The 10b-5 Daily

The Rocky Mountain News has an article on Qwest Communications Int., Inc. (NYSE: Q) and the completion of its $2.5 billion financial restatement. The 10b-5 Daily has been following the securities class action filed against Qwest in the D. of Colo. with interest. As part of yesterday’s Form 10-K filing, the company disclosed that “lead counsel for the plaintiffs has indicated that plaintiffs will seek damages in the billions of dollars.” Qwest has moved to dismiss the fourth amended complaint in the case and that motion is currently pending before the court.

A column in today’s National Post discusses the potentially enormous costs of the mutual fund trading scandal, including the expense of defending against “the inevitable wave of class-action lawsuits.” The author notes that Bank of America, which is one of the known targets of the New York Attorney General’s investigation, has announced the creation of a $100 million fund for direct costs and the increase of its litigation reserves by $75 million.

An interesting twist on the normal securities class action. The Associated Press reports that Judge Robinson of the D. of Del. has granted class action status to a suit against Tyson Foods, Inc. (NYSE: TSN) alleging securities fraud in connection with Tyson’s 2001 acquisition of beef-packing giant IBP Inc.

The plaintiffs, a group of hedge funds who were seeking to arbitrage the merger, allege that on March 29, 2001, Tyson falsely stated that it was backing out of the merger with IBP due to a government investigation into accounting discrepancies at one of IBP’s units. As a result, Tyson artificially deflated the price of IBP’s stock. Tyson eventually completed the acquisition in September 2001. The plaintiffs seek to represent all IBP shareholders who bought on or before March 29, 2001, and then sold their shares following Tyson’s announcement.

Quote of note: “In her 20-page opinion, Robinson said Tyson had contended the lead plaintiffs’ sophistication ‘cuts against a finding that a class action is a superior forum’ for resolving such claims. But she said that argument conflicts with Congress’ intent. ‘Federal securities laws do not protect investors any differently, and certainly no less, simply because they engage in more complicated investment strategies,’ she wrote.”

Although The 10b-5 Daily has not been following all of the twists and turns of the Martha Stewart case, it has perked up when the topic is the securities class action against Martha Stewart Living Omnimedia Inc. and certain individual defendants in the S.D.N.Y. (see this post on the court’s decision to deny the motion to dismiss).

The New York Law Journal has an interesting article (via law.com – free registration required) on the U.S. Attorney’s attempt to block discovery in the case because “allowing the prompt depositions of 15 people in the civil securities fraud cases would give Stewart’s criminal defense lawyers an unfair preview of the obstruction of justice case, set to go to trial in January.” Judge Sprizzo rejected this request, citing the apparent weakness of the government’s case and the fact that the government had already, in his view, previewed its arguments in the press.

Quote of note: “A stay had already been granted for Stewart in the civil case, Seymour [head of the Criminal Division of the Southern District U.S. Attorney’s Office] said, and she was merely requesting a ‘limited’ stay on the depositions of about four and a half months. Sprizzo, who served five years as an Assistant U.S. Attorney in the Southern District in the 1960s, said he had ‘seen a lot more serious obstruction cases.’ ‘This is not the strongest obstruction case I have ever seen,’ he said. ‘Just going by your own U.S. attorney’s comments on it. This is not John Gotti.'”

The St. Louis Post-Dispatch ran a feature article in Saturday’s edition that was sharply critical of securities class actions. Among other things, the author discusses the low rates of recovery for investors.

Quote of note: “Many institutional investors get involved in lawsuits as a last resort, but, some say, the suits are not by any means a panacea for wronged shareholders. ‘If we are a long-term holder of a security, our real interest is in having the company turn around,’ said Gary Findlay, executive director of the Missouri State Employees’ Retirement System. ‘If we sue the company, aren’t we suing ourselves? They spend our money to defend themselves against us and buy insurance. … Whatever comes out of that, comes out of my pocket.'”