & Paradis	$590,295,000	8	$73,865,625
9	Barrett & Weber	$410,000,000	1	$410,000,000
9	Waite, Schneider, Bayless & Chesley	$410,000,000	1	$410,000,000

First BanCorp Settles Securities Class Action

2007-03-08T23:02:00.000-05:00

The following was first published on 3/5 over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

Today, First BanCorp (NYSE: FBP) announced that it had reached an agreement in principle to settle the securities class action pending against the company and certain officers and directors in the United States District Court for the District of Puerto Rico for $74,250,000.

The Plumbers & Pipefitters Local 51 Pension Fund and two individuals are lead plaintiffs and Lerach Coughlin Stoia Geller Rudman & Robbins LLP and Zwerling Schachter & Zwerling are co-lead counsel in the First BanCorp securities class action.

A quick search of the SCAS database reveals that this is the largest securities class action settlement ever in the District of Puerto Rico.

It also appears that the the First BanCorp litigation is one of only two securities class actions filed in the District of Puerto Rico since the PSLRA was enacted. The other case, on behalf of shareholders in Pepsi-Cola Puerto Rico Bottling Co. (n/k/a PepsiAmericas, Inc. (NYSE: PAS)) was settled in 1997.

The District of Puerto Rico can now be added back to the list of Federal courts without an active securities class action.

Thanks to Werner Kranenburg (With Vigour and Zeal) for the tip.

Second Circuit Clarifies Primary Liability Standards for Auditors

2007-03-04T23:56:00.000-05:00

The following was first published on 2/28 over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

Earlier this week, the Second Circuit held that an auditor has a duty to correct its prior certified opinions, and may be held liable under § 10(b) and Rule 10b-5 if it fails to do so. The opinion appears to be the first in the Second Circuit to squarely hold that an accountant has such a duty or may be primarily liable under the federal securities laws.

A copy of the opinion in Overton v. Todman & Co., CPAs, P.C., is available from the Second Circuit, here, or from FindLaw (reg. req'd), here.

The opinion reverses a lower court decision dismissing a securities fraud claim against the auditor, and its successor in interest, Trien, Rosenberg, Rosenberg, Weinberg, Ciullo & Fazzari, LLP.

From 1999 through 2002, Todman audited the financial statements of Direct Brokerage, Inc. (“DBI”), a broker-dealer registered with the Securities and Exchange Commission and a member firm of the New York Stock Exchange. Each year, Todman issued its “unqualified” opinion that DBI’s financial statements accurately portrayed the company’s fiscal health.

Despite its certifications of accuracy, Todman was alleged to have made significant errors that concealed DBI’s largest liability, payroll taxes. The plaintiffs alleged that Todman ignored multiple red flags that cast serious doubt on the accuracy of DBI’s financial statements, and alleged a number of facts in support of their assertion that Todman recklessly audited DBI’s affairs and recklessly evaluated whether DBI could “survive as an ongoing concern.” Plaintiffs alleged that, in 2003, DBI’s payroll tax liability led to the broker-dealer’s collapse.

The Court surveyed its prior law on primary accountant liability and concluded:

that for many years we have recognized the existence of an accountant’s duty to correct its certified opinions, but never squarely held that such a duty exists for the purposes of primary liability under § 10(b) of the 1934 Act and Rule 10b-5. Presented with an opportunity to do so, we now so hold.

The Court held that the District Court erred in dismissing the fraud claim against Todman & Co., and that an auditor may have primary liability under § 10(b) and Rule 10b-5 for a failure to correct a prior audit opinion, when the accountant:

makes a statement in its certified opinion that is false or misleading when made;
subsequently learns or was reckless in not learning that the earlier statement was false or misleading;
knows or should know that potential investors are relying on the opinion and financial statements; yet
fails to take reasonable steps to correct or withdraw its opinion and/or the financial statements; and
all the other requirements for liability are satisfied.

The Court went on to note two limits to the holding.

First, the Court held:

that an accountant has a duty [only] to correct its prior certified statements, as opposed to a broader duty to update those statements. The duty to correct requires only that the accountant correct statements that were false when made. In contrast, the duty to update requires an accountant to correct a statement made misleading by intervening events, even if the statement was true when made.

Second, the Court noted:

that an accountant need correct only those particular statements set forth in its opinion and/or the certified financial statements. Unless an accountant exchanges its role for the role of an insider an accountant is under no duty to divulge information collateral to the statements of accuracy and financial fact set forth in its opinion and the certified financial statements, respectively.

The Court was clear to note that the Todman holding did not conflict with Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994), which held that there was no aiding and abetting liability under § 10(b), as the auditor in this litigation had acted as a speaker in a primary capacity.

A Fourth Circuit Judge Did What?

2007-03-02T22:57:00.000-05:00

The following was first published on 2/21 over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

First, the non-newsworthy part.

Yesterday, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of the consolidated securities class action pending against Cree, Inc. (NASDAQ: CREE), and six of the corporation's officers and directors. A copy of the Fourth Circuit's opinion is available here.

The dismissal itself (and certainly the affirmance by the Fourth Circuit) is not the big news. A quick review of the SCAS database reveals that fully 50% of the federal securities class actions filed within the Fourth Circuit since the PSLRA was enacted have been dismissed.

The big news is the dissent in the Cree litigation, authored by Judge Dennis W. Shedd.

Judge Shedd takes issue with the scienter analysis performed by both the District Court and the majority. In his words:

The majority approach to testing the adequacy of the Complaint examines in isolation each individual suspect transaction in order to ascertain whether the elements of securities fraud have been adequately pled with respect to each one. However, this approach ignores the fact that this case revolves around a single securities fraud action against a single company, Cree.

Judge Shedd goes on to write:

the Complaint does not-and need not-allege an action for securities fraud with respect to all six companies with which Cree dealt. Instead, the Complaint alleges a single cause of action for securities fraud, as evidenced by many transactions with multiple companies. If even one of these transactions is pled adequately enough to meet the pleading requirements under the PSLRA and Rules 8 and 9, the cause of action must survive the motion to dismiss. Moreover, if the totality of Cree's actions reveals a larger picture of fraud sufficient to meet the necessary pleading requirements, this case must advance beyond the current stage of the proceedings

Judge Shedd also takes issue with the analysis adopted by the majority regarding the standards to be applied to so-called "confidential sources." Such information sources, typically former employees or customers of the corporate defendant are a common investigative and pleading technique used by plaintiffs to meet the pleading standard imposed by the PSLRA.

The majority adopted the standard employed by the Seventh and Second Circuits in Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588 (7th Cir.2006) and Novak v. Kasaks, 216 F.3d 300 (2d Cir.2000), respectively. Under that analysis, a complaint which relies on confidential sources must allege facts sufficient "to support the probability that a person in the position occupied by the source would possess the information alleged."

Judge Shedd, in his dissent disagrees with the adoption of the Tellabs/Novak standard, noting:

I would resolve the issues surrounding unnamed sources differently because the approach adopted by the majority does not inhere in the plain language of the PSLRA. The plain language of the PSLRA does not subject unnamed sources to higher scrutiny than other averments made upon information and belief. Accordingly, in my view, a complaint must simply identify unnamed sources "with particularity," as required by the plain language of the PSLRA, which might include the source's job title and years of employment, or possibly, other facts sufficient to support a reasonable belief that the plaintiff did not merely invent sources. The purpose of the PSLRA's particularity requirement is to prevent the fabrication of information, not to weigh its reliability or credibility.

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

A Gentle Rebuttal to Prof. Grundfest

2007-02-25T23:04:00.001-05:00

The following was first published on 2/13 over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

Last week, in a widely-circulated and much discussed Wall Street Journal op-ed column entitled “The Class Action Market” (here, sub. req'd), former SEC Commissioner and current Stanford Law Professor Joseph Grundfest suggested that private securities class actions have lost their utility in policing the securities markets and compensating investors.

I respectfully disagree with Prof Grundfest.

And so, apparently do the Department of Justice and the Securities and Exchange Commission.

In a little noticed amicus brief filed last Friday by the DOJ and the SEC in the Tellabs, Inc. v. Makor Issues & Rights, Ltd. appeal before the U.S. Supreme Court, the federal regulators noted:

Meritorious private actions are an essential supplement to criminal prosecutions and civil enforcement actions brought, respectively, by DOJ and the SEC.

Prof. Grundfest also suggests that private securities litigation is "virtually useless as means of compensating investors for their losses."

Investors in AOL or Time Warner securities would also probably disagree with Prof. Grundfest.

The private securities class actions involving AOL Time Warner settled for $2.5 billion. Time Warner settled with the federal regulators for a small fraction of that amount - $150 million to the Department of Justice and $300 million to the United States Securities and Exchange Commission. While the combined $450 million in federal regulatory settlements is not chicken feed, it is only 18% of the amount recovered in the private class action.

And the AOL case represents two of the largest payments ever made by a corporate defendant to the federal government to settle securities fraud related allegations. In many private cases, there are no state or federal penalties or disgorgements to compensate investors. For example, in the Williams Securities Litigation:

1. The company had not restated their financial statements.
2. No governmental investigation had uncovered any fraud.
3. No employees of the corporate defendants had been fired
4. Defendants never acknowledged that any improper conduct had occurred.

Yet the private securities class litigation was able to recover a substantial sum for investors, settling in 2006 for $311 million.

Expect more chatter on Prof. Grundfest's proposal during the next few months.

Does a Serial Recidivist = Corporate Scienter?

2007-02-20T00:51:00.000-05:00

The following was first published last week over at Securities Litigation Watch, my new blog.

If you want current postings and updates on the wide world of securities litigation, I encourage you to update your bookmarks and subscriptions.

* * * * *

If a company engages in two separate alleged securities frauds six years apart, with an

intervening bankruptcy reorganization but retains at least six officers or directors from the predecessor entities, is it possible that the prior allegations could be used to bolster the corporate scienter allegations in the new litigation?

Sounds a little complicated, so let's break it down.

Way back in February 2001, Globalstar, L.P., Globalstar Capital Corporation and Globalstar Telecommunications Limited (collectively "Old Globalstar") were accused of making false and misleading statements regarding Globalstar’s financial prospects and condition. That case culminated in one of those ultra-rare securities class action trials, and ultimately settled for $20 million.

After the complaints in the first case were filed, but before that case went to trial, all of the Old Globalstar entities filed for bankruptcy protection.

Fast forward to 2007.

The Globalstar entities have reorganized as Globalstar, Inc. (NASDAQ: GSAT), filed a registration statement for a new IPO, and, as of last week, been hit with a fresh group of securities class actions.

How then do allegations of serial recidivism help to establish the scienter of a defendant corporation?

There are at least three distinct tests for corporate scienter, including two versions of the "collective scienter" theory being applied by the courts today.

Under the collective scienter theory, the analysis is based on the collective knowledge of the corporation's employees.

Under the stronger version of the collective scienter theory, a plaintiff can establish that the corporation acted with fraudulent intent without any reference to a particular employee. See, e.g. In re Dynex Capital, Inc. Sec. Litig., 2006 WL 1517580 (S.D.N.Y. June 2, 2006).

Under the weaker version of the collective scienter theory, a plaintiff need only establish that a management-level employee of the corporation acted with the requisite fraudulent intent, even if that employee is not a defendant and did not make any alleged false statement. See, e.g. In re Sonus Networks, Inc. Sec. Litig., 2006 WL 1308165 (D. Mass. May 10, 2006); In re Marsh & McLennan Companies, Inc. Sec. Litig., 2006 WL 2057194 (S.D.N.Y. July 20, 2006).

At the far end of the spectrum, and seemingly losing support by the day, is the concept that the corporate scienter analysis could only be determined by looking:

to the state of mind of the individual corporate official or officials who make or issue the statement . . . rather than generally to the collective knowledge of all the corporation's officers and employees acquired in the course of their employment.

Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353 (5th Cir. 2004).

While the new Globalstar cases have just been filed, the overlap of six senior officers or directors between the old and new entities (none of whom are currently named as defendants in the new litigation) may provide an interesting test case for the limits of the collective scienter theory.

Moving on...

2007-02-11T21:51:00.000-05:00

Many of you are already aware that I recently joined Institutional Shareholder Services as their Vice President, Product & Market Segment Manager for Securities Class Action Services.

As previously noted here, this means that I have revived Securities Litigation Watch, the blog started in 2003 by Bruce Carton, my predecessor at ISS.

As also previously noted, I am putting this blog (Lies, Damn Lies, & Forward Looking Statements) up for adoption.

Interested parties should e-mail me at liesdamnliesblog@gmail.com.

For the near term, postings here will merely be reposts of original content first posted over at Securities Litigation Watch.

Thanks again for your loyal readership, and I look forward to seeing and hearing from you over at Securities Litigation Watch.

"The Fab Fifty"

2007-02-08T22:17:00.000-05:00

The American Lawyer magazine has published a "Young Litigators Fab Fifty" list of fifty lawyers ages 45 and under. The members are considered to be "Litigation's Rising Stars."

Of interest to readers - two partners at two different prominent plaintiff side firms made the list.

The first, Blair A. Nicholas, 36, of Bernstein Litowitz Berger & Grossmann, LLP makes the list here.

Mr. Nicholas earned his spot on the list for his work as one of the lead trial counsel in the Clarent Corporation Securities Litigation, one of those rare securities cases that actually went to trial, and for his work in the Williams Securities Litigation, which settled for $311 million - the largest securities fraud settlement ever in Oklahoma.

The second, name partner Darren J. Robbins, 40, of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, makes the list here.

Mr. Robbins serves on the firm's executive committee and as head of the mergers and acquisitions practice at Lerach Coughlin. According to this short firm bio, Mr. Robbins "concentrates his practice in the structuring of corporate governance enhancements in connection with the resolution of shareholder class and derivative litigations."

Securities Class Actions - Next Stop Thailand?

2007-02-05T00:20:00.000-05:00

According to an article in the Bangkok Post this morning (you have to love the international dateline!), the Thai Investors Association (TIA) is pressing the government of Thailand to pass a "new class-action law to help strengthen the rights of retail investors."

Wichai Poolworaluk, TIA's president, suggests that:

In overseas markets, class-action suits are used as a tool to protect investor rights. And under this law, authorities gain greater leeway to help protect the rights of retail investors.

The TIA also is seeking to amend the Public Companies Act "to help increase the rights of shareholders, particularly in voting rights to contest controversial items that could damage the interest of minority investors."

The TIA is a:

leading organization in protecting investors rights and promoting good corporate governance among listed companies in order to help provide on environment for sustainable growth of the Thai capital market.

A review of the different litigation options currently available to Thai investors under Thai law is available from The Thailand Law Forum, here. The Law Forum "is a non-profit web site that strives to provide the English-speaking public with a free, unbiased and up-to-date source of information about Thai law."

The "Qwest" Is Over for CalSTRS

2007-02-01T23:02:00.000-05:00

Back in December, we looked at the results that one group of "opt-out" pension funds trumpeted in the AOL Time Warner securities litigation.

The opt-out trend continues, with apparent success by some investors.

According to a press release issued earlier this week, the California State Teachers' Retirement System (CalSTRS) was able to recover "approximately 30 times what it would have received had it participated in the federal class action as a class member," in reaching a $46.5 million settlement with Qwest Communications, Qwest's former auditors and underwriters, and and certain former Qwest executives.

CalSTRS, which is the second-largest public pension fund in the United States, was represented in the litigation by "Cotchett, Pitre, Simon & McCarthy" and Girard Gibbs LLP in the Qwest litigation.

The Cotchett firm's name is in quotes because an article (sub. req'd) in The Recorder from earlier this week indicated that name partner Bruce Simon was leaving the firm to start his own solo antitrust practice. A review of the firm's website reveals that the firm is now known as Cotchett, Pitre & McCarthy.

A copy of CalSTRS complaint, filed in December 2002 in the San Francisco County Superior Court, is available here, and the executed settlement agreement is available here.

