Two interesting lead plaintiff/lead counsel decisions from last week.
(1) There are usually a number of initial complaints filed in a securities class action, with later filers often copying, in whole or in substantial part, the allegations in the first-filed complaint. Some courts have questioned whether this practice meets the requirements of Federal Rule of Civil Procedure 11, but it usually does not become an issue in the lead plaintiff/lead counsel contest.
In Taubenfeld v. Career Education Corp., 2004 WL 554810 (N.D. Ill. March 19, 2004), however, one of the candidates for lead plaintiff argued that another candidate should be rejected because it had “selected counsel that has not independently investigated this case but instead simply copied the work product” of other counsel. The court declined to comment “on the appropriateness of copying another plaintiff’s complaint verbatim” and held that the issue did not affect the candidate’s adequacy to serve as lead plaintiff. The court also noted that there was evidence, in the form of an affidavit, that the proposed lead counsel had conducted an independent investigation of the claims (but apparently declined to include any additional allegations in its complaint “because it would have given the defendants more time to prepare defenses to such information”).
(2) Sometimes even an unopposed motion for appointment as lead plaintiff can be rejected. In Huang v. Acterna Corp., 2004 WL 536951 (D. Md. March 18, 2004), the court found that the class notice published by the plaintiffs was insufficient because: (a) it did not provide enough information for potential lead plaintiffs; and (b) it was published in The New York Times, which might not meet the PSLRA’s requirement that notice appear in a “widely-circulated national business-oriented publication or wire service.”
The court instructed the plaintiffs to send a more informative notice directly to the largest financial and institutional investors in the company, which “can be easily identified by defendants and submitted to plaintiffs.” No word on the propriety of requiring the defendants to help find a better lead plaintiff to prosecute the case against them. Ouch. (Securities Litigation Watch also has a post on this decision.)