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

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The 10b-5 Daily asked readers last week to nominate contenders for the title of “Shortest Class Period Ever In A Securities Class Action.” We have a winner.

Last December, a case was filed against the Nasdaq Stock Market on behalf of all persons who traded the stock of Corinthian Colleges, Inc. (Nasdaq: COCO) between 10:46 a.m. and approximately 12:30 p.m. on December 5, 2003. That’s a proposed class period of a mere one hour and forty-four minutes.

A number of readers submitted the Nasdaq case, but the quickest was Adam Savett. Honorable mention goes to Bruce Carton over at Securities Litigation Watch, who went to the database to confirm his “final answer.” No special prize this time, but The 10b-5 Daily is going to think about Carton’s t-shirt suggestion.

Professor Stephen Bainbridge (UCLA Law) has a post today on the relationship – or lack thereof – between insider trading enforcement and class action reform.

Quote of note: “[N]obody seriously proposes entirely eliminating either tort or class action litigation, just reforming them. My point here, however, is that even if tort and class action litigation were eliminated, much enforcement activity would remain unaffected.”

In McKesson HBOC, Inc. v. Superior Court of San Francisco County, 2004 WL 318616 (Cal. Ct. App. Feb. 20, 2004), the California Court of Appeal has held that providing an audit committee investigatorUsersy report and interview memoranda to the Securities and Exchange Commission and the Department of Justice constitutes a waiver of attorney-client privilege and attorney work product protection under California law.

Quote of note: “We see no real alignment of interests between the government and persons or entities under investigation for securities law violations. Even if we credit McKesson’s claim that it was interested in rooting out the source of the accounting improprieties, we still find the situation here is not qualitatively different than a defendant sharing privileged material with one plaintiff, but not another. Though McKesson and amicus curiae advance policy arguments for allowing sharing of privileged materials with the government, no one suggests that a defendant facing multiple plaintiffs should be able to disclose privileged materials to one plaintiff without waiving the attorney-client privilege as to the other plaintiffs.”

Corp Law Blog has a comprehensive and interesting post on the decision, including links to related materials. Note that the proposed legislation preserving the attorney-client privilege and work product protection for documents shared with the SEC referred to in the post – The Securities Fraud Deterrence and Investor Restitution Act – is still pending in Congress. Although the SEC has come out in favor of the bill, its progress has been stalled because of the provisions affecting state securities regulators.

Addition: No sooner said, then done. On Wednesday, the House Financial Services Committee approved the Securities Fraud Deterrence and Investor Restitution Act by a voice vote. The provision concerning document sharing with the SEC remains in the bill; the provision limiting the power of state securities regulators has been dropped.

The answer: The court that will host the numerous federal class actions that have been brought over mutual fund trading practices. The question: What is the District of Maryland?

The Judicial Panel on Multidistrict Litigation held a hearing last month on motions for centralization in cases involving the following fund groups: Janus, Strong, Bank One, Bank of America, Putnam, and Alliance Capital. Most of the plaintiffs wanted the cases in the S.D.N.Y., while the funds appeared to favor their local federal districts. The Panel had a different idea.

In an order issued on February 20, 2003, the Panel decided that the D. of Md. will hear the cases. Three judges have been assigned: Judge J. Frederick Motz (D. Md.), Judge Andre M. Davis (D. Md.), and Judge Frederick P. Stamp (N.D. W.Va.). The Panel noted that “no district stands out as the geographic focal point for this nationwide litigation,” leading them to choose “a transferee district with the capacity and experience to steer this litigation on a prudent course.”

Thanks to Securities Litigation Watch for the link.

Addition: Judge Motz has sent out a letter to counsel discussing organizational issues. Of particular note, the D. of Md. is establishing an area on its website (www.mdd.uscourts.gov – click on “MDLs” on the left-hand side) for the mutual fund litigation.

As reported in The 10b-5 Daily, Cutter & Buck, Inc. entered into a settlement of the securities class action against the company last June. The settlement was for $4 million, plus an additional $3 million to come from any recovery of funds from its ongoing suit against Genesis Insurance over the recission of its D&O policy.

That part of the recovery is looking unlikely. U.S. District Judge Marsha Pechman of the W.D. of Wash. recently rejected Cutter & Buck’s attempt reinstate the policy. According to an article in the Seattle Times, the court found “Genesis was within its rights to rescind the policy because Cutter & Buck ‘made material misrepresentations with an intent to deceive.'”

For more on the potential recission of D&O policies (including some material on the Cutter & Buck suit), AIG/National Union has a recent briefing paper on its website that includes the topic.

Last September, The 10b-5 Daily reported that the State of Connecticut, which is acting as the lead plaintiff in a securities class action pending against JDS Uniphase Corp. in the N.D. of Cal., had taken out a newspaper advertisement urging JDS Uniphase employees to disclose what they know about the alleged fraud.

The media campaign apparently has been a success. Counsel for the State of Connecticut announced yesterday that they have anonymously received an internal e-mail written by a JDS Uniphase employee indicating there was a significant disparity between public projections and the business reality the company faced in mid-2000. The press release, which is entitled “JDS Former Employees, Please, Tell Us What You Know,” asserts that “dozens of other former employees” have come forward. Interestingly, the law firm also has posted the e-mail in question (with redactions) on its website.

The Canadian Press has an article on the announcement.

Addition: The Toronto Globe and Mail has more on the story, including that the e-mail allegedly appeared at the counsel’s office, pre-redacted, in a brown envelope with the name and address written in ransom-note-style cutout letters.

The Wall Street Journal has an article (subscrip. req.) about the costs to companies (and their shareholders and insurers) of defending executives from fraud charges. The article discusses a Delaware court ruling last October holding that Rite-Aid must continue to advance the defense fees of its former CFO, despite the fact that he has plead guilty to criminal fraud charges, because there has not yet been a “final disposition” (i.e., sentencing) in the case.

Quote of note: “A company’s average cost of defending against shareholder suits last year was $2.2 million, according to Tillinghast-Towers Perrin. ‘These costs are likely to climb much higher, due to a lot of claims for more than a billion dollars each that haven’t been settled,’ says James Swanke, an executive at the actuarial consulting firm. Though companies can recoup some defense costs through directors-and-liability insurance, it is rare to collect legal fees already advanced to former officers who have been convicted or pleaded guilty.”

Quote of note II: “Seeking to stop payouts to wrongdoers, insurers now want new insurance policies to be written differently than in the past. Instead of making fee payments pending a ‘final disposition’ in a court case, insurers are suggesting that corporate policies call for payments pending a ‘final determination’ of a fraud allegation. The upshot: A third-party arbitrator would decide whether an accused individual has committed fraud, rather than waiting for courts to rule.”

Reuters reports that Lucent Technologies, Inc. (NYSE: LU) is suing its fiduciary insurance carriers in the wake of its recent $600 million settlement of the securities litigation against the company, including a consolidated securities class action in the D. of N.J., and related ERISA, bondholder, derivative, and other state securities cases. (The settlement included $517 million for the securities class action, making it the second largest settlement of a securities class action in U.S. history.)

According to Lucent’s most recent Form 10-Q, it is continuing “to pursue partial recovery of the settlement amount from our fiduciary insurance carriers under certain insurance policies that provide coverage up to $70 million. We have filed a lawsuit against them to recover these amounts. The charge for the settlement will be revised in future quarters if we are able to recover a portion of the settlement from our fiduciary insurance carriers . . . .” The Reuters article states that Lucent has declined to name the insurance carriers that have been sued or where the suit was filed.