March 29, 2004 · 11:22 pm

Still More On Sarbanes-Oxley And The Statute Of Limitations

The 10b-5 Daily continues to avidly follow the district court split over whether the extended statute of limitations for securities fraud in the Sarbanes-Oxley Act of 2002 revives time-barred claims. District courts have gone both ways on this question and the issue is currently before the U.S. Court of Appeals for the 11th Circuit.

Buried in a large Enron decision from last month is a new ruling on the issue. In Newby v. Enron Corp., 2004 WL 405886 (S.D. Tex. Feb. 25, 2004) , the court addressed a motion to intervene by the Imperial County Employees Retirement System. One issue was whether the proposed intervenor’s claims would be time-barred. The decision has an extensive discussion of relevant case law and, on the revival of time-barred claims, holds:

“With regard to claims that were time-barred by the shorter one-year statute of limitations under Lampf prior to the enactment of the Sarbanes-Oxley Act, this court agrees with [the decision in Glaser v. Enzo Biochem, Inc., 2003 WL 21960613 (E.D. Va. July 16, 2003] that in what this Court finds is an absence of any expression of specific intent that Sarbanes-Oxley should apply retroactively, either in the Act or the legislative history, the Sarbanes-Oxley Act’s extended limitations period cannot revive stale claims.”

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March 26, 2004 · 5:27 pm

Rayovac Settles

Rayovac Corp. (NYSE: ROV), a Madison-based consumer products company, has announced the preliminary settlement of the securities class action pending against the company in the W.D. of Wisconsin. The suit, originally filed in May 2002, alleges that the company and certain of its officers made misleading statements regarding the demand for the company’s products and the company’s future prospects in connection with a secondary offering. The settlement is for $4 million, to be “principally funded” by Rayovac’s insurance carriers.

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March 25, 2004 · 7:01 pm

Lead Plaintiff Roundup

Two interesting lead plaintiff/lead counsel decisions from last week.

(1) There are usually a number of initial complaints filed in a securities class action, with later filers often copying, in whole or in substantial part, the allegations in the first-filed complaint. Some courts have questioned whether this practice meets the requirements of Federal Rule of Civil Procedure 11, but it usually does not become an issue in the lead plaintiff/lead counsel contest.
In Taubenfeld v. Career Education Corp., 2004 WL 554810 (N.D. Ill. March 19, 2004), however, one of the candidates for lead plaintiff argued that another candidate should be rejected because it had “selected counsel that has not independently investigated this case but instead simply copied the work product” of other counsel. The court declined to comment “on the appropriateness of copying another plaintiff’s complaint verbatim” and held that the issue did not affect the candidate’s adequacy to serve as lead plaintiff. The court also noted that there was evidence, in the form of an affidavit, that the proposed lead counsel had conducted an independent investigation of the claims (but apparently declined to include any additional allegations in its complaint “because it would have given the defendants more time to prepare defenses to such information”).

(2) Sometimes even an unopposed motion for appointment as lead plaintiff can be rejected. In Huang v. Acterna Corp., 2004 WL 536951 (D. Md. March 18, 2004), the court found that the class notice published by the plaintiffs was insufficient because: (a) it did not provide enough information for potential lead plaintiffs; and (b) it was published in The New York Times, which might not meet the PSLRA’s requirement that notice appear in a “widely-circulated national business-oriented publication or wire service.”

The court instructed the plaintiffs to send a more informative notice directly to the largest financial and institutional investors in the company, which “can be easily identified by defendants and submitted to plaintiffs.” No word on the propriety of requiring the defendants to help find a better lead plaintiff to prosecute the case against them. Ouch. (Securities Litigation Watch also has a post on this decision.)

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March 24, 2004 · 7:23 pm

Pay First, Rescind Later

In the wake of recent corporate scandals, directors-and-officers insurance carriers have sought to rescind policies that were allegedly purchased on the basis of misrepresentations. Not surprisingly, this has led to insurance coverage litigation. (The 10b-5 Daily has recently posted about the Cutter & Buck and Rite-Aid cases.)

