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

As previously reported in The 10b-5 Daily, the number of securities class actions filed against foreign issuers has been on the rise. The Recorder has an article (via law.com – free regist. req’d) discussing this trend and the challenges posed by the cases.

Quote of note: “The suits represent a clash of business cultures. Few nations have financial regulations as stringent as those of the United States, and none has a plaintiffs bar as active. While American companies have grown used to investor class actions, viewing them as a cost of doing business, European executives see them differently.”

After two years of debate, the South Korean legislature has finally passed a bill establishing a private securities class action system. The Korea Times reports, however, that the bill contains phase-in and standing requirements that may limit its effectiveness. (The 10b-5 Daily has posted frequently about the debate over this legislation, most recently here.)

Initially (commencing in Jan. 2005), suits will be limited to companies with assets of more than 2 trillion won ($1.67 billion). Only about 80 of the 1500 publicly-traded South Korean companies meet this benchmark. Smaller companies can be sued starting in July 2007. Also, a suit will only be permissible if more than 50 shareholders, owning at least 0.01% of the outstanding shares of the company, agree to bring the case.

Quote of note: “Civic organizations described the revised bill as a ‘toothless tiger,’ pointing out it completely blocks the possibility for suits against big business conglomerates. For example, they said, shareholders might need to amass stocks worth more than 7 billion won to meet the 0.01 percent requirement in a file against Samsung Electronics.”

The future is now for Milberg Weiss, which has been in the process of splitting into two separate firms for the past six months. (For the latest on the split, see this recent post.) Milberg’s New York and San Diego offices are about to face off over lead plaintiff/lead counsel status in the securities class actions filed against the NYSE specialist trading firms.

As reported in The Recorder (via law.com – free regist. req’d), in October Milberg’s New York office filed suit on behalf of Generic Trading of Philadelphia against the specialist trading firms, while last Tuesday Milberg’s San Diego office filed suit on behalf of CalPERS against the same firms and added the NYSE as a defendant. (The 10b-5 Daily has posted about the CalPERS suit.) A spokesman for CalPERS stated that the timing of the state’s suit was intended to meet the 60-day deadline for moving for lead plaintiff status triggered by the original suit. Both Generic Trading and CalPERS have filed motions to be appointed lead plaintiff — putting the two Milberg offices into an adversarial position even before the split is official.

Quote of note: “There are signs that the divorce has been completed in spirit, if not on paper. East Coast and West Coast partners are already competing for clients, said a lawyer who did not wish to be named. Also, the New York office recently filed a securities fraud class action in San Francisco, leaving any mention of the firm’s San Francisco office off their filings.”

The National Law Journal has an article (via law.com – free subscrip. req’d) on the status of the previously announced breakup of Milberg Weiss, widely recognized as the leading plaintiffs’ securities class action firm, into two separate law firms. (See this post for background information on the split.)

Quote of note: “According to attorneys inside the firm as well as attorneys who have left, Milberg Weiss had hoped to finalize the restructuring by the end of 2003, with an outside date of February. ‘We are 85 percent of the way through,’ a lawyer close to the negotiations said. ‘We just need more time to reconcile the accounting, and we are now looking at March.'”

The 10b-5 Daily does not normally post about the initial filing of a securities class action (or that’s all it would have time to do), but sometimes an exception is warranted. The Associated Press reports that the California Public Employees Retirement System (CalPERS) has brought a class action suit against the New York Stock Exchange and seven specialist trading firms (who make a market in NYSE stock assigned to them by matching buyers and sellers). The suit alleges that the specialists failed “to fill outstanding buy-and-sell orders at the best prices and routinely and unnecessarily intervened in trades, earning fees for themselves and the exchange at the expense of investors” and that “stock exchange officials hid the extent of the practices from investors.”

CalPERS has issued a press release and posted the complaint on its website. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and breach of fiduciary duty against all of the defendants and violation of Section 6(b) of the Exchange Act against the NYSE. CalPERS appears to rely heavily on information from a November 3, 2003 Wall Street Journal article discussing a confidential SEC report about NYSE trading practices and exchange oversight.

Quote of note (Associated Press): “‘We’re convinced, and we will seek to prove in court, that the New York Stock Exchange not only knew of these rampant problems, and knew they existed, but also perpetuated them,’ [Sean Harrigan, President of CalPERS] said. Officials said they decided to sue, rather than rely on the U.S. Securities and Exchange Commission, which is conducting its own investigation into floor-trading, because the SEC has not done its job.”

Addition: The Recorder has an article (via law.com – free regist. req’d) discussing CalPERS decision to hire Milberg Weiss to bring the suit.

The South Korean legislature is still debating over legislation that would permit investors to bring securities class actions. The Korea Times reports that conservative lawmakers are seeking to limit the scope of the planned class action system to companies with more than 2 trillion won in assets (i.e., very large companies). Opponents argue that most of companies investigated for stock price manipulation and accounting fraud, based on a sample from 1998 to 2001, do not meet this test.

The 10b-5 Daily has been following this story intently (see posts here and here for details on the legislative proposals). Not surprisingly, South Korea appears interested in learning from the U.S. experience with securities class actions — the Korea Times describes a a public hearing hosted by the Korea Development Institute (KDI) that included a discussion of the pros and cons of a U.S.-style system.

Quote of note: “The system entails considerable cost, so it is imperative for South Korea to consider its economic reality before taking this step, [Professor Stephen Choi of U. of Cal., Berkeley] added. However, Choi said though there were problems related to class action suits, the experience of the U.S. following the passage of its Private Securities Litigation Reform Act in 1995 offered some reference for reform measures that could be carried out here.”

The Securities Litigation Watch has an interesting article (from the December 2003 edition of ISS’s SCAS Alert) on the recent trend of insitutional investors opting out of high-profile securities class actions.

Quote of note: “Does an institutional opt-out in favor of an individual state court action really provide institutions with these and other advantages? While there are theoretical arguments in support of individual actions, the advantages sought by institutions often do not materialize in practice. Indeed, both plaintiffs’ counsel and defense counsel at the recent Institutional Investor Forum in New York agreed that individual state court actions make sense only in rare instances.”

Although the PSLRA was supposed to stop the race to the courthouse in securities class action litigation by creating a formal lead plaintiff selection process, anecdotal evidence suggests that plaintiffs’ firms continue to believe there is an advantage to being the first filer. The Denver Post examines how it is that Invesco Funds Group was sued almost immediately following the announcement of an investigation by the New York Attorney General into the organization’s trading practices.

The Associated Press has an interesting article on the bankruptcy examiner report in the Enron case. The report is sharply critical of Enron’s banks and auditors, who are alleged to have assisted the company in its fraudulent transactions. The bankruptcy examiner, Neal Batson, has made some controversial requests of the court including that he and his team be protected from having to produce documents or be questioned by third parties.

Quote of note: “Batson, in his lengthy final report, blamed top company executives as well as former directors, accountants, attorneys and some large investment banks for the energy trading firm’s financial collapse. Plaintiffs in class-action lawsuits want Batson to be available for subpoena because he could potentially be an important witness as a result of his reports.”