The federal class actions were largely settled in 2005 for $400 million. Lead counsel in the class action is Lerach Coughlin Stoia Geller Rudman & Robbins LLP and the New England Healthcare Employees Pension Fund, Satpal Singh, Tejinder Singh, and Clifford Mosher are lead plaintiffs in the class action.

Of Tangential Interest (since postings are not daily at this point): A side by side review of the press release issued by CalSTRS after the filing of the complaint with the press release issued after the settlement reveals that the fund leapfrogged from the third largest public pension fund in 2002 to the second largest fund in 2006 as assets grew from $94 to $157.8 billion.

The fund that CalSTRS passed to move into second place is the New York State Common Retirement Fund (NYSCRF), which had assets of $140.45 billion as of March 2006. The NYSCRF is no stranger to securities litigation, having served as lead plaintiff in two of the largest securities class actions ever, WorldCom and Cendant.

Even Associates Can Be On TV

2007-01-30T22:08:00.000-05:00

A reader, who has requested anonymity for reasons that will become clear in a moment, has tipped us off to a story that is already making the rounds in the securities litigation world.

Marisa N. DeMato, an associate in Lerach Coughlin Stoia Geller Rudman & Robbins LLP's Boca Raton office is the latest person to be "fired" by The Donald in his "world's toughest job interview," The Apprentice.

This is of potential interest to readers because according to her Lerach Coughlin bio, "[a] substantial portion of Ms. DeMato’s time is currently devoted to aggressively representing investors in class actions involving securities fraud by public companies and their officers."

Ms. DeMato's official Apprentice biography, interview, picture gallery, etc., can be found here.

A Change of Scenery

2007-01-30T21:26:00.000-05:00

Dear Readers:

First, an apology for the extended absence.

Now, for the news.

I have joined Institutional Shareholder Services as the Vice President for Product and Market Segment Management for their Securities Class Action Services (SCAS) suite of products.

SCAS provides the industry’s most comprehensive securities litigation database and performs professional notification, tracking and claims filing services for institutional investors in securities class action suits.

Sometime in early to mid-February I will be reviving Securities Litigation Watch, the blog started in 2003 by Bruce Carton, my predecessor at ISS.

Bruce has joined The Garden City Group and started a new class action centered blog, Best in Class.

To complete the muscial blogging chairs - I am putting this blog (Lies, Damn Lies, & Forward Looking Statements) up for adoption.

Interested parties should e-mail me at liesdamnliesblog@gmail.com.

Postings here will be light until the transition to Securities Litigation Watch is complete.

Holiday break

2006-12-28T13:19:00.000-05:00

Things are slow in securities litigation land this time of year, so I'll take the opportunity to wish all of my readers great health and happiness in the New Year!

Checkmate for Check Point

2006-12-21T11:02:00.000-05:00

Today, Check Point Software Technologies Ltd. (NASDAQ: CHKP) announced that it has reached an agreement-in-principle to settle the securities class action lawsuits pending against the company and certain of it's officers and directors for $13 million.

According to the release, the entire settlement will be paid by Check Point's insurance carrier.

The litigation is pending in the United States District Court for the Southern District of New York before Judge Richard M. Berman.

Jay Stegmann is the lead plaintiff in the Check Point litigation, and Schiffrin & Barroway LLP and Milberg Weiss Bershad & Schulman LLP are lead and liaison counsel, respectively.

Philadelphia Stock Exchange Sale Challenged

2006-12-21T00:05:00.000-05:00

According to a press release issued last week, Chancellor William B. Chandler III of the Delaware Court of Chancery has denied the defendants' motions to dismiss in a class action brought on behalf of shareholders of the Philadelphia Stock Exchange to challenge a proposed sale of 90% of the equity of the stock exchange from the Class A shareholders to a group of Wall Street firms and members of the Exchange's Board of Governors.

A copy of Chancellor Chandler's opinion is available here and a copy of the class action complaint can be found here.

The Wall Street firms named in the complaint are UBS Securities, LLC, Morgan Stanley & Co., Inc., Citigroup Financial Products, Inc., Credit Suisse First Boston, Citadel Derivatives Group , LLC, and Merrill Lynch, Pierce Fenner & Smith.

Berger & Montague, P.C. and Rosenthal, Monhait & Goddess, P.A. are counsel for the plaintiff.

Daily Trivia: The Philadelphia Stock Exchange was the first securities exchange in the United States. The exchange was officially established in 1790, and initially mainly government obligations were traded. Among the securities listed in the early days of the Exchange were shares of The Philadelphia and Lancaster Turnpike Company, the first turnpike in the United States. The route that formed the turnpike is now known as Route 30, or Lancaster Avenue.

Yet Another Options Backdating Study

2006-12-20T00:05:00.000-05:00

A new study by Harvard Law School's Program on Corporate Governance released this week suggests that options grants to outside directors "have been favorably timed to an extent that cannot be explained by mere luck."

The study, entitled Lucky Directors, was written by Prof. Lucian Bebchuk (Harvard Law School), Prof. Yaniv Grinsten (Cornell University - Samuel Curtis Johnson Graduate School of Management) and Prof. Urs Peyer (INSEAD).

The authors found that, out of all director options grant events during 1996-2005, 9% were so called "lucky grant events" - falling on days with a stock price equal to a monthly low.

The study estimates that about 800 "lucky grant events" were timed opportunistically, and that approximately 460 different companies and more than 1400 outside directors were associated with grant events involving such timing.

Additionally, the study found that 3.8% of all options grant events were "super-lucky," defined as taking place at the lowest price of a calendar quarter.

Daily Trivia: Harvard's Program on Corporate Governance is part of the John M. Olin Center for Law, Economics, and Business. The Center was founded in 1985, but in 2003 received a $10 million grant from the John M. Olin Foundation. The gift was the largest foundation grant in the history of Harvard's Law School. The foundation was started by John Merrill Olin, the late founder of Olin Corporation (NYSE: OLN), a major manufacturer of copper alloys, ammunition, and chlorine and sodium hydroxide.

Help Wanted - Apply by Lead Plaintiff Motion

2006-12-19T00:02:00.000-05:00

The current lead plaintiffs in the Cyberonics, Inc. securities litigation are looking for some help.

According to a press release issued on Monday, the lead plaintiff process in the case has been reopened, nearly 15 months after the original lead plaintiffs were appointed.

Curiously, the announcement comes after a prior consolidated amended complaint was dismissed, and four months after the first amended complaint was filed. A copy of the first amended complaint is available from Stanford, here.

The new complaint substantially expands the class period and adds allegations related to options backdating.

The Cyberonics litigation is pending in the United States District Court Southern District Of Texas before Judge Gray H. Miller.

EFCAT, Inc., John E. and Cecilia Catogas, Blanca Rodriguez and Mohamed Bakry are the current lead plaintiffs in the Cyberonics litigation and Finkelstein & Krinsk LLP and Scott + Scott LLC are currently serving as co-lead counsel.

Daily Trivia: Cyberonic's only product is an implantable medical device for the long-term treatment of epilepsy, depression, and other chronic disorders using vagus nerve stimulation therapy.

The vagus nerve is the only nerve that starts in the brainstem and extends down below the head, to the abdomen. It is also known as the "pneumogastric nerve since it innervates both the lungs and the stomach." The name is derived from the Latin word vagus, literally meaning "wandering."

Securities Class Action Filed Down Under

2006-12-18T00:40:00.000-05:00

An article in The West Australian today notes that shareholders of Multiplex Group (ASX: MXG) have filed a class action against the Australian property developer in The Federal Court of Australia in Melbourne.

According to the article, the litigation stems from the alleged failure of Multiplex to:

keep the market properly informed about problems it was having with the [redevelopment of London's Wembley Stadium] and the likely impact those problems would have on the company's profits.

Specifically, the complaint alleges:

Multiplex was behind schedule and had incurred cost overruns by August 2004, but did not announce the project would be making a loss until May 2005.

The complaint was filed on behalf of 45 investors by the Australian firm Maurice Blackburn Cashman Lawyers. The firm has a specific page devoted to the litigation, here.

Daily Trivia: For non-soccer fans, Wembley Stadium is perhaps best remembered as one of the two concert sites for Live Aid, the 1985 concert that sought to raise awareness of famine in Africa. According to this VH1 article, "an estimated 1.4 billion of the planet's five billion" tuned in to the concert that day, and more stunning still, "95 percent of the world's television sets were tuned in to" the concert at one point.

Vigorous Defense, With a Twist

2006-12-14T19:45:00.000-05:00

Today, AtriCure, Inc. (NASDAQ: ATRC) issued a press release regarding the securities class action lawsuits that were recently filed in the United States District Court for the Southern District of New York against the company and certain of its officers that adds yet another wrinkle to the Securities Litigation Universe of [Press] Release Permutations (a/k/a SLURP).

The SLURP collection was previously discussed here and here.

In the release, David Drachman, the president and CEO of the West Chester, Ohio based medical device company stated:

We believe that these allegations are without merit and we intend to vigorously defend the Company. As a public company, the Company has maintained insurance coverage to address such matters. Management is and will remain focused on the growth and development of our Company.

Mr. Drachman has the party line down with his "vigorous defense" proclamation, but it is a bit unusual to publicly discuss reliance on insurance coverage to pay for costs associated with a securities class action when there has been no adjudication of the claims, and thus the insurer may still deny coverage.

NASDAQ (where AtriCure is listed) has "A Guide for North American Companies Listing on the U.S. Securities Markets," which explains many of the issues surrounding public offerings and D&O policies. Latham & Watkins LLP also has an excellent Client Alert discussing D&O insurance issues in the context of options-backdating cases.

So this new version of the vigorous defense press release will be called the, "We didn't do it, we're going to come out swinging, and, hey, somebody else is going to pay for it" press release.

I wonder if The D&O Diary has anything to say about this?

Daily Trivia: Latham's web page for the firm's "Securities Litigation and Professional Liability" practice group indicates that the attorneys with the firm have handled "more than 200 securities class actions" in the past decade. According to Stanford's Securities Class Action Clearinghouse, that is about 8% of all securities class actions filed since the passage of the PSLRA.

Preemptive Vigorous Defense or Buried Notice?

2006-12-13T23:12:00.000-05:00

Today, Technical Olympic USA, Inc. (NYSE: TOA) announced that the securities class action complaint filed against the company and certain executive officers of the company:

is without merit and that it intends to defend the lawsuit vigorously.

The complaint was filed in the United States District Court for the Southern District of Florida.

Here's the rub - a quick search of Yahoo! Finance, MarketWatch, TheStreet.com, and The Motley Fool, reveals that no press release has yet been issued by the firm(s) that filed the complaint.

It appears that we have another "preemptive vigorous defense" press release.

Or we may have a case of so-called "buried notice," as previously discussed by Bruce Carton over at Securities Litigation Watch, here.

UPDATE: Lerach Coughlin Stoia Geller Rudman & Robbins LLP issued a PSLRA notice today, available here.

Daily Trivia: Konstantinos A. Stengos, Technical Olympic's chairman of the board and the founder of the Technical Olympic Group of Companies is among the "50 Wealthiest Greeks in America." Among his diverse holdings are the Greek Porto Carras vineyards.

Company Bites Auditor

2006-12-12T22:30:00.000-05:00

Ok, it's not quite man bites dog, but today Fannie Mae (NYSE: FNM) announced that it has filed suit against KPMG LLP, the company's former outside auditor, for negligence and breach of contract in the Superior Court of the District of Columbia.

The 17-count complaint seeks:

[c]ompensatory damages to be determined at trial in an amount not less than $2,000,000,000 (Two Billion Dollars)

A copy of the complaint is available from Fannie Mae, here.

Articles on the litigation can be found here (The Wall Street Journal - sub. req'd), here (MarketWatch.com), and here (Reuters).

The Journal article quotes a KPMG spokesman, who indicated that the accounting firm "is likely to file a countersuit," and that KPMG "will remove this suit to [the United States District Court for the District of Columbia], where we intend to pursue our own claims."

Disclosure: The author and his law firm are counsel for certain plaintiffs in the currently pending Fannie Mae derivative litigation.

Securities Litigation Settlements May Be Tax-Deductible

2006-12-12T21:19:00.000-05:00

An article today from WebCPA notes that the Internal Revenue Service has agreed, in a letter ruling, that a publicly-traded acquiring corporation can deduct the amount it paid to settle class action securities litigation against the target corporation that was triggered by misstatements in the target corporation’s reported earnings.

Generally, as noted in the letter,

amounts paid in settlement of lawsuits are currently deductible if the acts which gave rise to the litigation were performed in the ordinary conduct of the taxpayer's business. See, e.g., Federation Bank & Trust Co. v. Commissioner, 27 T.C. 960 (1957).

But, if the litigation arises from a capital transaction,

then the settlement costs and legal fees associated with such litigation are characterized as acquisition costs and must be capitalized under § 263(a). See Woodward v. Commissioner, 397 U.S. 572, 575 (1970) (holding litigation costs incurred by corporation in appraisal proceedings mandated by state law to determine the value of dissenter’s shares were part of the cost of acquiring those shares); United States v. Hilton Hotels Corp., 397 U.S. 580, 583 (1970); (similarly, deciding that litigation costs incurred in appraisal action to determine fair purchase price were costs to acquire property); Berry Petroleum Co. v. Commissioner, 143 F.3d 442 (9th Cir. 1998)(concluding that legal expenses to defend class action lawsuit alleging breach of fiduciary duty in accomplishing merger were nondeductible acquisition costs).

Certain business expenses are not converted into capital expenditures even though they have some connection to a capital transaction. In determining whether litigation costs are deductible expenses or capital expenditures, the courts and the IRS have looked to the "origin of the claim" test.

The acquiring corporation:

claimed that the settlement costs were deductible as ordinary and necessary business expenses because the complaints were the product of an ongoing dispute between target's shareholders and the taxpayer, as controlling shareholder of target, for withholding dividends, issuing fraudulent and incomplete financial statements, and artificially depressing its stock price.

As a result, the acquiring corporation argued these claims were related to ordinary course business activities, and did not originate in the merger of the two companies or any other capital acquisition.

The IRS agreed, holding that:

Under these circumstances, we believe that the origin of these claims was in the ordinary conduct of [the target company's] trade or business.

The ruling, as with most letter rulings by the IRS, is directed only to the taxpayer requesting it and is not precedential in other cases.

Daily Trivia: The origin of the IRS can be traced back to the Civil War, when President Lincoln and Congress created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. In 1872, the income tax was repealed, but in 1894 Congress revived the income tax in 1894, only to have the Supreme Court rule it unconstitutional the following year. The country remained without a federal income tax until 1913, when Wyoming ratified the 16th Amendment, which gave Congress the authority to enact an income tax.

Options Backdating, Eh?

2006-12-11T23:38:00.000-05:00

According to a recent Chicago Tribune article, a forthcoming study by economics professors at the University of Manitoba suggests that options backdating could might be as much of an issue for Canadian companies as it has turned out to be for US companies.

The study, Remuneration and Incentives of Managers: Executive Stock Options and Backdating in Canada, examined stock options granted to executive by 66 of Canada's largest publicly traded companies from June 2003 through October 2006.

The authors found trading patterns that may be consistent with options backdating and that many options grants were not being reported as quickly as required.

A preliminary draft of the study notes:

While it is impossible to determine unequivocally that companies are engaging in backdating. . .the aggregate evidence certainly supports such a story.

The study found that unscheduled grants had a higher rate than scheduled grants of abnormally high returns.

The authors also found that reporting requirements regarding stock options were not being properly followed. Toronto Stock Exchange rules (See Toronto Stock Exchange Company Manual Sec. 613(h)(i), here) require that:

the exercise price for any stock options granted under a security based compensation arrangement or otherwise must not be lower than the market price of the securities at the time the option is granted.

In other words, options must not be granted 'in the money.'

Moreover, Canadian securities regulations require that a company report all stock-option grants within 10 days of the grant. As a result of this long reporting period, companies may be setting the exercise price at the lowest point during a particular time period, giving the option recipients an immediate boost in the options' value.

