September 10, 2003 · 10:17 am

Getting A Helping Hand

A column by Maggie Mulvihill in yesterday’s Boston Herald concludes that the state government probes into the financial services industry have been a boon for the securities plaintiffs’ bar.

Quote of note: “Bill Galvin. Drew Edmondson. Elliot Spitzer. To big business, they are bloodsucking fiends intent on using corporate finance scandals to advance their own political positions. But to plaintiffs’ lawyers, these guys are a dream come true. Their state probes and lawsuits are already opening the floodgates of hard-to-get corporate data – not to mention emboldening civil litigators to start papering courthouses with lawsuits against the financial services industry.”

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September 9, 2003 · 1:32 pm

“Honey-Loving Bear” Case Dismissed

The Walt Disney Co. has obtained the dismissal of a securities class action against the company. The case, filed in the C.D. of Cal., alleged that Disney had failed until May 2002 to disclose in its SEC filings the potential damages at stake in a separate legal dispute with Stephen Slesinger Inc., which holds the U.S. merchandising rights for Winnie-the-Pooh.

Reuters reports that Judge Mariana Pfaelzer was critical of the plaintiffs’ arguments, noting that events in a case can suddenly change lawyers’ views of the outcome (leading to Disney’s decision to make its May 2002 disclosure) and that “everybody is on notice that this [the Slesinger suit] could be a big case.” Nevertheless, the plaintiffs were given 30 days to amend their complaint if they want to try again.

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Filed under Motion To Dismiss Monitor

September 8, 2003 · 11:50 am

Halliburton Updates

For those readers following the Halliburton securities class action, two quick updates:

1) As noted previously on The 10b-5 Daily, counsel for one of the lead plantiffs, Scott + Scott, has refused to sign onto the proposed $6 million settlement and is attempting to have Schiffrin & Barroway removed as lead counsel. One of the issues raised by Scott + Scott is why Vice President Dick Cheney, the former CEO of Halliburton, was not named as a defendant. According to a post on Classobjector, the court has rejected Scott + Scott’s motion to show cause (i.e., the removal of Schiffrin), but did so without prejudice, leaving open the possibility of further motions on this issue.

2) The Associated Press reports that a separate securities fraud suit against Halliburton and Vice President Cheney, filed by three small investors in federal court, has been dismissed. The allegations in that case were reportedly similar to those in the class action. It will be interesting to see what, if any, effect this dismissal will have on the controversy surrounding the class action settlement.

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September 5, 2003 · 2:52 pm

One Way To Get Rid Of A Case

Want the plaintiffs to voluntarily dismiss their securities class action? All you have to do is get the SEC to approve your “unusual” accounting practices. According to an article in the Boston Globe, PolyMedica Inc. (Nasdaq: PLMD – a maker of diabetes test kits) has convinced the SEC to approve its use of a “1993 accounting rule to record marketing costs as an asset on its balance sheet.” This accounting treatment was the subject of the securities class actions pending against the company, which may now be dropped.

Quote of note: “PolyMedica argued it operates like an insurance company because customers sign up immediately upon viewing an ad. The company is well known for the blood-glucose test kits it sells via television ads under its Liberty brand name. The company said the SEC has decided that ‘PolyMedica should continue to capitalize its direct response advertising costs related to the acquisition of new customers, rather than expensing such costs as incurred.'”

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September 5, 2003 · 12:02 am

“You May Think You See A Lot Of Enrons But You Don’t”

According to an article in the Associated Press, Humana Inc. (NYSE: HUM) has agreed to settle a securities class action brought against Physicians Corp. of America in the S.D. of Fla. (Humana purchased Physicians Corp. in 1997.)

The case alleges that Physicians Corp. hid financial losses in 1996 and 1997. The settlement comes after the denial of a motion to dismiss and is for $10.2 million or an estimated 81 cents per share (44 cents per share after expenses).

Quote of note: Lead counsel for the plaintiffs, defending the size of the settlement, stated – “‘They’re not easy to win. You don’t see many Enrons. You may think you see a lot of Enrons but you don’t, and Physicians Corporation is not an easy case,’ he said. ‘I think it could have been won, but it’s not a sure thing.'”

