Reality Check

The Wall Street Journal had a curious editorial, entitled “The Milberg Effect,” in yesterday’s edition. The authors argue: (a) plaintiffs are projected to bring 57 fewer securities class actions in 2006 than in 2005 (based on a recent Cornerstone statistical report); (b) Milberg Weiss is projected to file 56 fewer securities class actions in 2006 than in 2005; and, therefore, (c) it is the Milberg Weiss criminal indictment, rather than “Sarbanes-Oxley or better corporate governance standards,” that has led to the overall 2006 decline in filings. The conclusion of the editorial is that these numbers should “provide all the evidence Congress needs to conclude that the only real way to rein in America’s runaway legal system is with tort reform that allows redress of genuine wrongs but limits the ability of lawyers to game the system.”

Whatever the merits of additional tort reform, somebody should have checked with a securities litigation practitioner before deciding that this argument made sense. The Cornerstone report is referring to the number of companies that have been sued, not to the overall number of securities class action suits that have been brought. It is common for multiple securities class action suits (filed by different law firms on behalf of different investors) to be brought against a single company. These suits are later consolidated and counted, for purposes of statistical analysis, as a single filing or case. There may be a “Milberg Effect” on the number of securities class actions brought this year, especially if that firm’s willingness to act as a first-filer means that in its absence some cases are never pursued, but it seems safe to conclude that it is nothing like the one-for-one ratio suggested by the WSJ editorial.

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