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

Senate Democrats have successfully blocked a floor vote on the Class Action Fairness Act, which almost certainly would have been approved. Proponents of the bill only managed to muster 59 votes in favor of invoking cloture — a one-vote loss. The Associated Press reports that the bill is likely dead for the year. (The 10b-5 Daily has been following the progress of the Class Action Fairness Act through Congress.

The Associated Press reports that Democrats may succeed in blocking Senate approval of the Class Action Fairness Act. The bill was passed by the House of Representatives on June 12.

As discussed previously in The 10b-5 Daily, the Class Action Fairness Act applies some of the reform concepts from securities law (the PSLRA and SLUSA) to all class actions. Notably, class actions meeting certain jurisdictional criteria would have to be heard in federal court.

Quote of note: “But most of the 48 Senate Democrats oppose the legislation to place all national class action lawsuits into the federal system, enough to filibuster if necessary, Democratic leaders say.”

Quote of note II: “Under both the House and Senate versions of the bill, class-action lawsuits in which the primary defendant and more than one-third of the plaintiffs are from the same state would still be heard in state court. But if less than one-third of the plaintiffs are from the same state as the primary defendant, the case would go to federal court. Also, at least $5 million would have to be at stake for a class-action lawsuit to be heard in federal court. The House version would apply to all lawsuits, including ones being argued in court now, but the Senate version is not retroactive. It also would apply only to class action lawsuits and not to similar actions, including lawsuits consolidated into one case or state attorney general actions.”

The U.S. News & World Report has an article in its Oct. 27 edition stating that investors have yet to see much of a return from the various Wall Street suits and settlements. The article discusses the research analyst cases (Judge Pollack is dismissing them), the WorldCom and Enron cases (hard to collect), and the IPO allocation cases (a guaranteed payment of $1 billion, but it may take a while to resolve the claims against the investment banks). The author also notes the potential connection between Judge Schendlin’s recent attorneys’ fees decision and the IPO allocation cases (perhaps he reads The 10b-5 Daily.

Quote of note: “In June, insurers for the 309 companies [named in the IPO allocation cases] agreed to pay up to $1 billion to compensate investors–establishing a minimum recovery fund–depending on how much money Weiss wrestles from the investment banks. ‘It’s in the banks’ interest to drag it out, to raise the cost to the other side,’ says one executive in the case. Still, he and others predict Weiss could ultimately settle with the Wall Street firms for $3 billion to $5 billion–partly because the iconoclastic Pollack isn’t handling the case.”

The Rocky Mountain News has an article on Qwest Communications Int., Inc. (NYSE: Q) and the completion of its $2.5 billion financial restatement. The 10b-5 Daily has been following the securities class action filed against Qwest in the D. of Colo. with interest. As part of yesterday’s Form 10-K filing, the company disclosed that “lead counsel for the plaintiffs has indicated that plaintiffs will seek damages in the billions of dollars.” Qwest has moved to dismiss the fourth amended complaint in the case and that motion is currently pending before the court.

A column in today’s National Post discusses the potentially enormous costs of the mutual fund trading scandal, including the expense of defending against “the inevitable wave of class-action lawsuits.” The author notes that Bank of America, which is one of the known targets of the New York Attorney General’s investigation, has announced the creation of a $100 million fund for direct costs and the increase of its litigation reserves by $75 million.

An interesting twist on the normal securities class action. The Associated Press reports that Judge Robinson of the D. of Del. has granted class action status to a suit against Tyson Foods, Inc. (NYSE: TSN) alleging securities fraud in connection with Tyson’s 2001 acquisition of beef-packing giant IBP Inc.

The plaintiffs, a group of hedge funds who were seeking to arbitrage the merger, allege that on March 29, 2001, Tyson falsely stated that it was backing out of the merger with IBP due to a government investigation into accounting discrepancies at one of IBP’s units. As a result, Tyson artificially deflated the price of IBP’s stock. Tyson eventually completed the acquisition in September 2001. The plaintiffs seek to represent all IBP shareholders who bought on or before March 29, 2001, and then sold their shares following Tyson’s announcement.

