Monthly Archives: July 2004

The parties in the mutual fund trading practices cases, which have been consolidated in the D. of Md., are in settlement negotiations. The Wall Street Journal has an interesting article (subscrip. required) exploring the ramifications of the mutual funds’ agreement to pay $2.5 billion to settle with the SEC and state regulators. Almost all of these funds will go to mutual fund investors (in part because of the Sarbanes-Oxley provisions allowing the SEC to distribute penalties it obtains to injured investors), which is likely to reduce any settlement in the private lawsuits. (The 10b-5 Daily has posted about the cases frequently, most recently about the lead plaintiff contest.)

Quote of note: “Attorneys for the mutual-fund companies have cited the settlement agreements in their defense, which by some measures total more than the alleged damages. The ‘plaintiffs are tilling a plowed field,’ lawyers for Janus wrote in a court filing.”

Quote of note II: “The plaintiffs’ attorneys are likely to contend in amended complaints due later this month that the fund companies need to prove that they are fully compensating investors for the harm done by the trading. Some of the lawsuits are seeking the return of fund-management fees on the theory that the managers violated their fiduciary duty to investors, an issue not directly addressed by the SEC settlements.”

The New York Times had a long feature article in its Sunday edition on the breakup of Milberg Weiss Bershad Hynes & Lerach, widely recognized as the leading plaintiffs’ securities class action firm. The article discusses a number of topics, including the history of Milberg Weiss, the PSLRA, and the recent corporate scandals.

The Financial Times has an article on the U.S. Supreme Court’s decision to grant cert in the Dura Pharmaceuticals case and address the issue of loss causation. The article also discusses the potential impact on the research analyst cases.

Quote of note: “The Supreme Court is not expected to rule on the Dura case until 2005; an appeal in the Merrill Lynch case is due to begin in New York next month, although some lawyers believe that ruling may be put off until after the Supreme Court acts.”

Disclosure: The author of The 10b-5 Daily is quoted in the article.

Last year, there was a great deal of concern over the rising costs of directors and officers (“D&O”) insurance. According to an article in the Silicon Valley/San Jose Business Journal (via MSNBC), however, the pendulum has swung the other way. Rates began declining in April of this year and “now many companies are saving between 18 percent and 50 percent.” The article attributes most of the decline to rate competition caused by new underwriters entering the market. (Thanks to the Securities Law Beacon for the link.)

Quote of note: “Those getting the biggest break are stable, middle-market public companies, between $500 million and $1 billion in market cap. This group was hit as hard as anyone when D&O rates started increasing in 2001. Until rates started easing earlier this year, some companies saw increases as high as 300 percent.”

The Associated Press reports that the Class Action Fairness Act will not be voted on in the U.S. Senate this legislative year, becoming the “victim of election-year skirmishing between the two parties.” Proponents of the bill were unable to get enough votes to invoke cloture today after Senate Majority Bill Frist (R.-Tenn.) refused to allow consideration of various unrelated amendments.

To what extent are individual stock trading plans (entered into pursuant to SEC Rule 10b5-1) helpful in defending against private securities fraud claims? At least one court, the N.D. of Cal. in the Monterey Pasta case, has suggested that the use of a stock trading plan may allow a defendant to negate any inference of fraudulent intent based on his stock sales because the sales were pre-scheduled. As more company executives implement these plans, the issue is likely to gather steam.

The author of The 10b-5 Daily, along with one of his colleagues, has an article on the topic – “Individual Trading Plans Can Help Defend Securities Fraud Claims” – in the most recent edition of Compliance Week (July 7).

The U.S. Senate finally is debating the Class Action Fairness Act , but its passage may be derailed by unrelated amendments. The Associated Press and Reuters have reports on today’s action.

Quote of note (Associated Press): “Democrats are demanding a vote on raising the minimum wage from the $5.15 an hour to $7 over the next few years. They also want a vote on fighting global warming and on extending an assault weapon ban that is to expire this year. Hawaii’s two Democratic senators are pushing legislation that would recognize native Hawaiians as a governing entity. Republican Sen. Larry Craig of Idaho, with Sen. Edward Kennedy, D-Mass., are trying to add a proposal that would give temporary legal status to undocumented farm workers.”