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

Long-time readers of The 10b-5 Daily know that this blog has been interested in South Korea’s efforts to establish a private securities class action system. As the deadline approaches for the new legislation to go into effect, financial regulators continue to weigh the costs and benefits. In this article from the Korea Times, the governor of the Financial Supervisory Service (FSS) notes that securities class actions can be misused and discusses the prevalence of these suits in the U.S. Another article from the same paper, however, quotes a FSS official as stating: “It’s fair to say the imminent class action lawsuit has also kept companies from cooking their books.”

The New York Law Journal has an article (via law.com – free regist. req’d) on whether the group pleading doctrine, which creates a presumption that a company’s senior officers are collectively responsible for misrepresentations or omissions contained in public statements made by the company, is compatible with the heightened pleading standards of the PSLRA. The article discusses the Fifth Circuit’s decision in the INSpire case from earlier this year.

The New York Law Journal has an article (via law.com – free regist. req’d) on the wave of securities class actions that have hit the biotech industry. (The 10b-5 Daily has previously posted about the relevant 2003 filing statistics.) The article discusses a recent law firm survey and profiles several prominent cases, including the litigation brought against ImClone Systems and Regeneron Pharmaceuticals.

Quote of note: “The biggest concern for a life science company involves its handling of news related to its prominent drug. In an industry that relies on investors to fork over millions to high-risk investments, life science companies position themselves to attract investment dollars. In such an industry, companies must navigate carefully.”

Although Oracle has had its hands full fighting off securities litigation, including a recent setback when the U.S. Court of Appeals for the Ninth Circuit reversed the lower court’s dismissal of the federal securities class action brought against the company, things may be looking up. Reuters reports that Oracle has obtained a dismissal of the shareholder derivative suit brought against the company’s officers in Delaware Chancery Court. The facts and accusations in the Delaware case reportedly “mirror” those in the federal securities class action.

In the wake of recent corporate scandals, European courts have become flooded with individual shareholder suits. A Bloomberg article discusses the Deutsche Telekom litigation in Germany, where 2,100 claims have been filed by 754 law firms. Last February, the company delivered 8 tons of paperwork in response to the complaints. All of this has European courts and legislators contemplating whether they should permit shareholders to file securities class actions.

Quote of note: “Countries from the Netherlands to Finland have changed their laws or are considering changes to permit investors and consumers to file multi-party complaints. The goal is to help cope with shareholder suits and product liability cases that can attract thousands of plaintiffs.”

Quote of note II: “‘Europe wasn’t litigious until about five years ago, but then we started to get Americanized,’ says Paul Bowden, a 49-year-old partner at the law firm of Freshfields Bruckhaus Deringer in London. ‘Consumer associations have become more powerful and willing to push lawsuits, and there is a growing number of small law firms with young, ambitious lawyers who have learned a lot from the U.S.'”

On the heels of its $250 million settlement with the SEC last month, Qwest Communications is apparently in negotiations to settle the securities class actions pending against the company. An article in the Rocky Mountain News states that Qwest and the California State Teachers’ Retirement System, which is acting as lead plaintiff, have recently engaged in a mediation. One analyst quoted in the article suggests that any settlement under $500 million would be a “net win for Qwest.” In any event, it would be less than the “billions of dollars” in damages that lead counsel was reported to be seeking.

Oral argument in Dura Pharmaceuticals v. Broudo, the U.S. Supreme Court case on loss causation, has been set for January 12, 2005. Broudo’s brief is due in a couple of days and will be posted when available on the web.

An opinion from the U.S. Court of Appeals for the District of Columbia from earlier this year has an interesting holding for securities fraud defendants. In Howard v. S.E.C., 376 F.3d 1136 (D.C.Cir. 2004), the court examined a charge against the director of a broker-dealer for aiding and abetting a Rule 10b-9 violation (prohibited representations in connection with certain offerings). An element of a Rule 10b-9 claim is scienter (i.e., fraudulent intent). The court found that in the absence of red flags warning the director of the illegality in question, the director was entitled to rely on the advice of counsel and this reliance was evidence that he had not acted with scienter.

Holding: SEC order imposing sanctions vacated with respect to certain charges.

Quote of note: “[R]eliance on the advice of counsel need not be a formal defense; it is simply evidence of good faith, a relevant consideration in evaluating a defendant’s scienter.”

Quote on note II: “All the SEC can say is that Howard should have known what the legal requirements of Rule 10b-9 were and that he violated the disclosure laws by failing to reveal what he should have found out, but did not. At best this amounts to a finding of negligence; at worst it is liability without fault.”

The 10b-5 Daily has been following the up-and-down fortunes of the Class Action Fairness Act over the past year. The legislation applies some of the reform concepts in the PSLRA and SLUSA to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court.

With Republicans gaining seats in the Senate in this month’s election, the Legal Times reports (via law.com – free regist. req’d) that the Class Action Fairness Act may finally get a floor vote. The timing, however, is still up in the air.

Quote of note: “If supporters want such legislation to pass during the lame duck period, [Stanton Anderson, head of the U.S. Chamber Institute for Legal Reform] and his team must persuade appropriators to attach the legislation to their spending bills, something they are often reluctant to do. Otherwise, they’ll have to wait for the new Congress. ‘If the decision is made to have riders, then we want to be at the top of the list,’ he says. The urgency, adds Stanton, comes from not knowing for sure what will be on the legislative calendar next year. One thing that worries him: A drawn-out fight over the Supreme Court. ‘If there’s a Supreme Court nomination,’ he says, ‘then that will suck up everybody’s time and energy.'”