The Wall Street Journal has an article (subscrip. req’d) on a recent decision by Judge Baylson of the E.D. of Pa. holding that Aegis Bermuda must pay the defense costs for several directors and officers involved in litigation, including a securities class action, over the collapse of Adelphia Communications. Although Adelphia is in bankruptcy proceedings, temporarily preventing Aegis Bermuda from taking legal action to rescind its policy, the court reportedly held that the insurer would have to continue paying legal fees until a judgment permitting recission was obtained.

Quote of note: “‘Insurance carriers do not function as courts of law,’ U.S. District Judge Michael M. Baylson wrote. ‘If a carrier wants the unilateral right to refuse a payment called for in the policy, the policy should clearly state that right. This policy does not do so.'”

Addition: The decision is available on Westlaw – Associated Electric & Gas Insurance Services, Ltd. v. Rigas, 2004 WL 540451 (E.D. Pa. March 17, 2004).

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March 23, 2004 · 3:44 pm

Irvine Sensors Settles

Irvine Sensors Corp. (Nasdaq: IRSN), a Costa Mesa, Ca.-based microelectronics developer, has announced the receipt of preliminary court approval for the settlement of the securities class action pending against the company in the C.D. of Cal. The suit, originally filed in February 2002, alleges that the company made false and misleading statements concerning the prospects of its former Silicon Film subsidiary. The settlement is for $3.5 million, to be paid by the company’s insurance carrier.

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March 23, 2004 · 3:17 pm

Cable & Wireless Dismissed

Cable & Wireless plc (NYSE: CWP) has announced the dismissal of the securities class action pending against the company in the E.D. of Va. Plaintiffs originally filed the case in December 2002 and claimed that C&W had misled investors concerning a potential tax liability arising from the sale of its One2One mobile telephone business to Deutsche Telekom. The court apparently has only issued an order at this time, with the memorandum opinion to follow.

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Filed under Motion To Dismiss Monitor

March 22, 2004 · 2:41 pm

Global Crossing Settles

Global Crossing Ltd. (Nasdaq: GLBC), a fiber-optic network operator that emerged from bankruptcy a few months ago, received preliminary court approval on Friday for a settlement of the securities class action pending against the company in the S.D.N.Y. (as well as a related ERISA action). The case alleges that Global Crossing and its executives falsely inflated the company’s revenue by entering into sham swap transactions.

According to a Bloomberg report, the settlement is for $325 million ($245 million for the securities case and $85 million for the ERISA case). Although the company’s insurers are paying the bulk of the securities class action settlement, former-CEO Gary Winnick ($30 million) and Simpson, Thacher & Bartlett ($19.5 million) are also making significant contributions. Simpson Thacher was not even a named defendant, but has been accused of engaging in a “flawed and incomplete” investigation on behalf of the board committee that examined the swap transactions.

The settlement is not global – the securities class action will continue against Global Crossing’s accountants and underwriters, including Arthur Andersen, Salomon Smith Barney, J.P. Morgan, and Goldman Sachs.

Addition: The New York Times had a fairly comprehensive article on the settlement in Saturday’s edition.

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March 19, 2004 · 10:11 pm

Defining The Discovery Stay Down

The PSLRA provides that “all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss” unless the court determines “that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.” The exact meaning of “necessary to preserve evidence” and “prevent undue prejudice” has been the subject of frequent litigation.

As discussed in The 10b-5 Daily, two recurring issues are: (a) whether defendants should be required to produce documents that previously have been produced to governmental entities; and (b) whether the discovery stay should also apply to related federal cases that do not allege securities law claims. District courts have come to markedly different conclusions.

In In re Royal Ahold N.V. Sec. & ERISA Litig., 2004 WL 502558 (D. Md. March 12, 2004), the court addressed both issues at the same time. Advantage: the plaintiffs.

