The Associated Press reports today that the New York State Comptroller has released a report claiming that corporate scandals have cost New York nearly $13 billion over the last two years in reduced economic performance, tax revenues, and pension fund value. The article also notes that New York’s pension fund is the lead plaintiff in several securities class actions.
“Bounty On Directors and Officers”
According to the Recorder (via law.com), a prominent securities class action plaintiffs’ attorney stated at a recent ABA seminar that “he has been offered 50 percent of any judgment that comes directly from the pocketbooks of individual directors and officers.” Moreover, his institutional clients are committed to defending this type of fee arrangement in court.
Note, however, that this is not really a new revelation. An article in the January 2003 issue of the Corporate Legal Times (only available online via Westlaw or LexisNexis) discussed the use of premium fee arrangements to target the personal assets of alleged corporate wrongdoers under the sub-headline “Institutional Investors Place a Bounty on Directors and Officers.” Just something else to keep corporate executives up at night.
Filed under Curiouser and Curiouser
Medi-Hut Settles
Medi-Hut Co., Inc., a New Jersey pharmaceutical and medical device maker, has announced the settlement of the securities class action filed against it in the D. of N.J. The suit was based on alleged accounting fraud. If approved by the court, the settlement will pay investors $400,000 in cash and 861,990 shares of stock (currently trading at about 15 cents a share).
Addition: The August 20, 2003 edition of the Newark Star-Ledger has an article on Medi-Hut and the settlement.
Filed under Settlement
Qwest Cites Merrill Lynch Decision (And So It Begins)
There is little doubt that Judge Pollack’s decision in the Merrill Lynch research class actions is destined to be widely cited by securities litigation defendants — it certainly has caused attorneys to give more consideration to loss causation as a defense. Exhibit A: Qwest Communications International, Inc.
The Rocky Mountain News reported over the weekend that Qwest has filed a motion to dismiss the securities class action against the company citing the Merrill Lynch decision and arguing that plaintiffs have not adequately alleged that the supposed misconduct, rather than a general market decline, caused their losses. Predictably (especially if you regularly read The 10b-5 Daily), plaintiffs have responded that the Merrill Lynch case isn’t relevant, in part, because none of the plaintiffs in that case bought their stock from Merrill Lynch. The Qwest suit is before the U.S. District Court for the District of Colorado.
Quote of note: “In its court brief, Qwest cited the Merrill Lynch decision this summer. The class-action claim was dismissed, Qwest said, because the plaintiffs didn’t adequately prove that the conduct of the analysts, rather than a general market decline, caused their losses. Qwest attorneys argue that Qwest’s stock price too ‘generally rose and fell’ in a pattern corresponding to the broader Nasdaq telecommunications index.”
Filed under Motion To Dismiss Monitor
Man’s Attempt To Bite Dog Rejected
The McKesson HBOC securities fraud cases have generated a number of interesting legal developments over the years. The cases are based on the 1999 merger between McKesson and HBO & Co. After the merger was closed, McKesson announced that HBOC had improperly recorded certain software sales as revenues and that HBOC’s financial results would have to be restated. Several securities class actions were filed and the New York State Common Retirement Fund was eventually selected as the lead plaintiff.
In January 2001, McKesson filed a complaint and compulsory counterclaim against the Fund and former HBOC shareholders who exchanged more than 20,000 shares of HBOC stock for McKesson stock. The theory was that the investors were unjustly enriched by trading inflated HBOC shares for properly-valued McKesson shares. The district court dismissed the claim.
On Wednesday, the U.S. Court of Appeals for the Ninth Circuit weighed in on the case, holding that McKesson cannot sue its own investors on an unjust enrichment theory. First, the court held that an equitable remedy for McKesson was unnecessary given that there are legal remedies available to the company for the same alleged wrong. “McKesson has potential legal claims against any number of parties who, unlike the former shareholders, actually played a substantial role in the decision to enter the Merger Agreement; the former HBOC shareholders are not the only targets for recovery.” Second, the court declined to pierce the corporate veil to create liability for HBOC’s shareholders, noting that “there is no allegation that the HBOC shareholders exercised – or even had the ability to exercise – domination or control over HBOC.” Finally, the court concluded that the expansion of liability to the shareholders, who were unaware of the risk that they could be personally liable for corporate acts, would be unjust.
The Recorder has a story on the case (via law.com) and the decision can be found here. The case certainly highlights the difficulties in determining the winners and losers in securities fraud.
Filed under Appellate Monitor
Q2 2003 Review of Securities Class Actions
Veritas, an Atlanta corporation that provides securities litigation data and services, has released some of the results from its review of class action activity from April 1, 2003 to June 30, 2003. Notable findings include:
(1) 59 securities class actions were filed during the second quarter of 2003, a slight decline from the 65 securities class actions filed during the first quarter of 2003.
(2) Milberg Weiss was bumped out of its historically commanding position for lead counsel appointments by Schiffrin & Barroway, who garnered 27% of lead counsel appointments in the second quarter (Milberg came in second with 23% of the appointments).
(3) Milberg Weiss continued to dominate the settlement arena, with 30% of the settlements that were approved in the second quarter for a total of 68% of the total funds recovered.
Filed under Lies, Damn Lies, And Statistics
Alliant Energy Case Dismissed
The Milwaukee Business Journal reports that the securities class action against Alliant Energy, filed in the U.S. District Court for the Western District of Wisconsin, has been dismissed without prejudice. The case was based on Alliant’s alleged misrepresentations concerning its expected financial performance.
Filed under Motion To Dismiss Monitor
Homestore Settles
Homestore Inc. has agreed to pay $63.6 million in cash ($13 million) and stock (20 millon shares) to settle the pending securities class action against the company. The Associated Press reports that the settlement terms include corportate governance reforms.
Quote of note: “As part of the settlement, Homestore agreed to adopt corporate governance reforms within 30 days of the final approval. The company agreed to two-year board terms, the appointment of a new shareholder-appointed director and minimum stock ownership requirements for directors. The company also agreed to not use future stock options for director compensation.”
Filed under Settlement
Tenth Circuit Partially Reverses Novell Dismissal
The Salt Lake Tribune reports today that the U.S. Court of Appeals for the Tenth Circuit has partially reversed the earlier dismissal of a securities class action against Novell. The appellate court held that claims alleging that Novell and certain of its officers “created a fictional ‘in transit’ category and improperly recorded shipments to OEMs (or original equipment manufacturers, companies that incorporated Novell products into retail computers, or acted as resellers) as sales revenue” could proceed. The suit is based on conduct that allegedly occurred in 1996 and 1997.
Filed under Appellate Monitor
First Union Settles Just Inside Courthouse
First Union National Bank has agreed to settle the securities class action suit against the company, based on its alleged participation in a securities fraud commited by Cyprus Funds, for $5 million. According to an article in the Sun-Sentinel, the settlement was reached after two days of testimony in a federal jury trial in Fort Lauderdale.
Quote of note: “Legal experts say the case against First Union was unusual because it resulted in a jury trial. While ‘third parties’ such as banks or law firms sometimes are sued in connection with securities fraud cases, usually such matters are settled out of court or dropped.”
Filed under Settlement
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