The study analyzed more than 5,600 instances of stock-options granting. It found that 17% of reports for grants were filed after the 10-day window had expired, with 9% of those reports filed more than 50 days after the grant date.

The article was authored by Prof. Ryan A. Compton, Jonathon N. Giller, and Prof. Lindsay M. Tedds.

The D&O Diary also has a post on the study, here.

Daily Trivia: Of the 66 Canadian companies discussed in the study eight have been the subject of federal securities class actions since the passage of the PSLRA.

They are:

ATI Technologies Inc. (twice)
Barrick Gold Corp.
Biovail Corp.
Bombardier Inc.
Cognos Inc.
Inco Limited
Kinross Gold Corp.
Nortel Networks Corp. (twice)
Cott Corp. (pre-PSLRA)

Cigna Settles Securities Class Actions

2006-12-10T22:42:00.000-05:00

According to an article in the Philadelphia Inquirer, CIGNA Corp. (NYSE: CI) has settled the consolidated securities class action pending against the company and certain of its officers for $93 million.

The Pennsylvania State Employees' Retirement System is the lead plaintiff and Berger & Montague, P.C. and Bernstein Liebhard & Lifshitz LLP are co-lead counsel in the CIGNA litigation.

Both the company (here) and the lead plaintiff (here) issued press releases regarding the settlement. The release issued by the lead plaintiff notes that the settlement:

is in the top 8% of all securities class action settlements from 1996 through 2004.

And that the settlement:

is one of the 60 largest securities class action settlements ever achieved.

The case is pending in the United States District Court for the Eastern District of Pennsylvania before Judge Michael M. Baylson.

The Legal Intelligencer (via Law.com) has an article regarding an earlier ruling by Judge Baylson regarding the identification of confidential informants in securities fraud litigation, an increasingly common practice. In that decision, Judge Baylson ruled that:

Requiring specific identification of confidential sources from among the universe of individuals with relevant knowledge in a securities fraud case would chill informants from providing critical information which may end up being in the public eye.

Judge Baylson concluded that:

fairness compels only that if an individual who is a confidential informant does have relevant information, that person's identity should be disclosed as a discoverable matter, but without disclosing that he or she is a confidential informant.

Daily Trivia: Judge Baylson is an adjunct professor at the University of Pennsylvania's Law School. For several years earlier in his career, Judge Baylson served as an assistant district attorney under then Philadelphia District Attorney (now Senator) Arlen Specter.

AOL Time Warner Opt-Out Cases Starting to Settle

2006-12-07T18:35:00.000-05:00

An article in today's New York Sun details the success garnered by one of the so called "opt-out" cases filed by institutional investors in the AOL Time Warner litigation.

The litigation was filed by the Alaska Department of Revenue, Alaska State Pension Investment Board, and the Alaska Permanent Fund Corporation on behalf of various Alaska state investment funds in the Superior Court of the State of Alaska - First Judicial District (Juneau).

According to the article:

Time Warner agreed this week to pay Alaska $50 million to compensate it for investment losses alleged to total about $60 million...That result, amounting to about 83 cents a dollar allegedly lost, appears to be far superior to the payout in the nationwide settlement, which has not been calculated officially but is likely to be a few cents on the dollar, according to lawyers involved in the litigation.

According to Richard M. Heimann, one of the attorneys for the Alaska pension funds:

Our settlement is far and away more than what we would have received - 50 times more than what we would have received if we had remained in the class.

A Reuters (via Forbes) article from the day the complaint was filed placed the losses of the Alaska pension funds at $70 million, but that still works out to 71 cents on the dollar.

The Alaska pension funds are represented by Lieff Cabraser Heimann & Bernstein, LLP and the Alaska Attorney General's office, and a copy of Alaska's complaint can be found here.

The article also notes that more than 100 institutional investors have opted out of the AOL Time Warner settlement and signed up with Lerach Coughlin Stoia Geller Rudman & Robbins LLP to pursue individual or group actions.

When "[a]sked if his clients will fare better than those who joined the national settlement, Mr. Lerach said, 'There's no question we're getting tons more dollars.'"

The Lerach firm has information on their website regarding a wave of opt-out cases they filed back in February 2006, here, including a list of plaintiffs (here) and a recording of Bill Lerach's conference call announcing the litigation (here).

The pension fund covered by the Alaska settlement include:

Alaska Department of Revenue funds:

The Constitutional Budget Reserve Fund;
The Public School Trust Fund;
The Power Cost Equalization Endowment Fund:
The Exxon Valdez Oil Spill Investment Fund;
The Retiree Health Insurance Fund - Major Medical;
The Retiree Health Insurance Fund - Longterm Care;
The University of Alaska, Investment Trust Fund; and
The Alaska Children’s Trust Fund.

Alaska State Pension Investment Board funds:

The Public Employees' Retirement System;
The Teachers' Retirement System;
The Judicial Retirement System;
The National Guard/Naval Militia Retirement Systems;
The Alaska Supplemental Annuity Plan; and
The Alaska Deferred Compensation Plan (employee directed accounts).

Alaska Permanent Fund Corporation funds:

The Alaska Permanent Fund; and
The Alaska Mental Health Trust Fund.

Daily Trivia: The Exxon Valdez Oil Spill Trustee Council, the organization tasked with the efficient restoration of the environment injured by the Exxon Valdez oil spill, manages the civil settlements paid by Exxon to the state and federal governments. According to the Council's investment policies, for the first 8 years, the Council was only allowed to invest in United States Treasury securities. But with the passage of Public Law 106-113 in 1999, the Council was permitted to invest in other assets, but:

such outside investments are limited to income-producing asset classes, including debt obligations, equity securities, and other instruments or securities that have been determined by unanimous vote of the Council to have a high degree of reliability and security.

That is a seemingly tough standard that nevertheless would not have prevented or prohibited many asset managers from investing in AOL, Enron, WorldCom, Fannie Mae, AIG, or other high-flying members of the S&P 500 that have suffered through scandals in the recent past.

Four Days.

2006-12-06T22:03:00.000-05:00

That's how long it took for Schoengold Sporn Laitman & Lometti, P.C. to announce that the firm had filed a securities class action lawsuit against Pfizer Inc. (NYSE: PFE) stemming from the company's December 2, 2006 announcement that they were suspending clinical trials of torcetrapib.

The question was posed on December 4, 2006 by the WSJ Law Blog, here.

The complaint was filed on behalf of the Uniformed Sanitationmen's Association Local 831 Pension Fund in the United States District Court for the Southern District of New York.

Torcetrapib is a CETP inhibitor, which work by blocking an enzyme that transforms HDL (the so-called good cholesterol) into LDL (the bad cholesterol). Pfizer had intended to sell Lipitor (an LDL lowering drug) in combination with torcetrapib.

According to the law firm's press release, in a clinical trial of torcetrapib involving 15,000 patients:

82 patients died taking torcetrapib/Lipitor combination as compared to only 51 patients taking Lipitor alone, and patients taking torcetrapib showed an increase in angina, congestive heart failure and procedures to clear clogged arteries.

According to an AP article, other drugmakers, including Roche Holding AG and Merck & Co., are reportedly developing CETP inhibitors.

Daily Trivia: The Schoengold firm has quite a diverse list of clients, ranging from the Association of Theatrical Press Agents & Managers Pension and Welfare Funds, to the Brotherhood of Railroad Signalmen - Local 56 Health & Welfare Fund, to the Soft Drink and Brewery Workers Union Local 812 Retirement Fund.

According to a history of ATPAM, Milton Weintraub the late secretary-treasurer of the union "developed the first union pension and welfare funds."

Second Circuit Reverses Class Certification in IPO Cases

2006-12-05T23:36:00.000-05:00

According to a New York Times article (reg. req'd), the United States Court of Appeals for the Second Circuit reversed Judge Shira A. Scheindlin's October 13, 2004 decision to certify the class in six "focus cases" out of the more than 300 consolidated and coordinated class actions pending before her as part of the massive In re Initial Public Offering Securities Litigation.

A copy of the Second Circuit's opinion can be found here, courtesy of the WSJ Law Blog.

The briefs in the case are available online, as follows:

Brief for Defendant-Appellant Underwriters Seeking Reversal of Class Certification Under Federal Rule of Civil Procedure 23(f)
Brief for Plaintiffs-Appellees
Reply Brief for Defendant-Appellant Underwriters Seeking Reversal Of Class Certification Pursuant Federal Rule of Civil Procedure 23(f)
Brief for the Chamber of Commerce of the United States of America as Amicus Curiae Supporting Defendant-Appellants and Supporting Reversal of Class Certification Pursuant to Federal Rule of Civil Procedure 23(f)
Brief For The NAACP Legal Defense And Educational Fund, Inc. as Amicus Curiae In Support Of Plaintiffs-Appellees

Plaintiffs are represented by an executive committee consisting of Milberg Weiss Bershad & Schulman LLP (chair), Bernstein, Liebhard & Lifshitz, LLP (vice-chair), Schiffrin & Barroway, LLP, Sirota & Sirota, LLP, Stull, Stull & Brody, and Wolf Haldenstein Adler Freeman & Herz LLP.

As noted previously, here, plaintiffs' counsel maintains a website in the IPO Litigation that has copies of many of the major briefs filed in the case, as well as copies of the amended complaints filed in each of the three hundred consolidated and coordinated cases.

Update: The D&O Diary has a thoughtful post on the decision here, and there are additional news articles here (FT via MSNBC), here (American Lawyer via Law.com). and here (WSJ sub. req'd).

Daily Trivia: According to the firm's resume, Sirota & Sirota filed the first antitrust action in the In re IPO Antitrust Litigation, a distant cousin to the IPO securities litigation, that alleged the collusive "laddering" of IPOs by investment banks in the United States. The litigation was initially dismissed, but reversed by the Second Circuit. A petition for certiorari is pending before the United States Supreme Court. See Billing v. Credit Suisse First Boston Ltd., 287 F.Supp.2d 497, rev’d 426 F.3d 130 (2d Cir. 2005), petition for cert. filed, April 12, 2006 (No. 05-1157).

The firm also is a bit of a rare duck, noting on their resume that they have an active securities litigation practice representing defendants prosecuted by federal or state agencies or sued by investors.

Shareholders Say 'No-Way' to Kanbay Merger

2006-12-04T23:49:00.000-05:00

Today, Kanbay International, Inc. (NASDAQ: KBAY) announced that a class action complaint was filed in the Circuit Court of Cook County, Illinois alleging that Kanbay and its directors breached their fiduciary duties to the stockholders of Kanbay in the negotiation of the proposed merger with Cap Gemini SA (EPA: CAP) and Capgemini Financial Services, Inc. that was announced on October 26, 2006.

According to the release, the complaint:

alleges that the price negotiated is inadequate, that the directors obtained benefits that are not available to the public stockholders and that certain material disclosures are omitted from the preliminary proxy statement Kanbay filed on November 13, 2006 with the Securities and Exchange Commission.

The complaint further alleges that:

Cap Gemini aided and abetted the alleged breaches of fiduciary duty.

A copy of the complaint is available here.

Counsel for the plaintiff, Capital Trading Co., are The Brualdi Law Firm and Leland E. Shalgos.

Crain's Chicago Business has a story on the lawsuit, here, and Reuters has a story, here. The Reuters story has an obligatory "vigorous defense" quote from Cap Gemini.

Daily Trivia: One of Kanbay's board members, Cyprian D'Souza, is also the company's "Chief Culture Officer." According to a Forbes profile of D'Souza, he also held the position of "Chief People Officer from 1995 to November 2005." It's not quite a "minister of fun" or some of the other wacky job titles that internet companies handed out like candy during the dot.com boom, but it was odd enough to give me pause.

My 10 pence on the Paulson Committee Report

2006-12-04T00:01:00.000-05:00

A guest post, by Werner Kranenburg, a former Schiffrin & Barroway, LLP summer associate, and current law student in the United Kingdom.

My 10 pence on the Paulson Committee Report

It’s only been a few days since the release of the highly-anticipated Interim Report by the Committee on Capital Markets Regulation (aka the 'Paulson Committee') and as expected it’s been the topic of the day.

For the first round of analysis, please take a look at (in no particular order) Lyle Roberts at The 10b-5 Daily, Walter Olson at PointofLaw.com here and here, Broc Romanek at TheCorporateCounsel.net Blog and Peter Lattman at The WSJ Law Blog here and here.

Looking at the Report from a UK point of view however, it is interesting to incorporate two pieces of UK legislation that do not seem to be the subject of US discussion yet. They are the Investment Exchanges and Clearing Houses Bill and the Fraud (Trials without a Jury) Bill. Regarding the first Bill, on page 69 (85 of 152) the Report states the following under the heading of 'Need For More International Regulatory Cooperation':

Regulators in the United Kingdom and Europe have voiced concerns about the extra-territorial reach of U.S. laws and rules, should a U.S. exchange merge with a U.K. or European exchange. For example, a senior officer in the U.K. Treasury has announced that the government will introduce legislation to impose a barrier against the imposition of Sarbanes-Oxley on firms trading in London should the London exchange merge with a U.S. exchange. As Ed Balls, the economic secretary to the Treasury, said with understatement: "The Sarbanes-Oxley regime in the United States is not a regime that some companies find easy to deal with."

In fact, it is Ed Balls MP, Economic Secretary to the UK Treasury (who is also quoted on page xi (13 of 152)), whose name is being used for the colloquial moniker of the Investment Exchanges and Clearing Houses Bill, namely the 'Balls Clause.' It was introduced in Parliament two weeks before the Report was published and is currently swiftly progressing toward Royal Assent. (See here to follow the Bill’s House of Commons proceedings live.)

In short, the Bill is a measure to "disallow excessive regulatory provision." Or, put differently, it is a measure against the threat of US 'regulatory creep' just in case NASDAQ were to buy or merge with the London Stock Exchange. The Report on the same page:

U.S. proponents of equity markets globalization-both market officials and regulators-have countered that extraterritorial reach should not be a problem. They argue that even after a trans-Atlantic merger, trades executed in the United Kingdom or European venues of the merged exchange, and issuers listed there, will not be subject to U.S. laws or rules. Many in Europe remain skeptical.

So true…

Regarding the second Bill, the Committee, on page 18 (34 of 152) under the heading 'Shareholder Choice of Remedies', suggests that "[t]he SEC should permit shareholders to adopt alternative procedures for resolving disputes with their companies. These procedures might include arbitration (with or without class actions) or the waiver of jury trials (a waiver commonly made in a variety of circumstances)." The Queen was there first, also by a good two weeks. In her annual Speech (as part of the State Opening of Parliament) she introduced the Fraud (Trials without a Jury) Bill thus: "A Bill will be introduced to provide for trials without a jury in serious fraud cases." It’s a controversial measure: see Legal Week for same day industry response, here for some historical background and for more recent coverage, here.

On the day of the Report’s publication (30 November), Steven Toll of Cohen, Milstein, Hausfeld & Toll, PLLC was quoted in the FT ('Experts seek to give the US back its edge', p.26), seemingly in anticipation of the Report but he could as well have responded to the Fraud Bill (an excerpt):

It [the Committee] is also expected to urge companies to ask shareholders to waive their right to a trial by jury - a move that could reduce damage pay-outs. [Which indeed it does, as noted.] Investor advocates are not convinced. Shareholder lawyer Steve Toll, of Cohen Milstein Hausfeld & Toll, called the proposal to do away with jury trials for shareholders "insane… Did anyone forget what just happened with Enron?"

As discussed previously here, he might as well already be based in the UK?

And finally, Tuesday next week (5 December) Glenn Hubbard, Co-Chair of the Committee, will be online for an hour to take Financial Times readers’ questions from 7am EST (12pm noon GMT), here. You may submit questions or comments in advance by sending an e-mail to ask@ft.com or using the form at http://www.ft.com/hubbard.

Daily Trivia: Is 'on holiday,' as they say in the UK, but will return for your amusement tomorrow.

Guest Bloggers Wanted!

2006-12-03T22:15:00.000-05:00

I'm issuing an open call for any reader who wants to submit a guest post for this humble blog.