The court held that Royal Ahold must produce any documents it had previously given to governmental entities and the reports of various internal investigations conducted by the company. First, the court found that there was a need to preserve evidence because Royal Ahold’s corporate reorganization, including the divestiture of subsidiaries relevant to the case, added “urgency to the discovery timetable.” Although there was no risk that the documents requested by the plaintiffs would be destroyed, they “could help the plaintiffs identify other specific materials that may be at risk of loss.”

Second, the court found that the securities plaintiffs might suffer undue prejudice by being denied discovery that was available to other litigants. In particular, the court held that the discovery stay did not apply to the related ERISA litigation and, therefore, “the securities plaintiffs could suffer a severe disadvantage in formulating their litigation and settlement strategy — particularly if [all of] the parties proceed quickly to settlement negotiations, as the court has urged them to do.”

Holding: Partial lifting of discovery stay (although the court, at the request of the government, postponed production of the investigative reports).

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March 18, 2004 · 4:24 pm

The Enron Watch X

One of the issues in the Enron securities class action has been whether the bankruptcy examiner, who prepared a report that was strongly critical of the role of Enron’s banks and auditors in the collapse of the company, would be required to produce documents or testify in the case.

According to a report in the Houson Chronicle, Judge Melinda Harmon (S.D. of Tx.) has ordered “not that [the bankruptcy examiner] provide evidence to those suing in the civil lawsuits before her, but that the financial institutions themselves turn over copies of all deposition transcripts or sworn statements relating to the Enron bankruptcy.” The production must be completed by March 29.

Quote of note: “[T]he statements have already been given to Enron, its debtors and its creditors committee, and they are referenced at length in the public examiner’s report. [Judge Harmon] said fairness dictates that all parties in the would-be class-action suits before her have the information. ‘The parties seeking the statements could, they acknowledge, retake depositions of the individuals whose statements and depositions were taken by the examiner, but the costs would be enormous,’ Harmon noted.”

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March 16, 2004 · 11:16 pm

That’ll Cost You 1 Million Euros

Securities class actions brought against foreign companies, or their advisors, in U.S. court can be an adventure.

KPMG-Belgium was the auditor for Lernout & Hauspie Speech Products NV, the Belgian software maker that collapsed amid revelations of accounting fraud. A securities class action was brought against KPMG-Belgium and others in the D. of Mass. After the denial of KPMG-Belgium’s motion to dismiss, pretrial discovery commenced in September 2002 with plaintiffs serving document requests for auditor work papers.

KPMG-Belgium refused to comply with the requests, asserting that producing the papers would violate Belgian law (plaintiffs were, however, able to examine the documents as part of the Belgian criminal investigation). Plaintiffs moved to compel the production of the documents and, on November 13, 2003, a magistrate judge granted the motion. Shortly thereafter, KPMG-Belgium filed an ex parte petition with a court in Brussels seeking to enjoin the plaintiffs from “taking any step” to proceed with the requested discovery. To obtain compliance, they asked the Belgian court to impose a 1 million euros fine for each violation of the proposed injunction.

The U.S. district court issued an antisuit injunction enjoining KPMG-Belgium from pursuing the Belgian court action. KPMG-Belgium appealed. Last week, the First Circuit affirmed the district court injunction order, holding that “[w]here, as here, a party institutes a foreign action in a blatant attempt to evade the rightful authority of the forum court, the need for an antisuit injunction crests.”

The Wall Street Journal has an article (subscrip. req’d) on the decision.

Quote of note (WSJ article): “That means KPMG-Belgium could soon be faced with a stark choice: It can hand over the documents. Or the firm can disregard [the district judge’s] orders. In that event, she has warned that she may enter a default judgment for the plaintiffs, exposing KPMG-Belgium to potentially billions of dollars of liability. A KPMG-Belgium spokesman, Jos Hermans, on Friday said, ‘There hasn’t been a final decision on what we’re going to do,’ although one could come this week.'”

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Filed under Appellate Monitor, Curiouser and Curiouser