The 10b-5 Daily

The South Korean legislature is still debating over legislation that would permit investors to bring securities class actions. The Korea Times reports that conservative lawmakers are seeking to limit the scope of the planned class action system to companies with more than 2 trillion won in assets (i.e., very large companies). Opponents argue that most of companies investigated for stock price manipulation and accounting fraud, based on a sample from 1998 to 2001, do not meet this test.

The 10b-5 Daily has been following this story intently (see posts here and here for details on the legislative proposals). Not surprisingly, South Korea appears interested in learning from the U.S. experience with securities class actions — the Korea Times describes a a public hearing hosted by the Korea Development Institute (KDI) that included a discussion of the pros and cons of a U.S.-style system.

Quote of note: “The system entails considerable cost, so it is imperative for South Korea to consider its economic reality before taking this step, [Professor Stephen Choi of U. of Cal., Berkeley] added. However, Choi said though there were problems related to class action suits, the experience of the U.S. following the passage of its Private Securities Litigation Reform Act in 1995 offered some reference for reform measures that could be carried out here.”

The Securities Litigation Watch has an interesting article (from the December 2003 edition of ISS’s SCAS Alert) on the recent trend of insitutional investors opting out of high-profile securities class actions.

Quote of note: “Does an institutional opt-out in favor of an individual state court action really provide institutions with these and other advantages? While there are theoretical arguments in support of individual actions, the advantages sought by institutions often do not materialize in practice. Indeed, both plaintiffs’ counsel and defense counsel at the recent Institutional Investor Forum in New York agreed that individual state court actions make sense only in rare instances.”

Although the PSLRA was supposed to stop the race to the courthouse in securities class action litigation by creating a formal lead plaintiff selection process, anecdotal evidence suggests that plaintiffs’ firms continue to believe there is an advantage to being the first filer. The Denver Post examines how it is that Invesco Funds Group was sued almost immediately following the announcement of an investigation by the New York Attorney General into the organization’s trading practices.

The Associated Press has an interesting article on the bankruptcy examiner report in the Enron case. The report is sharply critical of Enron’s banks and auditors, who are alleged to have assisted the company in its fraudulent transactions. The bankruptcy examiner, Neal Batson, has made some controversial requests of the court including that he and his team be protected from having to produce documents or be questioned by third parties.

Quote of note: “Batson, in his lengthy final report, blamed top company executives as well as former directors, accountants, attorneys and some large investment banks for the energy trading firm’s financial collapse. Plaintiffs in class-action lawsuits want Batson to be available for subpoena because he could potentially be an important witness as a result of his reports.”