I'll take anything as long as it is timely, pithy, and somehow relates to securities litigation.

That means that all of you defense attorneys are welcome to write, instead of just lurking there in the background. And I expect a strong showing from the plaintiffs' bar. Academics, law students, and people without law degrees (or an intent to obtain one) who still bother to read my ramblings, are all welcome.

Go ahead, unleash your creative urge!

Interested readers should e-mail me: asavett AT findjustice DOT com (sorry for the hoops, but it keeps the spam down!)

Hanging Out the For Sale Sign

2006-11-30T22:32:00.000-05:00

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

2006-11-29T23:20:00.000-05:00

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

2006-11-29T17:15:00.000-05:00

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

2006-11-28T23:15:00.000-05:00

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

2006-11-28T13:40:00.000-05:00

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?

2006-11-27T22:38:00.000-05:00

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...

2006-11-21T22:30:00.000-05:00

Posts will resume after the holiday weekend.

Best wishes to you and yours!

Yet Another Press Release Permutation

2006-11-21T12:59:00.000-05:00

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...

2006-11-20T00:30:00.000-05:00

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

2006-11-16T22:46:00.000-05:00

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

2006-11-15T22:34:00.000-05:00

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:

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

2006-11-14T22:30:00.000-05:00

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

2006-11-13T22:20:00.000-05:00

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

2006-11-12T22:55:00.000-05:00

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...

2006-11-07T21:55:00.000-05:00

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

2006-11-06T21:55:00.000-05:00

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

2006-11-05T20:36:00.000-05:00

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

2006-11-03T15:02:00.000-05:00

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!

2006-11-02T21:51:00.000-05:00

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!

2006-11-01T11:21:00.000-05:00

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.

Desperately Seeking Standing

2006-10-31T22:15:00.000-05:00

Last week, Labaton Sucharow & Rudoff LLP, lead counsel in the In re National Australia Bank Securities Litigation, issued this press release, noting that the Court had:

dismissed the Complaint, holding that the Court lacked subject matter jurisdiction over the claims of foreign purchasers of NAB securities purchased on non-U.S. exchanges.

The Court also ruled that the plaintiff who purchased NAB ADRs did not sustain damages and dismissed the claims of ADR purchasers.

According to the release:

This means that someone who purchased NAB ADRs between April 1, 1999 and September 3, 2001, inclusive, and lost money on the investment, may seek to be substituted as a plaintiff so that the action can continue.

And:

IF NO ADR PURCHASER STEPS FORWARD, NO RECOVERY BY WAY OF SETTLEMENT OF, OR JUDGMENT IN, THIS LITIGATION WILL OCCUR.

(emphasis in original)

The National Australia Bank Ltd. (NYSE: NAB) press release came just one day after this one in the Wells Fargo mutual funds litigation, discussed here last week.

Two similar press releases in one week are enough to create a trend, so without further ado, let's roll out our newest addition to the "Securities Litigation Universe of [Press] Release Permutations", or SLURP.

We'll call the newcomer to SLURP the "Personal Ad Press Release."

It describes a press release discussing securities litigation where some or all of a case has been dismissed on standing grounds, and plaintiff's counsel is attempting to find a substitute plaintiff that will cure the standing issue.

Daily Trivia: Labaton Sucharow partner Mark S. Arisohn was one of the attorneys that represented Vincent Chiarella before the Supreme Court in Chiarella v. United States, 445 U.S. 222 (1980), the seminal insider trading case.

Savient Wins On Scienter

2006-10-30T22:46:00.000-05:00

Savient Pharmaceuticals, Inc. (NASDAQ: SVNT) today announced that securities class action pending against the company and three of its former officers was dismissed with prejudice.

The case is pending in the United States District Court for the District of New Jersey before Senior Judge Harold A. Ackerman.

During the class period Savient was known as Bio-Technology General Corporation, but changed its name on June 23, 2003. The litigation is thus captioned as In re Bio-Technology General Corp. Sec. Litig.

Poalim Mutual Funds and Joseph Rago are the lead plaintiffs and Glancy Binkow & Goldberg LLP and the Law Offices of Jacob Sabo are lead counsel in the Bio-Technology General litigation. A copy of Judge Ackerman's opinion appointing lead plaintiffs and lead counsel can be found here.

The lead plaintiffs filed a first amended consolidated class action complaint on September 25, 2003, and by this opinion, Judge Ackerman dismissed the complaint without prejudice.

On October 11, 2005 the plaintiffs filed this second amended complaint (complete with attachments from a "confidential witness") and the defendants again moved to dismiss.

According to the press release, Judge Ackerman's dismissal of the second complaint was based on the failure:

to set forth particularized facts, through direct or circumstantial evidence, which give rise to a strong inference that the defendants acted with intent to defraud, recklessness or a conscious disregard of the truth.

In other words - insufficient scienter allegations.

Daily Trivia: Poalim Mutual Funds was one of the two mutual fund managers of Bank Hapoalim Ltd., Israel's largest bank. In late 2005, Hapoalim and the second largest mutual fund manager in Israel, Bank Leumi Le-Israel Ltd., began selling their mutual and provident fund-management units to comply with a new law that required Israeli banks to divest their asset-management businesses.

The Wells Fargo Wagon

2006-10-26T21:28:00.000-05:00

Judge William H. Alsup has partially denied the latest motion to dismiss in the Wells Fargo & Co. (NYSE: WFC) mutual funds litigation according to a press release issued today by lead counsel, Gutride Safier LLP.

A copy of Judge Alsup's October 24, 2006 opinion is available here, but as alluded to earlier, this is merely the latest motion to dismiss in the litigation, and a copy Judge Alsup's August 14, 2006 opinion also denying in part and granting in part the prior motion to dismiss is available here.

In the August 14 opinion, Judge Alsup held that the plaintiff had failed to allege that he had standing to bring his claim for violation of Section 36(b) of the Investment Company Act of 1940, and that there was no private right of action for violations of Section 48(a) of the ICA, and dismissed those claims.

Judge Alsup found however, that plaintiff had properly plead violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 and denied the motions to dismiss those counts in the prior amended complaint.

In the latest opinion, Judge Alsup granted the motion to dismiss with respect to the claims alleged against H.D. Vest Investment Services, LLC, an affiliated, broker/dealer, non-bank subsidiary of Wells Fargo, due to standing issues.

Judge Alsup also dismissed the Section 10(b) claims alleged against the investment advisor and distributor defendants, holding that the plaintiff had not adequately plead that those defendants had made any statements or participated substantially enough in the alleged scheme to defraud.

A copy of the "Second Amended Consolidated Class Action Complaint For Violation Of The Federal Securities Laws And For Violation Of The Investment Company Act" (say that five times fast) is available here.

The plaintiff "may seek leave to amend by filing a motion proposing yet another complaint, to be filed and served by November 17, 2006," so yet another round of motions to dismiss will be "a-comin' down the street."

Daily Trivia: Judge Alsup is also a passionate outdoorsman, having spent considerable time exploring and helping to conserve the Sierra Nevada Mountains. Judge Alsup has even written a pair of books for the Yosemite Association, including Missing in the Minarets: The Search for Walter A. Starr, Jr., which details the mysterious 1933 disappearance of a prominent San Francisco attorney among the rugged peaks of the Sierra Nevada.

Wait, I Though the Cart Went After the Horse

2006-10-25T22:01:00.000-05:00

We've talked about a fair number of press release permutations over the life of this blog.

Today, Xethanol Corporation (AMEX: XNL) decided to add a new one to the list - the "we don't understand securities litigation, but that won't stop us from commenting on it" press release.

The press release starts off in familiar territory, with the routine headline:

Xethanol Says Class Action Lawsuit Without Merit

But instead of staying on course and setting forth the company's intent to put on a "vigorous defense," the press release takes an unexpected left turn:

"All that we have received thus far is the law firm's press release that ran at 5:19 p.m. yesterday afternoon. Not only are the allegations and insinuations baseless, but also the case apparently has no lead plaintiff," said Louis Bernstein, Xethanol's President and interim CEO.

Well, Mr. Bernstein, that is actually the point. The PSLRA requires that:

Not later than 20 days after the date on which the complaint is filed, the plaintiff or plaintiffs shall cause to be published, in a widely circulated national business-oriented publication or wire service, a notice advising members of the purported plaintiff class--

1. of the pendency of the action, the claims asserted therein, and the purported class period; and

2. that, not later than 60 days after the date on which the notice is published, any member of the purported class may move the court to serve as lead plaintiff of the purported class.

If the good folks at Xethanol have any further questions about the securities litigation process, Kaplan Fox & Kilsheimer LLP have prepared this handy flowchart to assist them.

The press release that started the furor was issued by Kahn Gauthier Swick, LLC. That release also contained some interesting language:

SPECIAL NOTICE: While federal law does not prohibit other lawyers from "announcing" this lawsuit, Kahn Gauthier Swick is the law firm that researched, investigated, drafted and filed the securities fraud case against Xethanol. If you are a Xethanol shareholder who decides to contact one of these lawyers, Kahn Gauthier Swick reminds you to fully interview any lawyer to assure that they fully understand the facts surrounding the Xethanol claims our firm has filed in Court.

This is indeed a recurring them, last discussed in June 2005 byThe 10b-5 Daily and Securities Litigation Watch, regarding the PEMSTAR litigation.

It also harkens back to the practice discussed in this November 2002 Fulton County Daily Report article on Bill Lerach's efforts to stop other firms from simply copying and re-filing his firm's securities complaints by copyrighting those complaints.

Not to encourage anyone, but a copy of the Kahn firm's complaint in the Xethanol litigation is available here.

Daily Trivia: One of Xethanol's Advisory Board members is Jed Schutz, a real estate developer and chairman of the board of Campusfood.com, Inc., a subsidiary of Dotmenu, Inc., "The #1 source for online food ordering at college campuses."

The Suit That Wasn't

2006-10-24T21:52:00.000-05:00

Back in August, Interserve Plc (FTSE: IRV), a U.K. construction services company, announced that it was restating financial results for at least five years and would write down the value of its assets by 25 million pounds ($47 million).

As part of the restatement, KPMG, LLP and Linklaters were to conduct an "independent forensic review."

Predictably, shares of Interserve plunged (Bloomberg) following this news - the restatement - not the appointment of accountants and lawyers to perform a financial review.

Then things took some interesting turns.

A group of shareholders that had received their shares as a result of Interserve's acquisition of MacLellan Group plc hired law firm Mishcon de Reya to "consider whether to sue the support services company, its individual directors and its auditor Deloitte."

The independent review was completed (The Times of London) in late September and shares of Interserve soared (Reuters via Scotsman.com).

Of note - the acounting review resulted in 5 million pounds (about $9.3 million) in professional fees for KPMG and Linklaters. The total writedown was only 25.9 million pounds.

By comparison, Alston & Bird, LLP, the law firm of R. Neal Batson, the examiner appointed by the court overseeing Enron Corp.'s Chapter 11 bankruptcy was paid about $100 million. And Kirkpatrick & Lockhart Nicholson Graham LLP, the law firm of Richard Thornburgh, the examiner appointed in the WorldCom bankruptcy was paid in the neighborhood of $10 million.

Thanks again to reader Werner Kranenburg, a former Schiffrin & Barroway, LLP summer associate, and current law student in the United Kingdom for sending this one in.

Daily Trivia: Governor Thornburgh married not one, but two women named "Ginny." His first wife, Ginny Hooton was killed in an automobile accident. Several years later, he married his second wife, Ginny Judson.

Canadian Securities Class Action Expansion

2006-10-22T22:16:00.000-05:00

According to this newsletter from Canadian law firm Stikeman Elliott LLP, the first statements of claim (the Canadian equivalent of a complaint) to invoke the secondary-market liability provisions that were recently added to the Ontario Securities Act have been filed in a proposed class action against Imax Corporation and certain directors and officers of the company.

The statements of claim were filed in Ontario's Superior Court of Justice in early September 2006 and contain allegations similar to the class action complaints filed in the United States District Court for the Southern District of New York, namely that Imax's 2005 earnings were misrepresented during the class period by recognizing revenue from theatres that had not yet opened.

A copy of the relevant Ontario statute (Bill 198) can be found here.

Daily Trivia: IMAX technology premiered at the 1970 World's Fair and Exposition in Osaka, Japan.

Institutional Activism through Litigation

2006-10-19T23:08:00.000-05:00

Prof. Michael A. Perino (St. John's University School of Law) has penned a new paper, Institutional Activism through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions, available from SSRN here .

Prof. Perino attempts to analyze:

whether there is any correlation between cases with public pension fund lead plaintiffs and settlement outcomes, attorney effort, or fee requests or awards.

His conclusions:

cases with public pension participation are positively correlated with settlement amounts (measured both in absolute terms and as a proportion of investors' overall market losses), even when controlling for institutional self-selection of larger, more high profile cases.

cases with public pension fund acting as lead plaintiffs are positively correlated with two "proxies for attorney effort," the number of docket entries in the case and the ratio of settlement to docket entries.

Attorneys' fee requests and fee awards are lower in cases with public pension lead plaintiffs, either because public pensions are sophisticated repeat players or as a result of attorney competition to represent these institutions.

The paper's conclusion:

that public pension funds do act as effective monitors of class counsel.

I don't have much to quibble with in the paper, but one thing stuck out to me as worthy of discussion.

First, Prof. Perino suggests that:

Under the PSLRA, plaintiffs' lawyers increasingly have incentives to develop longstanding relationships with institutions willing to become active in class litigation because doing so should increase the number of lucrative lead counsel opportunities

I agree, but that is one-half of the "problem" that led to the enactment of the PSLRA in the first place. As discussed later in the paper:

long-term relationships frequently existed between attorneys and individuals (dubbed, "professional plaintiffs"), who agreed to buy stock in likely litigation targets and to serve as representative plaintiffs in any ensuing action in exchange for payments from the lawyer. . . such agreements made sense for plaintiffs' attorneys - who were able to reduce the search costs associated with initiating a case by having a ready stable of plaintiffs.

As an aside, I am unable to buy into the theory that pre-PSLRA investors were both: (a) able to predict likely litigation targets in advance with great precision; and (b) that they agreed to buy and hold these stocks and suffer guaranteed losses.

If the investor (or the attorneys) for that matter, were able to predict securities fraud (much like the SEC's "Pre-Crime Unit" joked about by Bruce Carton over at Securities Litigation Watch) wouldn't they do better financially by shorting the stock before the disclosure caused the resulting decline in price and the supposedly inevitable "race to the courthouse?"

Update: The D&O Diary has a thoughtful post on the article, here and the WSJ Law Blog has a post here.

Daily Trivia: Professor Perino was "one of the principal developers of Stanford Law School's Securities Class Action Clearinghouse." The Clearinghouse was nominated by the Smithsonian Institution for the 1997 Computerworld Smithsonian Award (since renamed The Computerworld Honors Program) as one of the five most important applications of information technology created by an educational institution.

The eventual winner in 1997 was The Virtual Alphabet Book, which is a:

multimedia presentation of the traditional ABCs. It contains alternative ways to learn the alphabet. You can also interact with the objects in the Virtual Alphabet Book with switches, infra-red head pointers, or a touch screen. This makes the alphabet accessible to children with severe physical limitations.

It's Getting Hot in Here...

2006-10-18T23:47:00.000-05:00

It's that time of year again.

The National Law Journal has come out with their annual "Plaintiffs' Hot List" - an admittedly highly subjective survey of the plaintiffs' bar.

Eleven firms were highlighted on "The Year's Hottest Firms" list.

Of those, ten have a substantial securities litigation practice.

In alphabetical order the ultra hot securities litigators of 2006 are:

Baron & Budd, P.C. - An 80 attorney firm founded in Dallas nearly twenty years ago. Among noteworthy securities cases mentioned in the article is In re 7-Eleven Inc. Shareholders Litig., where Randall K. Pulliam represented shareholders attempting to force the company to pay more to take the corporation private. The company ultimately agreed to boost its tender offer by $5 per share, worth $145 million to the shareholders.

