The 10b-5 Daily

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.

Securities class actions are frequently brought against biotechnology companies, often based on alleged misrepresentations related to the new-drug approval process. As previously reported in The 10b-5 Daily, the Food and Drug Administration (“FDA”) and the Securities and Exchange Commission (“SEC”) have been in talks on how to coordinate on these disclosure issues.

Last week, the two agencies announced a series of new initiatives, including:

(1) A centralized procedure adopted by the FDA for referring to the SEC staff possible instances of securities laws violations by public companies regulated by the FDA.

(2) Identification of contacts in each of the FDA’s main organizational components (known as Centers) to serve as points of contact for the SEC and its staff to use in requesting information from FDA. These individuals would be responsible for assuring that such requests are handled promptly and thoroughly.

(3) The continued sharing of non-public information by the FDA with the SEC, consistent with FDA’s current practice, and a commitment to endeavor to take steps to further expedite this process.

According to an article in the Boston Globe on the announcement, “some in Congress questioned whether the FDA and SEC were cooperating quickly enough. But in an interview yesterday, Representative James C. Greenwood, a Pennsylvania Republican whose committee oversees the FDA, said he was ‘very impressed and encouraged’ by the new steps.” The FDA apparently does not plan to change its procedures on what information will be made public as part of the new-drug approval process.

Forbes has a cover story on Milberg Weiss, widely recognized as the leading plaintiffs’ securities class action firm, in its February 16, 2004 edition.

As reported in The 10b-5 Daily, last December the South Korean legislature passed a bill establishing a private securities class action system. The bill was subject to a contentious debate and, with the new system scheduled to go into effect in 2005, the debate is not over yet. An article in the Korea Times states that companies are demanding a statutory exception for accounting frauds that occured prior to 2005.

Quote of note: “In a seminar on the prospects of class action lawsuits, hosted by the Federation of Korean Industries (FKI), Moon Tack-kon, vice chairman of the Korean Institute of Certified Public Accountants, said considering the accounting features, it is difficult to clean up past accounting books a year before the 2005 introduction of the class action lawsuit. ‘Past accounting frauds tend to be reflected in the next period’s financial report,’ Moon said.”