Under the PSLRA, the lead plaintiff in a securities class action is presumptively the party with the largest financial interest in the relief sought by the class. The presumption may be rebutted, however, by a showing that this party will not fairly and adequately protect the interests of the class or is subject to unique defenses not applicable to other class members. Not only does the lead plaintiff get to run the case, it also has virtually free reign to appoint its attorney as lead counsel for the class. Given that the lead counsel can obtain significant fees from a successful securities class action, the battle over the lead plaintiff position is often intense.
The State of New Jersey has been an active participant in securities class actions over the past few years, often applying for the lead plaintiff role. (The 10b-5 Daily previously posted about this development.) In In re Motorola Securities Litigation, 2003 WL 21673928 (N.D. Ill. July 16, 2003), New Jersey was far and away the lead plaintiff candidate with the most alleged losses. Its candidacy came under fierce attack, however, from another group of investors, led by Commerzbank, who were also seeking the lead plaintiff position.
First, Commerzbank argued that New Jersey would be subject to a unique defense because state officials have publicly criticized the state’s Department of Investment, blaming it for the relevant losses. The court rejected this argument, noting that “if New Jersey’s investment strategy during the early part of the decade was less than ideal, this actually may make the State more typical of those who have lost money in the stock market rather than less.”
Second, Commerzbank argued that newspaper reports in New Jersey suggested the existence of a “pay-to-play” scheme, in which Governor McGreevey would consider hiring law firms to represent the state in securities litigation if they made political contributions. The newspaper article in question, however, made no mention of the Motorola litigation or the two firms representing the state in the case (who both submitted declarations denying they had been awarded the representation in return for political contributions).
Holding: New Jersey appointed lead plaintiff.
The decision can be found here by putting in the case number (No. 03 CV 287).