Bernstein Liebhard & Lifshitz, LLP - A 42 attorney firm that is just slightly older than the PSLRA, the New York based firm is on the plaintiffs' executive committee in the In re Initial Public Offering Securities Litig, and secured an important decision in the In re Royal Dutch/Shell Transport Securities Litigation, that will allow shareholders to proceed with their claims even if they held their stock.

Bernstein, Litowitz, Berger & Grossmann LLP - The 50 lawyer firm "had a hand in six of the 10 largest securities fraud class actions to date," including the $1.3 billion settlement in In re Nortel Networks Corp. Securities Litig. that "represents the largest recovery on record for a non-U.S. lead plaintiff."

Cohen, Milstein, Hausfeld & Toll, P.L.L.C. - With 60 attorneys and offices in four states (well three states and the District of Columbia), the firm has often been cited as having a cutting edge litigation practice, including the recent news that the firm would soon open a London office, an apparent first for a plaintiff side firm. Last year, the firm also had the rare opportunity to try a securities fraud class action - with In re Globalstar Securities Litig.

Hagens Berman Sobol Shapiro LLP - Though more noted these days for the firm's work in antitrust, healthcare, and consumer litigation, Hagens Berman has strong securities litigation roots. Plus, they have to be the only firm on the list that sponsors a cycling team.

Grant & Eisenhofer, P.A. - Formed just as the PSLRA was taking effect, this relative newcomer to the securities litigation arena has made waves as noted in a companion article, Investors Press Their Demands. The firm "has been pursing litigation intended to shake up the way corporate boards do business."

Labaton Sucharow & Rudoff LLP - One of the older firms in the plaintiff's class action bar, the Labaton firm is a frequent guest on these pages, including recent settlements of the In re DHB Industries Inc. Class Action Litig., and In re HealthSouth Corp. Securities Litig. securities class actions.

Lerach Coughlin Stoia Geller Rudman & Robbins LLP - The largest class action firm in the country, with 180 attorneys, the firm has achieved an eye-popping $45 billion in recoveries, including $7.3 billion in the Enron litigation alone. As noted previously, here, about 10% of the firm's attorneys are former prosecutors.

Lieff Cabraser Heimann & Bernstein, LLP - The 60 attorney firm has offices in three states and an impressive roster of securities litigation clients. The securities case mentioned in the article, Merrill Lynch Fundamental Growth Fund v. McKesson HBOC Inc., is an opt-out case where the firm reached a settlement on the verge of trial and recovered nearly all of the $150 million in losses claimed by the firm's two mutual fund clients.

Motley Rice LLC - The 74 attorney firm is perhaps best known for their work in toxic torts, products liability and catastrophic injury, but as noted several months ago by The D & O Diary, the securities litigation group at Motley Rice was substantially enlarged in February 2006 with the addition of four seasoned Atlanta-based lawyers from Chitwood Harley Harnes LLP.

Daily Trivia: The one firm on the National Law Journal list that is not highlighted above, Girardi & Keese, now employs Erin Brockovich, perhaps the most famous paralegal in the world.

Second Circuit Affirms SEC's Ability to Direct Fair Funds Distribution

2006-10-17T20:17:00.000-05:00

In an opinion earlier this month that failed to garner even a mention in the collective securities litigation blogging universe, the United States Court of Appeals for the Second Circuit affirmed the District Court's approval of a plan by the Securities and Exchange Commission to distribute money to the victims of WorldCom, Inc.'s massive fraud.

The SEC had prepared a distribution plan pursuant to the "Fair Funds for Investors" provision of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7246(a)). Judge Jed S. Rakoff approved the plan, which "excluded investors whose aggregated sales and purchases of WorldCom securities over the relevant time period resulted in a net profit," or recovered than thirty-six cents on the dollar either in the bankruptcy proceeding or through the sale of their WorldCom securities."

The Official Committee of Unsecured Creditors of WorldCom, Inc. appealed, arguing that:

the district court extended inappropriate deference to the SEC when it approved the Fair Fund distribution and erred in rejecting the Committee's objections.

The Second Circuit held, in a case of first impression, both inside and outside the Circuit, that the "fair and reasonable" standard of review applied by the district court is the appropriate one for Fair Fund distribution plans. Further, the Court held:

We have long understood that the SEC's charge to enforce the securities laws carries with it the discretion to determine how to distribute recovered profits among injured investors.

The distribution is to be made from the WorldCom Victim Trust. Further information can also be found at the SEC's Spotlight on SEC v. WorldCom page, here, or the website maintained by lead counsel in the securities class action, here.

Thanks to reader Werner Kranenburg, a former Schiffrin & Barroway, LLP summer associate, and current law student in the United Kingdom for nudging us in the direction of the opinion.

Daily Trivia: Judge Rakoff, who gave the 2003 commencement speech at Swarthmore College, took the opportunity to recount the story of A. Mitchell Palmer, a fellow Swarthmore graduate. Judge Rakoff described Palmer as "the worst of all Swarthmore graduates."

Palmer, who was appointed Attorney General in 1919, was twice the intended victim of anarchist bomb attacks. These personal attacks are believed to have been a significant influence for Palmer's campaign against radicalism, which culminated in the "Palmer Raids," a series of police roundups, warrantless wiretaps, and mass arrests of suspected leftists and radicals from 1918-1921.

International Institutional Investor "Arms Race" Ratchets Up a Notch

2006-10-16T19:20:00.000-05:00

As previously discussed here and here, American class action law firms are taking a number of steps to solidify their relationships with foreign institutional investors and outside counsel for those investors.

Many of those steps have involved forming official and unofficial affiliations with foreign based firms.

In what appears to be a first for a plaintiffs firm though, Cohen, Milstein, Hausfeld & Toll, P.L.L.C. is set to open their own London office on January 1, 2007 according to this article from The Lawyer.

According to the article, the new office will be staffed by "one or two partners and up to nine associates," and "will initially focus on antitrust and competition matters," though "securities actions, employee discrimination and environmental law" actions will also be on the new office's agenda.

As previously noted, Cohen Milstein already has an international practice area portion of their website and boasted that they had "affiliated offices in the United Kingdom, Italy, South Africa, Panama, Australia and China."

This appears to be a major step forward, going beyond the "joint alliance" formed earlier this year between Labaton Sucharow & Rudoff LLP and the TILP Group and the "formal cooperation agreement" formed between Schiffrin & Barroway, LLP and Winheller.

Update: The Times (of London) also has an article on the office opening.

BISYS Group Settles Securities Class Actions

2006-10-16T17:27:00.000-05:00

The BISYS Group, Inc. (NYSE: BSG) today announced that it had reached an agreement in principle to settle a pair of securities class action lawsuits pending against the company and certain of its former officers and directors for $66.5 million in cash.

The litigation is pending before Judge Lewis A. Kaplan in the United States District Court for the Southern District of New York.

The settlement resolves both a class action on behalf a class of purchasers of publicly traded shares of BISYS' securities (the "Open-Market Litigation") and a class action in behalf of a class of those that acquired non-publicly traded BISYS securities as part of private equity transactions (the "Private Transaction Litigation").

The Public Employees Retirement Association of New Mexico, the New Mexico Educational Retirement Board, and the New Mexico State Investment Council are co-lead plaintiffs for the Open-Market Litigation. Cauley Bowman Carney & Williams, PLLC, and Kirby McInerney & Squire, LLP are co-lead counsel for the Open-Market Litigation.

A copy of the consolidated amended complaint in the Open-Market Litigation is available here.

An individual, Robert Grant, is lead plaintiff and Wolf Haldenstein Adler Freeman & Herz LLP is
lead counsel for the Private Transaction Litigation.

A copy of the amended complaint in the Private Transaction Litigation is available here.

Daily Trivia: Among other alternative investments, The New Mexico State Investment Council is allowed to make investments in New Mexico film projects in the form of a guaranteed, no-interest loan up to 100% of the production budget.

Among the projects that the Council has invested in - the Lions Gate Entertainment comedy Employee of the Month.

Investments require participation in the project's post break-even revenues and the project must be wholly or substantially produced in New Mexico with a production crew the majority of which must be New Mexico residents. For budding auteurs seeking backing for their next project, the Council's Film Investments Program Policies and Procedures can be found here.

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

Jackpot, Part Deux!

2006-10-15T21:50:00.000-05:00

According to press reports shareholders of Harrah's Entertainment Inc. (NYSE: HET) have filed a class action lawsuit alleging that the proposed $15.1 billion takeover by two private equity firms is an "apparent camouflaged management buyout."

The suit, which is pending in The Delaware Court of Chancery, names the company, its board of directors, and its proposed buyers, Apollo Management and Texas Pacific Group, as defendants.

Under the terms of the offer, which was announced on October 2, the private equity firms would pay $81 in cash per share.

Harrah's indicated that it had established a special committee of independent directors to review the offer and retained UBS Securities LLC as an adviser.

The class action seeks to stop the proposed buyout and conduct "a fair process" for selling shares of Harrah's, the world's largest casino operator.

Harrah's operates approximately 40 casinos throughout the country under a number of different nameplates, such as Caesars, Ballys, Horseshoe and Showboat.

Press reports have also indicated that in the week leading up to the buyout offer, there were unusual increases in the trading of Harrah's call options and five-year credit-default swaps.

According to data provided by Options Clearing Corp., call option contracts in Harrah's shares were exchanged four to six times the average daily volume of August on the Tuesday, Wednesday and Thursday before the bid was announced.

Daily Trivia: Among the investments held by Texas Pacific Group is Cranium, Inc., the fourth largest board game company in the world, and manufacturer of the popular line of Cranium games. Cranium is headquartered in Seattle, which has been described as "the Boardwalk of popular board games." The "Emerald City" is also home to Screenlife, LLC, manufacturer of the "world's most popular DVD games," including the award-winning line of Scene It? games.

Corporate Governance Therapy for PainCare

2006-10-12T20:37:00.000-05:00

PainCare Holdings, Inc. (Amex: PRZ) announced yesterday that it had reached an agreement in principle to settle a shareholder derivative lawsuit brought against certain of the company's officers and directors in connection with PainCare's restatement of financial results announced earlier this year.

The litigation is pending before Judge John Antoon, II in the United States District Court for the Middle District of Florida.

Federman & Sherwood are counsel for plaintiffs in the derivative litigation.

The settlement provides for the following relief:

PainCare will expand its board with the appointment of a new board member to bring additional corporate governance expertise and public company experience.
The company will adopt amended corporate by-laws mandating that directors will not serve on more than three corporate boards, including that of PainCare.
External or internal legal counsel will be appointed and responsible for conducting an annual investigation of PainCare's corporate governance and board stewardship to ensure compliance with prevailing best industry practices, with the results of the investigation reported to the board.

The companion federal securities class action remains pending. In the federal securities class action, Barrack, Rodos & Bacine and Williams Schifino Mangione & Steady P.A. are lead and liaison counsel, respectively, for lead plaintiff, the Employees Retirement System of the Government of the Virgin Islands.

Of course, the company announced shortly after the first class actions were filed back in March:

the Company believes that these reported lawsuits lack merit and has engaged the international law firm of McDermott Will & Emery LLP to vigorously defend against such allegations and claims.

There you have it - a combination of the "vigorous defense" and the "scary defense counsel" press releases, and it happened just three days after this blog was launched.

PainCare describes itself as "one of the nation's leading providers of pain-focused medical and surgical solutions and services."

Daily Trivia: Barrack Rodos also represents the Retirement Systems Administration of the Commonwealth of Puerto Rico. While a number of plaintiff's firms have pension fund client lists on their websites, no word on which class action firms represent such other exotically located pension funds as the Northern Mariana Islands Retirement Fund, the Government of Guam Retirement Fund, the American Samoa Government Employees' Retirement Fund, the Puerto Rico University Retirement System, or any plans for the Federated States of Micronesia.

4 Down, 47 To Go...

2006-10-12T15:57:00.000-05:00

That little break in posting back in July, was not in fact for a carefree summer getaway.

I decided that membership in three state bars (Pennsylvania, New Jersey and the District of Columbia) was not enough, and I sat for the Virginia Bar Exam.

The July exam is held in Roanoke at the Roanoke Civic Center, recent home of the now defunct Roanoke Valley Vipers of the United Hockey League and the equally defunct Roanoke Dazzle of the NBA Development League.

Well, the results are in, and I passed.

This event confirms my oft repeated suspicion - namely that the LSAT does not test your ability to succeed in law school; that law school does not test your ability to practice law nor does it prepare you to take the bar exam; and that passing the bar exam is generally no measure of your ability to practice law. The recently incorporated addendum - apparently practicing law prepares you for taking the bar exam!

Congratulations to the thousands of others across the country that have already received similar good news and best of luck to those still awaiting results. To that group that failed - I suggest you read this post at The Uncivil Litigator blog, or find some Deep Thoughts from Jack Handey.

Extra, Extra, Read All About It!

2006-10-11T21:16:00.000-05:00

According to news reports (AP via Yahoo! Finance) the recently filed shareholder derivative action against eight Tribune Company (NYSE: TRB) directors was volunatrily dismissed after the judge overseeing the litigation questioned whether he had subject matter jurisdiction to hear the case.

The litigation alleged that the board had refused to consider offers to buy the company's biggest paper, The Los Angeles Times, and that Tribune's $2.4 billion stock buyback in June depleted cash and made the company unattractive to potential buyers.

The result according to the complaint:

Defendants have held and are holding the company and its shareholders hostage.

The class action sought a ruling that the directors had breached their fiduciary duty to the company, along with an order compelling the board to name an independent committee to consider purchase offers and other strategies.

The suit was filed on September 19 in the United States District Court for the Northern District of Illinois and had been assigned to Senior Judge Milton Shadur.

Articles about the filing of the complaint can be found here (AP via Yahoo! Finance) and here (Bloomberg via The Boston Globe).

In two orders issued Sept. 21 and Sept 25, Judge Shadur questioned whether he had jurisdiction over the matter and suggested that the case should instead be filed in state court.

No word on whether the complaint has been refiled, but the likely destination would be the Circuit Court of Cook County.

Lasky & Rifkind, Ltd. and Lerach Coughlin Stoia Geller Rudman & Robbins LLP were counsel in the Tribune litigation.

Daily Trivia: Among other media properties, the Tribune Company owns WPHL-TV, a television station in Philadelphia currently affiliated with the MyNetworkTV television network. WPCA-TV, the predecessor to WPHL on Channel 17, was Philadelphia's first commercial UHF channel.

But Will Court TV Carry the Trial Live?

2006-10-10T21:06:00.000-05:00

According to a press release issued today, Wechsler Harwood LLP has filed a class action challenging the proposed buyout of the publicly held shares of Cablevision Systems Corp. (NYSE: CVC) by the Dolan family, the controlling shareholders of Cablevision.

The offer, which was announced yesterday morning, would give public shareholders $27 in cash for each Cablevision share.

This is not the first time the Dolan family has attempted to take Cablevision private. Back in 2005, the Dolans had offered to take the cable assets private while at the same time creating a separate public company that would include other Cablevision assets such as Madison Square Garden, Radio City Music Hall, the New York Knicks and the New York Rangers.

The Dolan family currently owns approximately 22.5% of Cablevision's common stock, but controls approximately 74.0% of the voting power. Charles Dolan currently serves as chairman of Cablevision's board and James Dolan currently serves as Cablevision's president and CEO.

The buyout would be financed by an investment of the Dolan family's Cablevision shares and debt financing from Merrill Lynch & Co. and Bear, Stearns & Co. Inc.

According to this press release issued by Cablevision yesterday evening, the board of directors has appointed a special transaction committee, to evaluate and act on the Dolan family's proposal. The special committee is comprised of board members Thomas V. Reifenheiser and Vice Admiral John R. Ryan USN (Ret.) and has retained Willkie Farr & Gallagher LLP as its legal counsel.