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September 4, 2003 · 9:32 pm

Foundry Case Dismissed

Foundry Networks (Nasdaq: FDRY) has obtained a dismissal, with prejudice, of the securities class action against the company in the N.D. of Cal. The case was originally filed in January 2001.

Securities Litigation Watch reports that it was the fifth amended complaint in the case and “the Court found that plaintiffs had, at most, alleged facts giving rise to a ‘reasonable inference’ (rather than the required ‘strong inference’) that defendants knew the challenged statements were false when made.” A copy of the order can be found here.

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Filed under Motion To Dismiss Monitor

September 4, 2003 · 9:20 pm

Checkers Wins Summary Judgment

Checkers Drive-In Restaurants Inc. (Nasdaq: CHKR) has announced a summary judgment win in the securities class action filed against Rally’s Hamburgers in the W.D. of Kentucky. (Rally was acquired by Checkers in 1999). The suit was based on conduct that took place in the early 1990s.

Judge Simpson found that the plaintiffs would not be able to establish fraudulent intent and that certain analyst evaluations of the company’s challenged statements “counterbalanced any misleading effect those statements might have had on the market.” (The opinion actually can be found on Checkers’ website.)

Quote of note (opinion): “[I]n this case, as in others, the claims of wrongdoing are based upon a fiction that poor management constitutes fraud if a company’s plans for continued growth do not succeed.”

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September 3, 2003 · 8:09 pm

Let The Mudslinging Begin

Under the PSLRA, the lead plaintiff in a securities class action is presumptively the party with the largest financial interest in the relief sought by the class. The presumption may be rebutted, however, by a showing that this party will not fairly and adequately protect the interests of the class or is subject to unique defenses not applicable to other class members. Not only does the lead plaintiff get to run the case, it also has virtually free reign to appoint its attorney as lead counsel for the class. Given that the lead counsel can obtain significant fees from a successful securities class action, the battle over the lead plaintiff position is often intense.

The State of New Jersey has been an active participant in securities class actions over the past few years, often applying for the lead plaintiff role. (The 10b-5 Daily previously posted about this development.) In In re Motorola Securities Litigation, 2003 WL 21673928 (N.D. Ill. July 16, 2003), New Jersey was far and away the lead plaintiff candidate with the most alleged losses. Its candidacy came under fierce attack, however, from another group of investors, led by Commerzbank, who were also seeking the lead plaintiff position.

First, Commerzbank argued that New Jersey would be subject to a unique defense because state officials have publicly criticized the state’s Department of Investment, blaming it for the relevant losses. The court rejected this argument, noting that “if New Jersey’s investment strategy during the early part of the decade was less than ideal, this actually may make the State more typical of those who have lost money in the stock market rather than less.”

Second, Commerzbank argued that newspaper reports in New Jersey suggested the existence of a “pay-to-play” scheme, in which Governor McGreevey would consider hiring law firms to represent the state in securities litigation if they made political contributions. The newspaper article in question, however, made no mention of the Motorola litigation or the two firms representing the state in the case (who both submitted declarations denying they had been awarded the representation in return for political contributions).

Holding: New Jersey appointed lead plaintiff.

The decision can be found here by putting in the case number (No. 03 CV 287).

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September 2, 2003 · 10:45 pm

Infonet Case Dismissed

Infonet Services Corporation (NYSE: IN), a California communication services provider, has announced the dismissal, without prejudice, of the securities class action against the company. The plaintiffs have until October 2, 2003 to refile.

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September 2, 2003 · 10:38 pm

Throwing In A Little Corporate Governance

Over the holiday weekend, the USA Today had an article discussing the recent trend of including corporate governance reforms as part of the settlement of shareholder litigation. The article focuses on the recent settlements of the Siebel Systems derivative case and the Computer Associates securities class action (posted about in The 10b-5 Daily).

Addition: TheStreet.com has posted a more comprehensive article on the same topic. The author argues that the increased participation of institutional investors as lead plaintiffs in securities class actions is behind the surge in settlements containing corporate governance reforms.

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