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

The Supreme Court’s recent loss causation decision in the Dura case has been the subject of considerable commentary. The author of The 10b-5 Daily, along with one of his colleagues, has written an article on the topic – “Lower Courts Will Determine Impact of Supreme Court’s Securities Fraud Ruling” – for the Washington Legal Foundation. A link to the article can be found here.

Professor John Coffee has a column (via law.com – free regist. req’d) in today’s New York Law Journal examining the Supreme Court’s recent loss causation decision. Among other issues, the column discusses the court’s failure to reject the idea that an investor can claim an economic loss even if the price of his shares increased. (Regular readers will note that Professor Coffee’s analysis of the pleading standard discussion in the Dura opinion differs from The 10b-5 Daily’s analysis.)

Quote of note: “In the real world, however, there is a major difference: price declines are real phenomena that demonstrate that the market considered information to be material; in contrast, a price that does not change may be the result of either offsetting developments or, more likely, the fact that the allegedly material misrepresentation simply never was deemed material by the market. Indeed, to permit recovery in this case hypothesized by the Court is to permit recovery based on a double speculation — first, as to the original uncorroborated price inflation and, second, as to what would have been the later price increase in the absence of discovery of the original inflation. Even the 9th Circuit has never gone this far.”

Confidential sources have become a hot topic in securities class actions. The Third Circuit and Ninth Circuit (see here and here) have issued recent decisions discussing the use of statements from confidential sources to help meet the PSLRA’s heightened pleading standards. The New York Law Journal has an informative article (via law.com – free regist. req’d) that summarizes these decisions and talks generally about the development of the case law in this area.

Quote of note: “[A] majority of courts addressing this issue have permitted the use of confidential sources, at least under certain circumstances. However, a review of recent decisions suggests that the courts are now closely scrutinizing the use of confidential sources in securities fraud cases and are becoming more vigilant in probing whether there is in fact such a source, whether that source would have been in a position to acquire first-hand knowledge of the matters attributed to it, and whether the information attributed to the source is corroborated by other, independent particularized facts pled in the complaint.”

The use of securities class actions is gaining favor in other legal systems. In an interesting article entitled “The Rise of Shareholder Class Actions in Australia” (via mondaq.com – free regist. req’d), an Australian attorney discusses the legal, regulatory, and environmental changes that have led to a spate of recent cases against Australian companies. He also compares the U.S. and Australian systems.

Quote of note: “There is an ever popular view among regulators and academics that shareholder class actions should be encouraged in order to supplement the often slow-moving cogs of government enforcement with much speedier private actions. Private enforcement is frequently more intimidating to corporations, particularly in the case of shareholder class actions which can aggregate the claims of thousands or even millions of shareholder and thereby significant increase a corporation’s legal exposure in comparison with the relatively meagre statutory fines that attach to corporate misfeasance.”

The Associated Press reports that in France a government-appointed panel has begun preparing the new class action law. One early debate is over whether France should adopt an “opt-out” or “opt-in” system for potential class members.

Quote of note: “Eventually, experts say, the moves afoot in Britain, Sweden and France could lead to a European Union-wide class-action law – since governments generally prefer their neighbors’ industries to be exposed to the same kinds of risk as their own. ‘It’s not for tomorrow, but if it gets off the ground in France, and since we already have it in Sweden, then maybe we’ll see something at a European level,’ said Peter Burbidge, a law professor at Britain’s Westminster University. ‘The French would want others to have it if they have it.'”

The use of confidential witnesses to support securities fraud allegations can be controversial, especially when the defense wants to test the accuracy of the statements attributed to these individuals. The Recorder has an article (via law. com – free regist. req’d) discussing two recent cases in the N.D. of Cal. where the handling of confidential witnesses has led to contempt and sanction motions.

Quote of note: “The plaintiff view is, ‘My god, if we were to tell who they were, they’d sleep with the fishes.'”

Interesting item in Newsday 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 reportedly is seeking the discovery collected in the case and argues “that the documents ‘rightfully belong to him’ because, as a CA shareholder, he was effectively a client of the firms until he declined to participate in the class-action settlement.”

Addition: Forbes has more on the story.