The Dolan family is being advised by Debevoise & Plimpton LLP and Skadden, Arps, Slate, Meagher & Flom LLP and investment banks Merrill Lynch and Bear, Stearns.

Daily Trivia: The original Madison Square Garden was named for (and located near) Madison Square park. The site of the original garden (26th and Madison Avenue) was previously a passenger depot for the New York and Harlem Railroad (n/k/a Metro-North Railroad Harlem Line). After the depot moved to Grand Central Terminal, P.T. Barnum purchased the old depot and converted into a hippodrome. William Henry Vanderbilt was the first to name the arena Madison Square Garden.

Once, Twice, Three Times A Defendant

2006-10-09T20:54:00.000-05:00

Last week, Symbol Technologies, Inc. (NYSE: SBL) announced that class action lawsuits have been filed against the company in state court, seeking to enjoin the proposed acquisition of Symbol by Motorola, Inc. (NYSE: MOT).

The Motorola acquisition, which was previously announced on September 19 is valued at approximately $3.9 billion. Under the terms of the merger agreement, Motorola agreed to pay $15 per share in cash for the outstanding Symbol shares. News stories in the wake of the announcement (Unstrung.com here) and (Forbes here) suggested that the price was too low and that other bidders might emerge.

Though the Symbol press release does not indicate where the litigation was filed, the company is based in Long Island, and the complaints were likely filed in Suffolk County Supreme Court.

Oh, one more thing about the Symbol press release announcing the class actions. You guessed it, the announcement of a "vigorous defense":

Symbol believes the lawsuits are entirely without merit and intends to vigorously defend against the claims.

Perhaps the good folks at Symbol are simply tiring of being a frequent target of securities litigation, having been named (according to Stanford's Securities Class Action Clearinghouse) three times as a defendant in a securities class action (See case pages here, here, and here).

Interestingly, a quick search of Stanford revealed that Motorola has also been named three times as a defendant in a securities class action.

The first is a recently certified class action on behalf of purchasers of publicly traded Motorola common stock.

The second is a certified class action on behalf of purchasers of Iridium World Communications, Ltd. securities (Motorola was the principal investor in Iridium and had selected six current and former employees and officers to serve as members of Iridium's Board of Directors).

The third is a class action on behalf of purchasers of Charter Communications, Inc. securities (Motorola was one of Charter's vendors). A copy of the Eighth Circuit's opinion affirming the District Court's dismissal of Motorola from the Charter class action is available here.

Daily Trivia: Three Times A Lady was The Commodores first number one single. The Commodores met as freshmen at Tuskegee University.

Live, from Shanghai....It's Another Episode of Case Dismissed!

2006-10-09T19:40:00.000-05:00

Continuing our international coverage from last week, we skip over to Shanghai, where SINA Corporation (NASDAQ: SINA) announced the dismissal, without leave to amend, of the consolidated securities class action pending against the company and certain of its officers and directors.

SINA is an online media company and information services provider in China.

The case was pending in the United States District Court for the Southern District of New York before Judge Naomi Reice Buchwald.

Three Michigan municipal pension funds, the City of Sterling Heights General Employee's Retirement System, City of St. Clair Shores Police and Fire Retirement System, and Charter Township of Clinton Police and Fire Retirement System are the lead plaintiffs in the SINA litigation and Lerach Coughlin Stoia Geller Rudman & Robbins LLP is lead counsel.

No word on whether the mascot for Sina's iAsk search engine could take Ask.com's butler, Jeeves, in a streetfight:

He doesn't have a MySpace page, but...

2006-10-06T13:30:00.000-05:00

According to an article in the Philadelphia Daily News, Andrew L. Barroway, managing partner of Schiffrin & Barroway, LLP, is also a partner in a very different venture - a group that is in talks with Comcast Corp., the parent company of Comcast Spectacor, L.P., which owns the Philadelphia Flyers, Philadelphia 76ers, Philadelphia Phantoms, Wachovia Center, the Wachovia Spectrum, cable sports television group Comcast SportsNet and various other entities.

Barroway is partnering with Wayne D. Kimmel, one of the founders of ETF Venture Funds - a suburban Philadelphia based venture capital fund.

Barroway appears to be something of a 76ers fan - according to a December 2003 American Lawyer article, he lives in the former house of NBA Hall of Famer and former Sixers great Julius Erving, a/k/a "Dr. J."

Though, according to a USA Today article from earlier this year, the Dr. J house is now for sale, together with a neighboring house owned by Barroway and his wife, for a cool $10.9 million.

Regular readers may recall back in August when The D&O Diary highlighted another securities litigator that was "living large" though in a decidedly different way, S. Gene Cauley of Cauley Bowman Carney & Williams, PLLC and his colorful MySpace page (which has since been deactivated).

Bank Hapoalim Settles Israeli Derivative Lawsuit

2006-10-05T21:15:00.000-05:00

According to news reports here (Jerusalem Post) and here (Globes Online), Israel's largest bank, Bank Hapoalim Ltd., has reached an agreement in principle to settle a derivative class action lawsuit filed against the bank for the bonuses paid to executives in 2005.

The litigation was filed after Zvi Ziv, the bank's president and CEO and Shlomo Nehama, the bank's chairman were paid NIS (New Israeli Sheqel) 33 million and NIS 23 million, respectively, in total compensation in 2005. According to the Post article, the payment to Ziv was "the highest executive compensation package ever for an executive in Israel."

Each of the officers has agreed to return NIS 13 million to the bank, or just over $3 million at today's exchange rates, but according to the Globes article:

They will not make an actual repayment; the amounts will be deducted from the amounts to which they will be eligible in 2006-08.

The settlement agreement is subject to approval both by the Court and the Israel Securities Authority.

Bank Hapoalim is dual listed on the Tel Aviv and London Stock Exchanges.

Readers may recall that Bruce Carton over at Securities Litigation Watch has been on a quest to track down international securities litigation.

Daily Trivia: The plural of sheqel (also spelled shekel) is sheqalim (or shekalim). The New Israeli Sheqel was introduced in on September 4, 1985 and is divided into 100 agorot (plural of agora).

Ibis Settles Securities Class Action

2006-10-04T20:52:00.000-05:00

Earlier this week, Ibis Technology Corporation (NASDAQ: IBIS) issued a press release announcing that it had reached an agreement to settle the consolidated securities class action litigation pending against the company and Martin Reid, its president and CEO, for $1.9 million, to be funded entirely by the company's insurance carrier.

The Ibis litigation is pending in the United States District Court of Massachusetts before Judge Reginald C. Lindsay. A copy of Judge Lindsay's opinion partially granting and partially denying the motion to dismiss is available here.

Three individuals, Martin Smolowitz, George Harrison (not the late Beatle), and Mark G. Forgue, are the lead plaintiffs in the Ibis litigation. The Law Offices of Bernard M. Gross, P.C. and Shapiro Haber & Urmy LLP are lead and liaison counsel, respectively.

A copy of the consolidated amended complaint is available here.

Daily Trivia: George Harrison (the late Beatle) was also a film producer. He founded Handmade Films in 1979 to finance the Monty Python film Life of Brian after the original financiers pulled out.

International Institutional Investor "Arms Race" - Update

2006-10-04T20:12:00.000-05:00

Regular readers may recall that several months ago this humble blog pointed to the increasing efforts being undertaken by American class action firms to solidify "their relationships with foreign institutional investors and outside counsel for those investors."

Yesterday, Schiffrin & Barroway, LLP and the German law firm, Winheller Attorneys at Law, announced "a formal cooperation" agreement to provide "Class Action Services for Institutional Investors."

Of note in the press release, Stefan Winheller, founding partner of the firm, suggests:

that possible clients include banks, mutual fund managers, corporate investors, insurance companies, and pension and other support funds.

It is an interesting turn of phrase, perhaps best likened to the "passive voice" press releases I write about so frequently.

Winheller goes on to say:

We aim to help institutional investors successfully seek compensation for the fraudulent misuse of their investments. The strategic partnership with S&B will give investors from Germany, Austria and Switzerland the great chance to carry out their fiduciary duties to their clients on a convenient contingency fee basis.

American securities class action law firms have also signed on in droves to sponsor international pension fund summits - six have signed on as sponsors of the UK & Irish Pension Summit and four (out of only six sponsors!) have signed on as sponsors of the European Pension Investment Forum.

Bellsouth Settles With the Quakers (and the rest of the Class)

2006-10-03T18:40:00.000-05:00

According to press reports (Atlanta Journal-Constitution) BellSouth Corp. (NYSE: BLS) has settled the securities class action lawsuit pending against the company and certain current and former officers and directors for $35 million.

The case is pending before Judge William S. Duffey, Jr in the United States District Court for the Northern District of Georgia.

Quaker Capital Management, a Pittsburgh based money management firm and registered investment advisor is the lead plaintiff in the BellSouth litigation. Bernstein Liebhard & Lifshitz, LLP and Chitwood Harley Harnes LLP are co-lead counsel.

A copy of the order appointing lead plaintiff and lead counsel is available here.

As noted in the Journal-Constitution article, the litigation includes both open market purchasers and shareholders that acquired BellSouth shares through the BellSouth Direct
Investment Plan.

Daily Trivia: With the proposed merger between BellSouth and AT&T Inc. (itself the result of a merger between SBC Communications Inc. and AT&T), the "Ma Bell" network is now down to just three of the seven original Regional Bell Operating Companies (known as "Baby Bells") formed in the wake of the 1982 settlement of the Justice Department's antitrust suit against the American Telephone & Telegraph Company. For readers with more than a passing interest in telecommunications history, see the Bell System Memorial website.

Merix Corp. Complaint Found To Be Lacking In Merit

2006-09-28T19:56:00.000-05:00

Merix Corporation (NASDAQ: MERX) announced today that the securities class action lawsuit pending against the company, its directors and four of its officers has been dismissed with prejudice.

The litigation was pending in the United States District Court for the District of Oregon before Judge Michael W. Mosman and was originally filed in June 2004 following the company's May 13, 2004, announcement slashing the company's earnings outlook for the fourth quarter of 2004.

The Central Laborers Pension Fund was appointed as the lead plaintiff and Schiffrin & Barroway, LLP and Stoll Stoll Berne Lokting & Shlachter P.C. were appointed lead and liaison counsel, respectively, in August 2004.

Judge Mosman granted the motion to dismiss the first amended complaint on September 15, 2005, without prejudice, and gave plaintiffs leave to amend their complaint. On November 18, 2005, the lead plaintiff filed a second amended complaint, and Merix again moved to dismiss. The second motion to dismiss was granted, with prejudice, today.

A pair of derivative lawsuits was also filed against certain Merix directors and officers in the Circuit Court for the State of Oregon, Multnomah County. On August 31, 2005, Judge Mosman granted a motion to stay discovery in the derivative action. Thereafter, on September 13, 2005, the state court stayed all proceedings in the derivative lawsuit, including proceedings on a motion to dismiss the consolidated shareholder derivative complaint.

Bruce Carton over at Securities Litigation Watch previously blogged about the Merix litigation, noting that:

the case is just the ninth securities class action filed in that court since the passage of the PSLRA and, following the tentative settlement recently announced in the Electro Scientific case, is the only active securities class action on that court's docket.

Daily Trivia: The District of Oregon's main courthouse, located in Portland, is named for Senator Mark O. Hatfield, and has been nicknamed the "Schick Razor Building" due to the design of the overhanging roof. Senator Hatfield was also the youngest secretary of state in Oregon history and a two-term governor. He retired in 1996, having never lost an election.

Seven Months of Scrivening

2006-09-27T21:33:00.000-05:00

HealthSouth Corporation (OTC: HLSH) announced today that it had entered into definitive settlement agreements with the lead plaintiffs in the federal securities class action and the state and federal derivative actions.

The agreements memorialize the preliminary settlement previously announced by the company on February 23, 2006.

The federal securities litigation is pending before Judge Karon O. Bowdre in the United States District Court for the Northern District of Alabama. The federal derivative litigation is pending in the Northern District of Alabama while the state action is pending in the Jefferson County (Alabama) Circuit Court.

Oracle Partners, LP is the lead stockholder plaintiff and Lerach Coughlin Stoia Geller Rudman & Robbins LLP and Labaton Sucharow & Rudoff LLP are co-lead counsel for the stockholder class. Whatley Drake & Kallas LLC is liaison counsel for the stockholder plaintiffs.

The Retirement Systems of Alabama are the lead bondholder plaintiffs and Bernstein Litowitz Berger & Grossman LLP and Cunningham, Bounds, Crowder, Brown & Breedlove, LLC are co-lead counsel for the bondholders. Donaldson & Guin, L.L.C. is liaison counsel for the bondholder plaintiffs.

Bernstein Litowitz maintains a case page with copies of the amended complaints here.

Given that the bondholder plaintiffs filed a 274 page Joint Second Amended Consolidated Class Action Complaint (containing joint factual allegations for bond and stockholder claims) and a 145 page Consolidated Amended Class Action Complaint (containing legal theories and claims for the bondholder claims) together with twelve appendices, all of which was later supplemented by a 62 page Corrected Amendment to Joint Second Amended Consolidated Class Action Complaint, it isn't hard to imagine why it may have taken seven months to finalize the language of the settlement documents.

The settlements call for HealthSouth to issue $215 million in common stock and warrants and HealthSouth's insurance carriers to make a cash contribution of $230 million.

Additionally, the class in the federal securities litigation will receive 25% of any net recoveries from future judgments obtained by or on behalf of HealthSouth with respect to certain claims against Richard Scrushy, the company's former chief executive officer, Ernst & Young, LLP, the company's former auditors, and UBS, the company's former primary investment bank. Scrushy, Ernst and UBS remain defendants in the derivative and federal securities class actions.

Daily Trivia: Judge Bowdre served as a law clerk for J. Foy Guin, Jr. Judge Guin is now a Senior Judge on the United States District Court for the Northern District of Alabama and the father of David Guin, a name partner at Donaldson & Guin, liaison counsel for the bondholder plaintiffs in the HealthSouth litigation.

For a more personal view of Judge Guin, see this 80th birthday tribute put together by David's sister, Jan Smith.

"Dating Games"

2006-09-26T21:12:00.000-05:00

M. P. Narayanan, Cindy A. Schipani, and H. Nejat Seyhun, a trio of professors at the Stephen M. Ross School of Business at the University of Michigan, have authored an interesting article on the "true" costs to shareholders of the burgeoning options backdating scandal.

The article, The Economic Impact of Backdating of Executive Stock Options:

provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating.

The study found that:

revelation of backdating results in an average loss to shareholders of about 8%.

For firms ensnared in the options-backdating scandal that amounts to an average loss of market capitalization of half a billion dollars.

The average potential upside for the executives at the firms involved in options-backdating - less than $600,000 per company per year.

The disproportionality of those figures led the authors to draw a comparison to Martha Stewart's conviction for obstruction of justice. Her alleged gain (really an avoided loss) was less than $50,000 but resulted in a market capitalization drop of approximately 40% for shareholders of Martha Stewart Living Omnimedia (NYSE: MSO) in 2002 when news surfaced of Martha's sale of ImClone Systems (NASDAQ: IMCL) stock.

The authors go on to suggest a number of remedies for both backdating and other options-related malfeasance, such as springloading.

Among the possible solutions:

Require companies to report both the date the board or compensation committee finalized the option award details, and the actual grant date.
Remove the short-swing profits exemption (Section 16(b) of the Securities and Exchange Act of 1934) for shares obtained from option exercises.
Prohibit annual option awards from being effective on a single date, and instead divide the grants into twelve equal installments awarded on a monthly basis, at the same time executives receive their basic pay.
Explicitly include the granting of compensation options (and the acquisition of shares through exercises of those options) as falling within the general insider trading provisions of Section 10(b) of the Securities and Exchange Act of 1934.

The article will be published in the June, 2007 issue of the Michigan Law Review.

Two of the authors have an entire site devoted to their stock options dating research - Dating Games : Backdating & Forward-dating of executive stock options. Of particular interest on the site - a timeline tracing the early history of the option backdating scandal.

