Category Archives: All The News That’s Fit To Blog

On the eve of oral argument in the Stoneridge (a.k.a. Charter Communications) case on scheme liability, the media coverage continues.

(1) The Wall Street Journal had two items in its weekend edition, including a “Hot Topic” breakout of the case and an editorial (subscrip. req’d) urging the court to reject the position advocated by the investor plaintiffs.

(2) More editorials can be found in the Washington Times.

(3) CNBC has a point/counterpoint with two prominent securities litigators from its “Power Lunch” program.

A number of media outlets have chosen to run articles on the Stoneridge (a.k.a. Charter Communications) case today in anticipation of next week’s argument. Articles can be found in the Washington Post, Wall Street Journal , Reuters, and MarketWatch.

Quote of note (Washington Post): “Joseph A. Grundfest, a Stanford University law professor who supports businesses in the case, said the SEC and the Justice Department already have the power to sue third parties for their involvement in a fraud scheme. He noted that Congress repeatedly has rejected attempts to expand the rights of investors to sue. ‘There’s a question of real principle here: Which decisions should be made by the courts, and which should be made by Congress?’ Grundfest said.”

For those readers who would like to get a preview of the Stoneridge (a.k.a. Charter Communications) argument in the U.S. Supreme Court next week, there are two notable events being held this Friday.

(1) The American Enterprise Institute is hosting a panel discussion (including Harvey Pitt, the former SEC Chairman) on the case in Washington, D.C.

(2) The Center for Business Law & Regulation at Case Western Reserve University has a half-day conference on the case taking place on campus in Cleveland, Ohio. There also will be a live webcast. Details can be found here.

The New York Law Journal (Sept. 28) has two columns on securities litigation topics. A subscription is required to view the columns online.

(1) In “DOJ Backs ‘Scheme Liability’ in Third-Party Class Actions” the authors provide a preview of the upcoming Stoneridge (a.k.a. Charter Communications) case in the U.S. Supreme Court. The column summarizes the history of the case and discusses the arguments presented in the DOJ’s amicus brief.

Quote of note: “The U.S. Department of Justice’s endorsement of scheme liability for third parties may result in a pyrrhic victory for the plaintiff class action bar given the stark impact that its proposed reliance test would have upon many scheme liability claims. Scheme liability, according the solicitor general’s view, would only apply to defendants whose misconduct was directly relied upon by the allegedly defrauded investor and not to other, potential deep-pocket defendants who allegedly participated in a broader scheme to defraud.”

(2) In “‘Oscar’: Nearing the End of Fraud-On-Market Theory?” the author argues that the Dura decision on loss causation has led courts to question the continuing efficacy of the fraud-on-the-market theory. The author discusses the Fifth Circuit’s denial of class certification in Oscar Private Equity and concludes that it may be a harbinger of things to come.

Quote of note: “[T]he Fifth Circuit seems to have accepted the Supreme Court’s challenge, and has significantly chipped away at the validity of the fraud-on-the-market theory by barring use of the presumption at the class action certification stage. In so doing, it has invoked the logic of Justice White’s Basic dissent. Based on Oscar and other appellate decisions, it seems as though the repudiation of the fraud-on-the-market theory will continue and Justice White’s opinion will sometime soon become the law of the land.”

The Wall Street Journal reports that the SEC will hold a roundtable early next year on the topic of shareholder litigation. The roundtable is being held in response to a letter (along with discussion questions) from six prominent law professors petitioning the agency to examine the topic. It also comes in the wake of a series of reports, including from The Committee on Capital Markets Regulation and Bloomberg/Schumer, that have discussed the potential negative impact of shareholder litigation on the U.S. financial markets.

Quote of note (WSJ): “The SEC roundtable, as it appears so far, will address the law professors’ concerns, including who bears the cost of paying for attorneys fees in securities lawsuits, the role insurance plays in indemnifying companies or individuals, the percentage of investors who file claims and collect portions of settlements, and how the economics of a settlement change when the defendant is a third party.”

The problems in the subprime mortgage market have led to extensive litigation. The Washington Post had an article this week on the topic. Meanwhile, The D&O Diary has been keeping a running tab on subprime-related securities class actions.

