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

Two interesting articles on securities fraud issues:

(1) This month’s issue of the Wall Street Lawyer (Vol. 9, No. 2 – July 2005) has an article on two circuit splits concerning the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). In “Showdown Over SLUSA,” the authors (Greg Harris and Christian Word) discuss the splits between the Second Circuit and Seventh Circuit over: (a) whether SLUSA preempts “holder” cases in which the plaintiff class consists entirely of investors who neither bought nor sold securities during the alleged class period; and (b) whether a district court’s decision to remand an action removed to federal court under SLUSA is appealable. The authors speculate that this double-split “raises the prospect of Supreme Court intervention and the high court’s first decision addressing SLUSA.” (The 10b-5 Daily’s discussion of the splits can be found here and here.)

(2) This month’s issue of the Securities Reform Act Litigation Reporter (Vol. 19, No. 4 – July 2005) has an article providing an overview of the securities class actions that have gone to trial since the enactment of the PSLRA. In “Ten Years After the Reform Act: Trends in Securities Class Action Trials,” the author (Michael Tu) finds that a total of seven cases have been brought to a trial verdict during this period, with only four cases involving claims based on post-Reform Act conduct. The Securities Litigation Watch has been following this issue closely and has both a handy list of the cases and a link to the article.

The 10b-5 Daily has previously posted about a petition filed in New York state court against the plaintiffs’ law firms that settled the Computer Associates securities class action. Texas billionaire Sam Wyly is seeking the discovery collected in the case and argues that the firms have breached their fiduciary duty to him by not granting access to the materials because, as a CA shareholder, he was effectively a client of the firms until he declined to participate in the settlement.

The plaintiffs’ law firms removed the case to federal court, arguing that the petition raised numerous federal questions, including “whether under the PSLRA lead counsel represents the class as a whole or individual class members.” In Wyly v. Milberg Weiss Bershad & Schulman, 2005 WL 1606034 (S.D.N.Y. July 8, 2005), the court disagreed, finding that none of the cited reasons were sufficient to find federal jurisdiction, and remanded the case back to state court. The court declined, however, to award Wyly any attorneys’ fees for fighting the removal, noting “the dubious nature of petitioner’s cause of action and the surrounding circumstances.”

The June issue of The Review of Securities & Commodities Regulation (Vol. 38, No. 11) contains an excellent overview of the law surrounding the use of confidential sources. The article, entitled “Anonymous Sources in Securities Class Action Complaints,” is authored by John Henn, Brandon White, and Matthew Baltay and provides a circuit-by-circuit analysis.

No sooner does France announce that it may permit class actions than the first securities class action appears. Reuters reports that a French lawyer has launched a class action against Vivendi Universal on behalf of small shareholders. The company already faces a similar suit in the U.S.

Quote of note: “‘Until now, no one has had the courage to do this’ in France, Canoy told Reuters. ‘But why can the Americans do certain things and not the French?'”

It was a busy week for news articles related to securities class actions. Here is a quick roundup:

(1) There were three noteworthy articles related to the Enron settlements. Forbes had a column on the potential attorneys’ fees. The Associated Press discussed the pressure on the other bank defendants to settle. Finally, CNN/Money offered an overview of the settlement landscape.

(2) The New Jersey Law Journal published a “practice paper” (via law.com – free regist. req’d) on the Third Circuit’s Chubb decision. (The 10b-5 Daily’s summary of the decision can be found here.)

(3) The June 2005 SCAS Alert contains an interesting survey of foreign legislative efforts to permit U.S.-style securities class actions.

As previously noted in The 10b-5 Daily, securities class actions rarely go to trial – making trial verdicts big news. Thane International, Inc., a California-based direct marketing company, has announced a trial victory in a securities class action brought in the S.D. of Cal. and based on the company’s 2002 acquisition of Reliant Interactive Media Corp. in a stock swap. Reliant shareholders alleged that Thane had promised it would list the combined company on the Nasdaq National Market, but failed to do so. According to the press release, only six securities class actions have made it all the way to a trial verdict since 1996 (note that different sources have different numbers, but everyone appears to agree that the total is less than ten).

Thanks to Dave Tabak for the link.

The nomination of Congressman Chris Cox as SEC chairman has come under criticism, with many opponents citing his sponsorship of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Professor Stephen Bainbridge of UCLA Law School has an interesting post on whether the PSLRA has actually “weakened investor protections” and provides links to a number of empirical studies to the contrary.