Daily Trivia: Michigan's business school is named for Stephen M. Ross, the founder, chairman and chief executive officer of The Related Companies, L.P. Related is the developer of the $1.7 billion Time Warner Center on Columbus Circle in New York City. Ross is also the nephew of the late industrialist and philanthropist Max M. Fisher. In recognition of Fisher's gift to The Ohio State University, the business school was renamed the Fisher College of Business.

Strike Two in the Fourth Circuit = Out

2006-09-25T21:30:00.000-05:00

Last week, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of the remaining claims in Glaser v. Enzo Biochem, Inc.

The Glaser case arose from allegedly false statements made by the company regarding a new treatment that Enzo had developed to combat HIV.

This was not the first time that this case has been to the Fourth Circuit. In an opinion last March, the Court affirmed the dismissal of the plaintiffs' federal securities fraud and conspiracy claims but reversed dismissal of the plaintiffs' Virginia common law fraud claims. A copy of the Fourth Circuit's prior opinion is available here.

After remand, certain defendants moved to dismiss the common law fraud claims against them on the grounds that those defendants had not made any of the remaining actionable statements. The other defendants also moved to dismiss the common law fraud claims for failure to plead loss causation.

The Fourth Circuit held that Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), did apply to plaintiffs' common law fraud claims, and that the complaint failed to establish a causal link between the allegedly fraudulent statements and the losses that plaintiffs suffered.

The Glaser case was pending in the United States District Court for the Eastern District of Virginia before Judge Gerald Bruce Lee.

Sharp eyed readers may recognize the Glaser case as the second case to discuss whether the longer statute of limitations for federal securities fraud claims in the Sarbanes-Oxley Act of 2002 acted to revive claims that had already expired under the earlier one year/three years statute of limitations. See Glaser v. Enzo Biochem, Inc., 303 F. Supp. 2d 724 (E.D. Va. 2003)

Enzo Biochem (NYSE: ENZ) is a life sciences and biotechnology company:

focused on harnessing genetic processes to develop research tools, diagnostics and therapeutics and provides reference laboratory services to the medical community.

One of the plaintiffs, Lawrence F. Glaser is an inventor. One of his more interesting patents is for a computer mouse that, through the use of a unique identifier, causes a particular desktop theme to be displayed by the graphical user interface of the computer.

The Glaser's attorney is Michael J. Rovell. Mr. Rovell is perhaps best known for representing Allen Dorfman, an alleged mobster accused of skimming millions from the Central States Southeast and Southwest Areas Pension Fund of the International Brotherhood of Teamsters.

Daily Trivia: The Fourth Circuit maintains its offices in the Lewis F. Powell, Jr., Federal Courthouse in Richmond. The courthouse is one of only two buildings in the historic core of Richmond to survive the 1865 fire that marked the evacuation of the Confederate Army during the last days of the Civil War.

Brain Aerobics

2006-09-20T23:09:00.000-05:00

Procedural contortions are just mental exercise, right?

Untangling the backstory of the In re First Horizon Pharmaceutical Corp. Sec. Litig. provided exactly that.

But first, the newsworthy angle.

The United States Court of Appeals for the Eleventh Circuit issued an opinion earlier this week vacating the District Court's order dismissing the litigation, and ordered the District Court to allow the plaintiffs to replead their complaint.

The 11th Circuit further determined that:

securities claims without a fraud element [e.g. Section 11] must be pled with particularity pursuant to Federal Rule of Civil Procedure 9(b) when that nonfraud securities claim is alleged to be part of a defendant's fraudulent conduct.

The Court thus joined the majority of circuits to address the matter. See e.g. Cal. Pub. Employees' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 161 (3d Cir. 2004); Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004); Lone Star Ladies Inv. Club v. Schlotzsky's, Inc., 238 F.3d 363, 368 (5th Cir. 2001); In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1404-05 (9th Cir. 1996).

Now for the backstory.

On September 29, 2004, Judge J. Owen Forrester of the United States District Court for the Northern District of Georgia dismissed, without prejudice, the securities fraud class action complaint pending against First Horizon Pharmaceutical Corporation (n/k/a Sciele Pharma, Inc.) (Nasdaq: SCRX).

Judge Forrester granted the plaintiffs an opportunity to amend their class action lawsuit provided that the plaintiffs paid all of the defendants' fees and costs associated with filing the motions to dismiss the class action lawsuit.

Plaintiffs did not file a second amended complaint as permitted, but instead filed a motion asking Judge Forrester to reconsider his September 29, 2004 order and lift the condition that they pay defendants' fees and costs before further amendment.

On June 22, 2005, the District Court denied plaintiffs' motion and gave them another opportunity to amend if they pay defendants' fees and costs. Once again, plaintiffs chose not to file a second amended complaint, and instead filed an appeal to the Eleventh Circuit.

On an interesting side note, at the outset of the litigation, First Horizon issued a press release, announcing, you guessed it:

that it intends to vigorously defend itself against a securities class action lawsuit recently filed against the Company

The Court had previously appointed Thomas Sheahan, Richard G. Bartels and Roy Latourette Jr., as lead plaintiffs and three firms that no longer exist - Chitwood & Harley, Milberg Weiss Bershad Hynes & Lerach LLP, and Cauley Geller Bowman & Coates LLP - as lead counsel.

Daily Trivia: Sciele employs about 700 people, but 525, or 75% of those employees are in sales. No wonder the company describes itself as "a pharmaceutical company specializing in sales, marketing, and the development of branded prescription products focused on Cardiovascular/Metabolic and Women's Health."

UPDATE: The 10b-5 Daily has a post on the 11th Circuit's decision here.

"The Milberg Effect"

2006-09-18T23:06:00.000-05:00

The securities litigation blogosphere is lighting up (SLW; D&O Diary; 10b-5 Daily) with responses and interpretations of the Wall Street Journal's recent piece, "The Milberg Effect."

That editorial suggests that the projected slow down in securities class action filings in 2006 is related to the current legal woes surrounding famed class action powerhouse Milberg Weiss Bershad & Schulman LLP.

The author of this humble blog has his own opinions on the decline in federal securities class actions.

First, the number of federal securities class actions has potentially slowed because a substantial portion of the plaintiffs bar is busy filing other types of securities cases, including state and federal derivative actions.

A review of law firm websites, such as Gardy & Notis, LLP and Schiffrin & Barroway LLP bears out the numbers suggested by The D&O Diary's options backdating litigation tally - but the overwhelming majority of those cases have been filed as derivative actions.

Other firms, such as Lerach Coughlin Stoia Geller Rudman & Robbins LLP have been described as filing dozens of options backdating suits, but a review of the Lerach Coughlin website does not shed much light on the cases that the firm has filed.

Second, as regular readers of this blog have discerned (see prior posts here, here, and here for example) there have been a substantial number of state breach of fiduciary duty claims filed in recent months, many relating to proposed mergers or other corporate transactions.

Both of these "reasons" for the drop-off in federal securities class action filings might safely be lumped together under the "printing press" theory.

As suggested by MoFo's Jordan Eth in this National Law Journal article from last year, the "speed of Bill Lerach's printing press" may be a limiting factor in the number of securities lawsuits filed each year.

If the collective "printing press" of the plaintiff's bar is largely filled with derivative options backdating cases and state law breach of fiduciary duty cases, then the total number of federal cases will likely decline.

Of course, as noted by The D&O Diary here, the plaintiff's securities bar is expanding with firms that had historical backgrounds in asbestos and tobacco litigation, such as Motley Rice LLC and Kahn Gauthier Swick, LLC, joining the fray, so the output capacity of the presses may still be increasing.

How Many Montgomery Counties Are There?

2006-09-18T21:35:00.000-05:00

The author grew up in Montgomery County, Pennsylvania. He now lives in Montgomery County, Maryland, and our story today takes us to Montgomery County, Ohio.

According to press reports, a class action complaint has been filed in Montgomery County (Ohio) Common Pleas Court against The Reynolds and Reynolds Company (NYSE: REY), its nine directors and Universal Computer Systems Holding, Inc. over the proposed merger between Reynolds and UCS.

In the proposed merger, which is valued at $2.8 billion, UCS, a privately held auto dealership technology company, is paying $40 cash per share for Reynolds shares. The resulting subsidiary will retain the Reynolds and Reynolds name, but will be a private company and its shares no longer will be listed on the New York Stock Exchange.

A copy of the complaint is available here.

Counsel for the plaintiff is The Brualdi Law Firm.

Daily Trivia: The answer to the title question - 18 American counties share the name Montgomery County. Most were named in honor of General Richard Montgomery, a Revolutionary War general who died in 1775 attempting to capture Quebec, after successfully capturing Montreal.

The "Scary Defense Counsel" Press Release

2006-09-17T23:24:00.000-05:00

We're back and ready to dive right in.

According to a press release issued last week by Isolagen, Inc. (AMEX: ILE), a pair of derivative lawsuits against the company and certain of its current and former officers and directors were recently dismissed.

The dismissal of those two complaints does not end the litigation looming over Isolagen, nor does it even end the derivative litigation facing the company, as a federal derivative action is still pending as part of a consolidated MDL proceeding.

But that's getting ahead of ourselves a bit, as these cases have some history.

The various complaints stem from the August 1, 2005 revelation by the company that the preliminary results from a clinical trial involving the "Isolagen Process" had not met all of the primary end points and that one of the two separate dermal studies had failed to demonstrate statistical significance. Accordingly, FDA approval would not be achieved as promised.

The Isolagen Process utilizes a patient's own cells to reduce the normal effects of aging on skin, such as wrinkles and creases.

The first derivative complaint was filed in the 55th Judicial District Court of Harris County, Texas on September 28, 2005. On December 2, 2005, the company filed an answer and special exceptions pursuant to Rule 91 of the Texas Rules of Civil Procedure. On February 6, 2006, the Court granted the special exceptions, and an amended complaint was then filed on February 15, 2006. Defendants then renewed their special exceptions, which were upheld by the Court and the complaint was dismissed on September 6, 2006.

The second derivative complaint was filed in the Court of Common Pleas of Chester County, Pennsylvania on October 31, 2005. On January 20, 2006, Isolagen filed its preliminary objections to the complaint. The complaint was dismissed with prejudice on August 31, 2006.

There is a third derivative complaint (the federal one), but we'll get to that in a minute.

In August and September, 2005 a number of class action lawsuits were filed against Isolagen and certain of its current and former officers and directors in the United States District Court for the Southern District of Texas and in the United States District Court for the Eastern District of Pennsylvania.

Shortly thereafter, Isolagen filed a motion with the Judicial Panel on Multidistrict Litigation to transfer the federal securities class actions and the pending federal derivative action to the Eastern District of Pennsylvania. On February 23, 2006, the JPML granted Isolagen's motion and the actions were transferred.

On April 4, 2006, Senior Judge Ronald L. Buckwalter appointed Silverback Asset Management, LLC, Silverback Master, Ltd., Silverback Life Sciences Master Fund, Ltd., Context Capital Management, LLC and Michael F. McNulty as lead plaintiffs, and Bernstein Litowitz Berger & Grossman LLP and Kirby McInerney & Squire LLP as co-lead counsel.

A copy of the consolidated class action complaint, filed on July 14, 2006, is available here.

In addition to claims against Isolagen and certain of its current and former officers and directors, the consolidated complaint also asserts claims against CIBC World Markets Corp., Legg Mason Wood Walker, Inc., Canaccord Adams, Inc. and UBS Securities LLC as underwriters in connection with an April 2004 public offering of Isolagen common stock and a 2005 sale of convertible notes.

Which finally leads us to the title of this post. After the initial complaints were filed, Isolagen announced that the company had retained Skadden, Arps, Slate, Meagher & Flom, LLP to defend it.

The announcement of the specific counsel engaged to represent a corporation in securities litigation appears to be a very rare announcement, and thus merits addition to our burgeoning list of press release permutations.

Now to wrap up that loose end - the federal derivative complaint alluded to above.

On October 8, 2005 a derivative complaint was filed in the United States District Court for the Southern District of Texas. Isolagen sought to transfer that action to the Eastern District of Pennsylvania along with the federal class actions.

On February 23, 2006, the action was transferred. Thereafter, the plaintiff filed an amended complaint, and the defendants moved to dismiss the amended complaint. Briefing on that motion is complete, but no decision has yet been rendered.

Daily Trivia: For the sixth straight year, Skadden was named "The Best Corporate Law Firm" in the United States by Corporate Board Member Magazine. The survey asks directors and general counsel of publicly traded companies to identify the law firms they most admire.

We're outta here...

2006-09-11T17:49:00.000-05:00

There will be a brief break in the action here.

Regular posting will resume around Monday, September 18.

A "New" Model for Damages in Securities Fraud Class Actions

2006-09-10T23:15:00.000-05:00

Professor Elizabeth Chamblee Burch, from Samford University's Cumberland School of Law, has penned a new article, Reassessing Damages in Securities Fraud Class Actions, available from SSRN, here.

The basic premise of the article is simple:

That courts should limit plaintiffs to recovery for their out-of-pocket losses.

Prof. Burch suggests that there is substantial difficulty with determining damages in current securities fraud class actions, due to an attempt by courts "to fashion common-law deceit and misrepresentation remedies to fit open-market fraud."

She offers a fairly detailed historical analysis of fraud (from common law up the modern securities laws) and the various remedies that courts have fashioned to compensate plaintiffs injured by fraud.

After an examination of the theories supporting private rights of action under Rule 10b-5 (compensation and deterrence), Prof. Burch turns to the "out-of-pocket" measure of damages a a possible solution to such problems as potential double recovery by plaintiffs:

The out-of-pocket measure is the only common-law remedy that recognizes the distinctions between face-to-face transactions and open-market fraud, that complies with the loss causation requirement, and that limits plaintiffs to their actual damages.

Prof. Burch also suggests:

Restricting investors to out-of-pocket losses also advances optimal deterrence by increasing predictability through a clear doctrinal damage calculation.

I'm not convinced that having prior knowledge of the measure of private securities fraud damages would deter most corporate wrongdoers from committing securities fraud, but the article is worth a look anyway.

Daily Trivia: Samford's law school has alumni practicing in every state except Maine, Nebraska, North Dakota and Rhode Island.

Announcing the Vitriolic Defense

2006-09-07T20:52:00.000-05:00

Earlier this week Cohen & Malad, LLP issued a press release announcing the filing of a securities fraud class action complaint against RelationServe Media, Inc. n/k/a SendTec, Inc., in the in the United States District Court for the Southern District of Florida.

Today, in response, Sendtec, Inc., a direct marketing services company based in St. Petersburg, Florida, decided to introduce a new type of press release, the vitriolic defense.

In their release, Sendtec starts with a familiar tune:

This action is frivolous and without merit.

Most companies then assert their intention to vigorously defend themselves, but Sendtec went much further:

Accordingly, we intend to seek dismissal of this case and sanctions for a false filing in which federal jurisdiction as a class action has been improperly sought.

There is some history between these litigants, so the tone of the company's release is not coming from left field.

As reported in a Sendtec 10-Q earlier this year, the named plaintiff in the federal litigation, Richard F. Thompson, (and related individuals and entities) commenced an action in the Hamilton County Circuit Court, against Anthony D. Altavilla, Summit Financial Partners, LLC, Barron Partners, LP, US MedSys Corp. and RelationServe Media, Inc.

The plaintiffs in the earlier state complaint against Sendtec (f/k/a RelationServe Media, Inc.) sought rescission of the 110,000 shares of common stock they purchased in July 2005, alleging that the shares were not properly registered as required under Indiana Law.

Of course, Sendtec had something to say about the earlier litigation:

The Company believes this action is without merit, and intends to vigorously defend itself with respect to this matter.

Daily Trivia: Sendtec has won a host of awards for the advertising work the firm has done over the years. I was surprised to learn that the Telly Award the firm won for a Roy Rogers Restaurants campaign had nothing to do with Kojak. In fact the Telly's "honor outstanding local, regional, and cable television commercials and programs, as well as the finest video and film productions."

An Avalanche of Settlement Notices?

