The 10b-5 Daily

In a feature article this past weekend, the Washington Post addressed the issue of investor restitution for securities fraud. The article discusses some of the recent enormous settlements with regulators (e.g. the $1.4 billion settlement with the New York Attorney General over biased research reports) and concludes that the “problems with investor restitution are simple — there is never enough money to go around — and complicated — it can be difficult to determine who should get what little money there is.” The article also touches on another difficult problem, how to reconcile the SEC’s new powers to collect settlement funds for allocation to investors with private securities litigation.

Quote of note: “The SEC is asking Congress for the power to seize more assets from wrongdoers who otherwise might shelter them under the protection of state bankruptcy laws and for the ability to hire outside law firms to help it collect payments. A House bill [the Securities Fraud Deterrence and Investor Restitution Act] that would give the SEC that authority is pending before the Judiciary Committee. Former SEC staffer [Mercer E.] Bullard said the public shouldn’t demand that the agency invest a substantial portion of its resources into collecting penalties from wrongdoers. He said that is a task better suited to plaintiff lawyers.”

The 11th Circuit (Florida, Georgia, Alabama) is a tough place to bring a successful securities class action. That appears to be the conclusion of a Miami Daily Business Review feature article (via law.com – regist. req’d) on the topic. The article notes that a recent NERA report found that 10 percent of the securities class actions filed in the 11th Circuit since the passage of the PSLRA have been dismissed within two years – tied for second place among all circuits. The article also profiles some prominent cases.

Quote of note: A plaintiffs’ attorney in Florida contended “that the 11th Circuit’s standard for inferring intent to defraud — as set out in the 11th Circuit’s 1999 decision Bryant v. Avado — has ‘heightened the pleading requirements beyond the intent of Congress. Motive and opportunity and damages are not enough [in the 11th Circuit],’ [the plaintiffs’ attorney] said. ‘What do you have to have? Pictures? You almost need an insider to get to discovery.'”

According to a Reuters article, the CFO of Royal Ahold has told a Dutch newspaper that the U.S. securities class actions brought against the company in the aftermath of its recent accounting scandal could “‘last long, even 10 years is possible.'” Complicating the situation, Royal Ahold’s D&O insurance carrier has served the company with a court summons in an attempt “to terminate the Directors, Officers and Corporate Liability policy of $100 million for Ahold’s U.S. Foodservice subsidiary where much of the profit overstatements took place in 2002.” (The 10b-5 Daily has posted about this case before, most recently concerning the court’s discovery decision issued last March.)