Quote of note: “In her 20-page opinion, Robinson said Tyson had contended the lead plaintiffs’ sophistication ‘cuts against a finding that a class action is a superior forum’ for resolving such claims. But she said that argument conflicts with Congress’ intent. ‘Federal securities laws do not protect investors any differently, and certainly no less, simply because they engage in more complicated investment strategies,’ she wrote.”

Although The 10b-5 Daily has not been following all of the twists and turns of the Martha Stewart case, it has perked up when the topic is the securities class action against Martha Stewart Living Omnimedia Inc. and certain individual defendants in the S.D.N.Y. (see this post on the court’s decision to deny the motion to dismiss).

The New York Law Journal has an interesting article (via law.com – free registration required) on the U.S. Attorney’s attempt to block discovery in the case because “allowing the prompt depositions of 15 people in the civil securities fraud cases would give Stewart’s criminal defense lawyers an unfair preview of the obstruction of justice case, set to go to trial in January.” Judge Sprizzo rejected this request, citing the apparent weakness of the government’s case and the fact that the government had already, in his view, previewed its arguments in the press.

Quote of note: “A stay had already been granted for Stewart in the civil case, Seymour [head of the Criminal Division of the Southern District U.S. Attorney’s Office] said, and she was merely requesting a ‘limited’ stay on the depositions of about four and a half months. Sprizzo, who served five years as an Assistant U.S. Attorney in the Southern District in the 1960s, said he had ‘seen a lot more serious obstruction cases.’ ‘This is not the strongest obstruction case I have ever seen,’ he said. ‘Just going by your own U.S. attorney’s comments on it. This is not John Gotti.'”

The St. Louis Post-Dispatch ran a feature article in Saturday’s edition that was sharply critical of securities class actions. Among other things, the author discusses the low rates of recovery for investors.

Quote of note: “Many institutional investors get involved in lawsuits as a last resort, but, some say, the suits are not by any means a panacea for wronged shareholders. ‘If we are a long-term holder of a security, our real interest is in having the company turn around,’ said Gary Findlay, executive director of the Missouri State Employees’ Retirement System. ‘If we sue the company, aren’t we suing ourselves? They spend our money to defend themselves against us and buy insurance. … Whatever comes out of that, comes out of my pocket.'”

As stated previously in The 10b-5 Daily, securities class actions against mutual funds are the new new thing. The New York Times (free subscrip. required) agrees in this article from Wednesday’s edition, noting that nearly a dozen plaintiff firms have brought suits against companies that manage mutual funds in the three weeks since Eliot Spitzer, the attorney general of New York, announced his investigation into unfair trading practices. The article speculates that plaintiffs may be able to bring actions under the Investment Company Act and Investment Advisors Act, thus avoiding the heightened pleading requirements of the PSLRA.

Quote of note: “The lawsuits challenge the practices identified by Mr. Spitzer and federal regulators. Those practices include allowing favored investors to trade after hours and to buy and sell mutual fund shares over short periods to turn a quick profit, a practice known as timing. In the eyes of plaintiffs’ lawyers, the potential settlements could dwarf the biggest paid by corporate defendants (and their insurers) in shareholder lawsuits to date.”

Former shareholders of Polaroid, Inc. recently filed a securities class action against KPMG, Inc. in New York federal court alleging that the accounting firm violated industry guidelines in its 2000 audit of Polaroid’s finances, leading to misstatements in the company’s Form 10-K (prior to the declaration of bankruptcy). The Associated Press reports that bankruptcy court filings by the successor entity to Polaroid are fueling additional questions over whether funds were improperly diverted from Polaroid pension plan participants and shareholders as part of the sale of the company’s assets.