2006-09-07T20:26:00.000-05:00

I'm loathe to suggest that this humble blog has the power to move mountains, but earlier this week, I suggested that class counsel should strongly consider issuing press releases to publicize the settlement of securities class actions.

Today, not one, but two different such notices popped up.

The first was issued in the In Re DVI, Inc. Securities Litigation, and announced a group of partial settlements valued at $2,885,000 in cash.

The DVI litigation is pending in the United States District Court for the Eastern District of Pennsylvania before Judge Legrome D. Davis.

Judge Davis had previously appointed the Cedar Street Fund and the Cedar Street Offshore Fund, and an individual investor, Kenneth Grossman as lead plaintiff, and Krislov & Associates, Ltd. and Chimicles & Tikellis LLP as lead and liaison counsel, respectively.

Judge Davis' opinion appointing lead plaintiff and lead counsel can be found here.

The second was issued in the Allou Health Care, Inc. litigation, and announced a settlement with the outside director defendants for $300,000 and "certain other consideration."

The Allou litigation is pending in the United States District Court for the Eastern District of New York before Judge Joanna Seybert.

William D. Witter Partners, LLP, David P. Herpst and David Hust were previously appointed lead plaintiff and Abbey Spanier Rodd Abrams & Paradis LLP was appointed lead counsel.

At Least the Stay in the Derivative Cases Will Be Lifted

2006-09-06T20:31:00.000-05:00

According to an article in today's Detroit News , the securities class action pending against Visteon Corp. (NYSE: VC), certain current and former officers of the company, and the company's auditor PricewaterhouseCoopers LLP, has been dismissed.

The Visteon litigation was pending in the United States District Court for the Eastern District of Michigan before Judge Robert H. Cleland.

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

The Visteon litigation was filed in February 2005 after Visteon restated earnings, claiming company officials hadn't disclosed the risks of being spun off by Ford Motor Co. According to the article, plaintiffs alleged that Visteon "had no chance to be profitable and failed to disclose it was hampered by money-losing businesses inherited from Ford, price reductions promised to its former parent company and high labor costs."

The Public Employees' Retirement System of Mississippi is lead plaintiff in the Visteon litigation while Baron & Budd, P.C. is lead counsel and VanOverbeke, Michaud, & Timmony, PC. is liaison counsel.

On a side note - listed as "Additional Plaintiff's Counsel" on the Visteon complaint is the Baton Rouge firm of LeBlanc & Waddell, LLP. Baron & Budd and the LeBlanc firm maintain a joint website devoted to securities litigation, here.

As previously discussed by The D&O Diary, Baron & Budd and LeBlanc & Waddell are part of the growing number of firms known for their work in asbestos or tobacco litigation that have branched out into securities litigation.

Also, as previously disclosed by Visteon in this 10-K, two derivative lawsuits were filed in the Third Judicial Circuit Court of Michigan following the company's 2005 restatement. Those matters had been stayed pending resolution of the motion to dismiss in the securities litigation.

Daily Trivia 1: The building that houses VanOverbeke, Michaud, & Timmony, PC. was originally built in 1872 for Grace Whitney-Evans, a daughter of Detroit lumber baron, David Whitney. The house was later rented to Joseph L. Hudson founder of the Detroit department store chain, The J.L. Hudson Company.

Daily Trivia 2: Joseph L. Hudson is credited with creating new department store policies including the maintenance of full inventories to permit immediate delivery and liberal return privileges for customers. He was also one of the first in the retail industry to attach visible prices to merchandise.

A Welcome Addition to the Press Release Universe

2006-09-05T21:13:00.000-05:00

The vast majority of press releases that we have discussed relate to events at the inception of securities litigation.

This press release, issued by Plaintiff's counsel in the KPNQwest securities litigation comes at the end of the case. It is a copy of the summary notice of several proposed partial settlements valued at a total of $15,175,000. The same notice was published today in The Wall Street Journal.

Time to climb onto the soapbox...

The WSJ notice was in the so-called "tombstone format" that is typically used to announce securities litigation settlements. While this type of notice has routinely been found to be an acceptable part of an overall notice campaign, I applaud plaintiff's counsel in this case for taking the extra step to broadcast the notice over one of the national business wires.

As many commentators (and this author, here) have noted, investors routinely fail to file claims forms in securities class actions. Any action that increases the percentage of investors that are able to recover losses in a given securities class action is a positive development. And as researchers have noted for years, investors use the Internet to track their investments, and are thus potentially far more likely to see a notice on their financial website of choice than in a print only format.

Now, back to your regularly scheduled post...

KPNQwest N.V. was jointly owned by Dutch telecom operator Koninklijke KPN N.V. (Royal KPN N.V.) and the Denver based "Baby Bell", Qwest Communications International Inc. KPNQwest filed for bankruptcy protection in 2002, one of the many telecoms that failed after the dot-com and telecom bubbles burst.

Lead counsel in the KPNQwest litigation are Schiffrin & Barroway, LLP and Glancy Binkow & Goldberg LLP, while Kirby McInerney & Squire, LLP is liaison counsel. The case is pending in the United States District Court for the Southern District of New York before Judge Peter K. Leisure.

A copy of the second amended complaint is available from Stanford here.

Thanks to Kevin LaCroix author of The D&O Diary for sending in the press release.

Daily Trivia: At the time of its bankruptcy filing, KPNQwest carried more than 25% of Europe's internet traffic.

Yet Another Settlement from N.D. California

2006-08-31T19:47:00.000-05:00

Cerus Corporation (NASDAQ: CERS) today announced an agreement to settle the securities class action litigation pending against the company and certain current and former directors and officers. The litigation is pending before Judge Jeremy D. Fogel in the United States District Court for the Northern District of California.

Judge Fogel previously appointed Gaeton and Lionel Carnot as lead plaintiffs and Lerach Coughlin Stoia Geller Rudman & Robbins LLP as lead counsel in the Cerus litigation. A copy of that order can be found here.

The company's press release also indicates that derivative litigation pending in the Superior Court for the County of Contra Costa was also settled. A review of the docket reveals that Robbins Umeda & Fink, LLP is counsel for the plaintiff in both of the derivative actions pending there.

While the press release does not indicate the value of the settlements, an 8-K filed by Cerus gives some insight:

Under these settlement agreements, the Company's directors' and officers' liability insurance policy will fund a cash settlement amount and the Company has agreed to take or continue certain corporate governance measures.

The corporate governance measures to be taken, include:

Making a good faith effort to add one or two independent directors to the company's board by September 1, 2007;
If the company is unable to add these independent directors by that time, retaining a professional search firm to assist in the identification candidates, with the company using best efforts to add one or two independent directors to the board by December 31, 2008;
Unless otherwise required by law, two thirds of the company's board of directors will consist, through January 1, 2009, of independent directors.

On an interesting side-note, a number of complaints were filed in the litigation, including two different amendments to complaints that had been filed just one or two months prior.

For example, on May 24, 2004, the plaintiffs filed a consolidated complaint, followed shortly thereafter on June 17, 2004, by an amended consolidated complaint (link unavailable) which added certain allegations attributed to a confidential witness.

On January 20, 2005, the Court dismissed the complaint with leave to amend within 60 days. On March 21, 2005, the plaintiffs filed a second amended consolidated complaint, and on May 24, 2005, the plaintiffs filed a third amended consolidated complaint.

Cerus is a Concord, California based bio-technology firm focused on developing blood safety systems and, more recently, immunotherapies for cancer and infectious disease.

Morrison & Foerster LLP is counsel for defendants in the litigation.

Daily Trivia: Morrison & Foerster has undergone 14 name changes in the firm's history and can trace it roots back to 1883. Brobeck, Phleger & Harrison LLP, the formerly omnipresent securities litigation powerhouse (and now defunct) law firm, was formed in 1925 by lawyers that left Morrison & Foerster.

Umm...yeah, I'm going to need to you to come in on Saturday alright?

2006-08-30T21:53:00.000-05:00

The close relationship between plaintiffs' lawyers and labor unions (specifically their pension funds) is well documented, and often criticized.

A press release issued today by the law firm of Wolf Haldenstein Adler Freeman & Herz LLP piqued my interest, with a unique example of that relationship.

The firm announced that it was one of the prime sponsors of the Fifth Annual "DC Labor Film Festival," produced by the Metropolitan Washington Council of the AFL-CIO. The festival "was established as a part of a project to use the arts to highlight the plight of workers and their efforts to secure better conditions of employment."

While the festival features a number of independent films with serious themes, it also features one of my favorite comedies - Office Space, the 1999 cubicle comedy directed by Mike Judge.

For fellow devotees, this fan site has a number of memorable sound clips from the film.

Wolf Haldenstein opened its Washington, DC office on July 1st of this year, with the addition of Reuben Guttman, formerly of Milberg Weiss Bershad & Schulman, LLP. The Washington Business Journal has a story on the office opening here and the WSJ Blog has a post here.

Less is More?

2006-08-30T20:31:00.000-05:00

A recent ruling in the CV Therapeutics, Inc. (NASDAQ: CVTX) securities litigation highlights some of the interesting issues that are filtering through the courts with respect to electronic discovery (e-discovery).

The case is pending in the United States District Court for the Northern District of California before Judge Susan Illston.

The parties had previously agreed on the entry of a stipulated order governing the discovery of material restored from defendant's backup tapes. The backup tapes contained approximately 425,000 documents.

Defendants applied a "de-duplication process" to the tapes, which reduced the number of documents to approximately 129,000. Defendants then produced about 4,000 documents. Plaintiffs objected to the de-duplication as well as the withholding of documents.

The defendants argued that it would be unduly burdensome and expensive to produce the remaining 125,000 documents, and asked the magistrate to require plaintiffs to select slightly less than half of the documents.

A virtual treasure trove of court filings from the litigation can be found on the Stanford website, here. Interestingly, Lerach Coughlin's "Designated Internet Site," is nearly bereft of filings from the CV Therapeutics litigation.

Magistrate Edward M. Chen found that de-duplication was an acceptable method of reducing the size of the production and ordered the defendants to apply search terms to narrow the remainder of the production.

A copy of Magistrate Chen's opinion is available here. The case can be cited as In re CV Therapeutics, Inc. Sec. Litig., 2006 WL 2458720 (N.D. Cal. Aug. 22, 2006).

In November 2003, Judge Ilston appointed David Crossen as lead plaintiff and Lerach Coughlin Stoia Geller Rudman & Robbins LLP (at the time, Milberg, Weiss, Bershad, Hynes & Lerach, LLP) as lead counsel in the CV Therapeutics litigation. A copy of the order appointing lead plaintiff and lead counsel is available here.

A copy of the consolidated amended complaint is available here.

Defense counsel in the case is Latham & Watkins, LLP.

Daily Trivia: Magistrate Chen is the first Asian-American to serve on the bench of the United States District Court for the Northern District of California.

No Pay, No Pal

2006-08-29T19:03:00.000-05:00

According to news reports (InvestmentNews.com - registration required), a Cyprus based investment company is suing Clarium Capital Management, a hedge fund headed by PayPal founder Peter Thiel, alleging that it was defrauded out of millions of dollars over a period of eight years.

The suit was filed earlier this week by Amisil Holdings Ltd. of Cyprus in the United States District Court for the Northern District of California.

According to news reports, Amisil first invested in Clarium in 1998. At that time, Clarium was known as Thiel Capital Management. Amisil's investment is thought to be equivalent to a 1% interest in the hedge fund.

The article contains a colorful quote from a representative of the plaintiff:

Amisil has not received a single distribution from Clarium, while he [Mr. Thiel] has skimmed tens of millions of dollars out of Clarium into his own pockets. There's been no pay for us, and he's been no pal.

Amisil is represented by Harvey L. Leiderman of Reed Smith LLP's San Francisco office. Leiderman is a recent addition to the firm, according to this announcement.

Daily Trivia: Mr. Thiel started as a derivatives trader at Credit Suisse Group and in 2003 nearly bought Martha Stewart's Manhattan duplex condo. Ms. Stewart later sold the condo the day before she was sentenced for crimes related to her well-timed sale of Imclone Systems Inc. stock in late 2001.

Jackpot!

2006-08-28T21:35:00.000-05:00

According to an 8-K filed last week, The Sands Regent (NASDAQ: SNDS), has agreed in principle to settle a shareholder class action, which challenged the proposed merger of Sands Regent with Herbst Gaming, Inc., the operator of the Terrible's casino chain.

The litigation was pending in the Second Judicial District Court for Washoe County, Nevada. Counsel for the plaintiff included Lerach Coughlin Stoia Geller Rudman & Robbins LLP and Ademi & O'Reilly, LLP.

A review of the docket reveals that the settlement was reached just one day after an amended complaint was filed.

The settlement requires the defendants to: 1) make certain modifications to the merger documents; 2) amend the disclosures contained in the proxy statement; 3) pay $345,000 in attorneys fees to plaintiffs' counsel.

The proposed merger, which was announced on May 17, 2006 is valued at approximately $148 million.

According to an earlier 8-K, you guessed:

The Company believes the lawsuit is without merit and intends to vigorously defend the action.

Daily Trivia: Herbst Gaming began in 1987 as an offshoot of the family business, Terrible Herbst Oil Company, which now operates 80 gasoline stations and convenience stores throughout Nevada. Herbst Gaming serviced the slot machines located in the Terrible Herbst locations and is now one of the largest slot route operators in the State of Nevada.

A Quick Trip Through The Blogosphere

2006-08-24T22:30:00.000-05:00

A few interesting items from other blogs that you might find interesting.

Kevin LaCroix, over at The D&O Diary, has an interesting post here about the recently filed options backdating litigation against Zoran Corporation (NASDAQ: ZRAN) and ten of its past or present directors and officers. The Zoran litigation appears to be somewhat unique because it focuses on allegedly improper or misleading solicitation of shareholder proxies and consent.

The D&O Diary also has an interesting post here on the growing trend of activist hedge funds and their willingness to litigate to effectuate change. Not surprisingly, the post also has some thoughts on what this trend means for D&O liability.

Lyle Roberts, author extraordinaire of The 10b-5 Daily, has a post here on a brewing circuit split on the application of the "collective scienter" theory, which allows a plaintiff to establish the scienter of a defendant corporation based on the collective knowledge of the corporation's employees.

Michael Thomas, author of The Daily Caveat, has an update on the litigation swirling around Kirk Wright, and the failure of his hedge fund management company, International Management Associates here.

Broc Romanek, editor of TheCorporateCounsel.net, has a post here discussing a recent New York State court decision analyzing whether a fiduciary relationship exists between an underwriter and an issuer and whether such a fiduciary relationship should be imputed to underwriter's counsel.

Appeal is the "Genesis" of a Settlement

2006-08-24T21:31:00.000-05:00

Today Wolf Popper LLP announced the proposed settlement of the securities class action pending against Genesis Microchip Inc. (NASDAQ: GNSS) in the United States District Court for the Northern District of California.

The $1.75 million settlement came after the case was dismissed by Judge Jeffrey S. White, but before plaintiffs appeal was heard by the United States Court of Appeals for the Ninth Circuit. A copy of the stipulation of settlement is available here.

Wolf Popper LLP and Alexander, Hawes & Audet, LLP are lead and liaison counsel, respectively. The lead plaintiff in the litigation appears to be former model (and current wife of Carl Bernstein) Christine Kuehbeck.

The PSLRA Nugget has a post about some interesting, though unrelated litigation involving Ms. Kuehbeck.

Readers may recall this recent post which discussed the local rules of the District, which require the posting of virtually securities fraud class action litigation complaints and pleadings to a "Designated Internet Site" such as Stanford Law School's Securities Class Action Clearinghouse or Lerach Coughlin Stoia Geller Rudman & Robbins LLP's Securities Class Action Designated Internet Site. A search of both of those websites reveals nary a mention of the Genesis Microchip litigation.

Daily Trivia: Genesis is the leading supplier of the video processors used in liquid crystal display (LCD) monitors, which today are the most widely used display technology for PC monitors.