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

In May, some of the individual defendants in the AOL/Time Warner securities class action were dismissed from the case. According to a report in yesterday’s Washington Post, however, Judge Kram of the S.D.N.Y. has reinstated the case against most of these defendants (including former AOL Chairman Steve Case) based on the plaintiffs’ second amended complaint.

Quote of note: “The opinion said: ‘According to the second amended complaint, on October 17, 2000, Case said, ‘I do not think people generally are concerned about Internet advertising. Our results show that there’s no reason to be concerned when it comes to AOL.’ In light of Case’s alleged knowledge as early as November 1999 that the advertising revenue was facing a ‘stark reversal of fortune,’ the above statement may form the basis of a [securities fraud] claim against Case.'”

The September/October issue of Corporate Board Member has a column on the increased litigation risk faced by corporate directors.

Quote of note: “The legal buzzwords for directors to remember here are ‘business judgment’ and ‘good faith.’ Courts traditionally won’t allow the former to be questioned so long as they are assured that board members acted in the latter.”

This week’s edition of The National Law Journal has a feature article (via law.com – subscrip. req’d) on securities litigation and the increasing competition amongst the plaintiffs’ law firms. The article focuses on the importance to these firms of developing strong relationships with institutional investor clients who can act as lead plaintiffs.

Quote of note: “Because a firm’s success depends not only on the viability of its case but also on the breadth of the client, how institutional investors choose their lawyers to pursue securities matters has become increasingly ‘political,’ said Joseph A. Grundfest, a securities law professor at Stanford Law School.”

The Associated Press has an article on requiring corporate governance reforms as part of the settlement of shareholder litigation. The author reviews some recent settlements that included reforms (Broadcom and Applied Micro Circuits) and argues “these settlements help debunk arguments against further governance reform for all public companies.” (The 10b-5 Daily most recently posted about this issue.)

Quote of note: “Only four of the 63 settlements reached in class-action shareholder suits so far in 2004 have produced governance reforms, according to Bruce Carton, executive director of securities class-action services for Institutional Shareholder Services, an adviser to major money managers. But while hardly an avalanche of reform, the recent activity does stand out compared with the prior two years, when only five of 346 settlements produced governance changes.”

Addition: An astute reader notes that the above statistics almost certainly understate the number of shareholder cases that have resulted in corporate governance reforms because corporate governance reforms are often implemented as part of the settlement of a related derivative suit, rather than in the settlement of the securities class action.

The Motley Fool website has an interesting, non-lawyer commentary on the large number of securities class actions that have been filed in the biotech industry over the past few years. The author engages in an informal survey of 100 mid-cap ($100 million to $2 billion) biotech companies and finds that 31, or nearly one-third, are currently facing suits. (The 10b-5 Daily has previously posted about the statistics for biotech cases filed in 2003.)

Quote of note: “Drug development is a high-risk business model, where investigational products frequently fail. Approximately 30% of drugs in phase 3 trials will never gain approval, and roughly 20% of drugs filed for approval with the FDA will get turned down. That’s a pretty high failure rate.”

Quote of note II: “This non-legal advice from a non-lawyer is to stick to the facts of the clinical data and avoid giving opinions on how good the drug is. Don’t say something like ‘potential to be best in class’ or ‘revolutionize the treatment of this disease.’ Such careless comments will be a nightmare if the drug hits a snag. You can bet that the lawyers will be looking for them, too.”

The parties in the mutual fund trading practices cases, which have been consolidated in the D. of Md., are in settlement negotiations. The Wall Street Journal has an interesting article (subscrip. required) exploring the ramifications of the mutual funds’ agreement to pay $2.5 billion to settle with the SEC and state regulators. Almost all of these funds will go to mutual fund investors (in part because of the Sarbanes-Oxley provisions allowing the SEC to distribute penalties it obtains to injured investors), which is likely to reduce any settlement in the private lawsuits. (The 10b-5 Daily has posted about the cases frequently, most recently about the lead plaintiff contest.)

Quote of note: “Attorneys for the mutual-fund companies have cited the settlement agreements in their defense, which by some measures total more than the alleged damages. The ‘plaintiffs are tilling a plowed field,’ lawyers for Janus wrote in a court filing.”

Quote of note II: “The plaintiffs’ attorneys are likely to contend in amended complaints due later this month that the fund companies need to prove that they are fully compensating investors for the harm done by the trading. Some of the lawsuits are seeking the return of fund-management fees on the theory that the managers violated their fiduciary duty to investors, an issue not directly addressed by the SEC settlements.”

The New York Times had a long feature article in its Sunday edition on the breakup of Milberg Weiss Bershad Hynes & Lerach, widely recognized as the leading plaintiffs’ securities class action firm. The article discusses a number of topics, including the history of Milberg Weiss, the PSLRA, and the recent corporate scandals.

The Financial Times has an article on the U.S. Supreme Court’s decision to grant cert in the Dura Pharmaceuticals case and address the issue of loss causation. The article also discusses the potential impact on the research analyst cases.

Quote of note: “The Supreme Court is not expected to rule on the Dura case until 2005; an appeal in the Merrill Lynch case is due to begin in New York next month, although some lawyers believe that ruling may be put off until after the Supreme Court acts.”

Disclosure: The author of The 10b-5 Daily is quoted in the article.

Last year, there was a great deal of concern over the rising costs of directors and officers (“D&O”) insurance. According to an article in the Silicon Valley/San Jose Business Journal (via MSNBC), however, the pendulum has swung the other way. Rates began declining in April of this year and “now many companies are saving between 18 percent and 50 percent.” The article attributes most of the decline to rate competition caused by new underwriters entering the market. (Thanks to the Securities Law Beacon for the link.)

Quote of note: “Those getting the biggest break are stable, middle-market public companies, between $500 million and $1 billion in market cap. This group was hit as hard as anyone when D&O rates started increasing in 2001. Until rates started easing earlier this year, some companies saw increases as high as 300 percent.”