Quote of note (Washington Post): “A consortium of investors is going after the collapsed Bear Stearns hedge funds. Home buyers, shareholders and investment banks have filed suits against more than a dozen mortgage lenders. A working group at the Securities and Exchange Commission is examining accounting and disclosure issues, as well as stock sales earlier this year by executives at companies that since have been ensnared by the subprime mess.”

The American Lawyer (September 2007) has a feature article (including a sidebar and a timeline) on the twists and turns in the securities litigation surrounding Biovail Corporation. Biovail is Canada’s largest publicly traded drugmaker and has been both defending itself in a securities class action and prosecuting a case against short-sellers of the company’s stock. The company’s use of information gathered in the securities class action (which was subject to a protective order) in its other case has gotten the company and its counsel into trouble with the court.

Quote of note: “By the end of 2003, Biovail stock was trading below $25. The drop could be explained, at least in part, by Biovail’s poor performance. In October 2003 the company issued an announcement of disappointing third quarter results, which sent the stock downward. But [the Chairman of Biovail] suspected that there was something else going on. As Biovail’s share price continued to languish through 2004, he came to believe that short-sellers were waging a campaign of disinformation to make sure the share price never recovered.”

Two articles from last week:

(1) The American Lawyer has a feature article on Milberg Weiss’s indictment and the concurrent decline in securities class action filings.

(2) The Wall Street Journal Law Blog reports that Milberg Weiss and Lerach Coughlin have been sued in a class action based on the kickback allegations in the Milberg Weiss indictment. The suit is being brought on behalf of former class members in several lawsuits in which Milberg Weiss acted as lead counsel. A copy of the complaint can be found here.

Quote of note (The American Lawyer): “Nor is there a new Milberg on the horizon. After several years, and several key court rulings, the PSLRA’s goal of forcing plaintiffs to allege highly specific allegations appears to be working, according to both plaintiffs and defense lawyers. That makes a firm model based on filing lots of actions harder to maintain, since plaintiffs cases are more prone to dismissal. A handful of major players in the practice-Bernstein Litowitz and Grant & Eisenhofer, for example-file the major cases that Milberg did at its peak, but don’t bring the bevy of smaller cases that Milberg also did.”

In an op-ed in yesterday’s edition of the Financial Times, the director of the Committee on Capital Markets Regulation (a.k.a. the “Paulson Committee”) addresses a securities litigation reform that the SEC appears eager to avoid endorsing. Christopher Cox, the Chairman of the SEC, has told Congress that the SEC is not considering allowing companies to “mandate” arbitration for shareholder claims. The op-ed points out that the proposed reform actually puts the mandating power in the hands of the shareholders – who would vote on a charter amendment requiring arbitration and could always decide to reverse their decision later – not the company.

Quote of note: “The reform that the committee urges strengthens shareholder rights by broadening choice beyond the route of class action litigation. The SEC should not feel constrained to block or endorse alternatives to class actions. Indeed, after full and fair public discussion, the SEC should leave resolution of disputes between shareholders and their companies where it belongs, in the hands of shareholders and the courts.”

The Wall Street Journal has an online debate (subscrip. req’d) between two securities litigators on the merits of scheme liability, a topic that will be addressed by the U.S. Supreme Court next term in the Stoneridge (a.k.a. Charter Communications) case. For those who like their debates slightly heated and reasonably entertaining, this will not disappoint. The WSJ Law Blog also has a related post where they invite comments on the topic.

Quote of note:

“Well, Sean, there you go again. You pick a troubling fact pattern — a Wall Street bank’s alleged involvement in a phony sale of assets to prop up corporate cash flow — to argue for the rewriting of the securities laws.”

. . . .

“Thanks Bob for your concession that Bank A’s conduct in my hypothetical was ‘troubling.’ That had to hurt. The question that investors would like to have you (and the Chamber of Commerce) answer is: do you think Bank A should get a pass for what it did in the (not so) hypothetical? Or is Bank A an ‘innocent’ third party that should be beyond the reach of defrauded investors?”