The 10b-5 Daily

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.”

The Wall Street Journal reports (subscription required) that the Judicial Panel on Multidistrict Litigation will hold a hearing today to consider which court (or courts) should handle the numerous federal class actions that have been brought over mutual fund trading practices. The hearing session order states that motions for centralization will be heard for cases involving the following fund groups: Janus, Strong, Bank One, Bank of America, Putnam, and Alliance Capital.

Quote of note: “The panel could assign the cases to federal court in Manhattan or scatter them to federal courts close to the fund companies’ headquarters around the country. Fund firms prefer a home-field approach, while attorneys for fund investors generally favor having cases handled in Manhattan, where courts have extensive experience in securities-fraud cases.”

The New Republic Online has a column strongly criticizing Democratic presidential contender Senator John Kerry for his vote in favor of the Private Securities Litigation Reform Act of 1995. Noting that Senator Kerry frequently talks about corporate accountability and has expressed shock over the Enron scandal, the author states: “But Kerry shouldn’t be shocked at all. Back in 1995, he backed a controversial measure that severely limited the ability of investors to sue companies engaged in fraudulent accounting practices–a legal change widely believed to have contributed to the accounting scandals of the last few years.”

The charge that the PSLRA has made it more difficult to bring securities class actions, and therefore has contributed to recent corporate scandals, is controversial. The New Republic Online column has led to a blog debate on the topic between Mickey Kaus (first item on Jan. 25) and Professor Stephen Bainbridge. What does The 10b-5 Daily think about all of this? As previously posted, the statistics appear to speak for themselves.

A feature article in today’s San Francisco Chronicle discusses the rise in securities class actions brought against biotechnology companies. The article notes that although biotechnology companies make up only 2% of the publicly-traded companies in the U.S., they were served with 17% of all securities class actions filed in 2003 (as compared to 9% in 2002). The 10b-5 Daily has recently posted about biotech disclosure issues.

Quote of note: “Without discussing the merits of any specific case, [Biotechnology Industry Organization President Carl] Feldbaum said the wave of lawsuits is a ‘growing, malignant phenomenon’ that could hamper the discovery of life-saving remedies. ‘The victims of choice seem to be small companies that may be on the verge of success, and that is a potentially crippling development,’ he said.

Quote of note II: “Kevin Roddy, president-elect of the National Association of Shareholder and Consumer Attorneys, said biotech advocates shouldn’t be seeking special protection from investor suits on grounds that they are working on badly needed medicines. ‘They want to be above the law, because they think there’s something special about what they do,’ Roddy said. ‘If they want to go out and raise money from the public, they have to tell the truth.'”

The 10b-5 Daily has been following the district court split over whether the new statute of limitations in the Sarbanes-Oxley Act of 2002 revives time-barred claims.

Sarbanes-Oxley extends the statute of limitations for federal securities fraud to the earlier of two years after the discovery of the facts constituting the violation or five years after such violation. Although the legislation clearly provides that it “shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act [July 30, 2002],” left unresolved is whether Congress intended to revive claims that had already expired under the earlier one year/three years statute of limitations. 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.

There has been another relevant district court opinion out there for over a year, but it has only recently appeared on Westlaw (and in F. Supp. 2d). The court in In re Heritage Bond Litigation, 289 F. Supp. 2d 1132 (C.D. Cal. 2003) addressed whether the statute of limitations barred the plaintiffs’ Section 20(a) claims for control person liability based on statements made more than three years before the initial filing of the suit. The plaintiffs first asserted the claims in a complaint filed on July 24, 2002, a few days before the passage of Sarbanes-Oxley, and then filed a new and separate complaint asserting the same claims on August 30, 2002. In an opinion issued last January, the court held that “while the amended statute of limitations may apply to proceedings filed after passage of the Act, it cannot apply to claims already barred at the time of its enactment, regardless of the filing date.” Accordingly, the plaintiffs’ Section 20(a) claims were dismissed.