The 10b-5 Daily

TheLawyer.Com, a UK website, has an article on Judge Pollack’s decision in the Merrill Lynch analyst research cases. Notably, the article contains the words “loss causation.”

Quote of note: “Coffee [Columbia University law professor John Coffee] reckons that Judge Pollack’s most important line of reasoning is that the plaintiff has to prove ‘loss causation’. ‘They can’t simply prove that the plaintiff was fraudulently induced to buy the stock by the false inflated and insincere recommendation, but rather he has to prove first, and then later, that the recommendation was causally related to the stock’s ultimate fall.’ That is a very difficult burden for litigators to have to meet, he adds.”

Reuters reports that Rep. Baker has agreed to postpone a vote on the Securities Fraud Deterrence and Investor Restitution Act of 2003.

Quote of note: “The bill is largely aimed at boosting the SEC’s powers. But one section of it targets state officials, such as New York Attorney General Eliot Spitzer, by proposing barring them from writing securities law exceeding or adding to federal statute. State securities regulators have attacked the bill as a shield meant to protect Wall Street’s largest brokerages from state-level investigations like the one Spitzer mounted recently into stock analyst conduct at Merrill Lynch.”

As previously posted in The 10b-5 Daily, the South Korean legislature is considering a proposal to permit investors to bring securities class actions. The JooAng Daily reports that the Legislation and Judiciary Committee�s review subcommittee approved the measure yesterday.
Quote of note: “[T]he proposed legislation only allows filing of such suit for financial fraud complaints: book-rigging, stock price manipulation or false disclosures and audits. At least 50 shareholders who collectively owns either 0.01 percent of a firm�s shares or own shares valued at 100 million won would be required for a suit to be filed. The court would have the right to investigate the qualifications of shareholders as plaintiffs. The court could also ask for basic information from financial authorities. If a court rejected the filing of a lawsuit, aggrieved shareholders would have the right to appeal the decision. ”

In case there was any doubt about the Association of Trial Lawyers of America’s position on the Class Action Fairness Act.

Quote of note: “Alexander stated that the convention would work ‘to strengthen the fight against the Administration’s and Congress’ anti-consumer actions, especially concerning medical malpractice rights, and class action lawsuits against major malfeasant corporations like Enron and Global Crossing, who are almost unaccountable on issues from pensions to pollution.'”

An interesting column by Michael Carroll in yesterday’s Wall Street Journal (subscrip. required) about the potential ramifications of Judge Pollack’s decision in the Merrill Lynch cases. The author questions whether private securities class actions, as opposed to regulatory actions by the S.E.C., are the right method for remedying the societal costs of misleading market information.

Quote of note: “The judge’s ruling draws on ideas which, if they are followed by other courts, could change the world of securities class actions as we know it. As Judge Pollack put it, when plaintiffs are a class of disappointed investors who lost money in trades on the secondary market, there is another class of lucky investors who were on the other side of those trades. In the language of economics, the losses that class plaintiffs were seeking to recover in the Merrill Lynch case were transfer payments that had been made to other investors in the market. Judge Pollack decided that Merrill Lynch did not have to underwrite those transfer payments.”

Quote of note II: “Transfer payments among investors based on false or misleading market information impose a cost on society, but it is not a cost that is best measured by the total of all transfer payments or that is best remedied by private lawsuits. The societal cost imposed by bad market information is a lessening of market confidence and the decrease in investment activity that can follow. These are macro results that can be addressed by regulatory agencies such as the Securities and Exchange Commission, whose job it is to protect market confidence by policing information in the market.”

Over the weekend, the Associated Press reported that state public employee pension funds in Ohio and California have declined to join the federal securities class action against AOL. Instead, they have sued AOL separately in state court based on the same conduct. Note that this is part of a trend for the Ohio funds, which have also sued Enron and WorldCom in state court.

Quote of note: “‘The class-action lawsuit, you get peanuts at the end of it,’ Ohio Attorney General Jim Petro said.”

The National Law Journal (July 21, 2003 edition) has a breakout of “The Plaintiffs’ Hot List” of law firms. A number of plaintiffs firms that focus on securities class actions have made the list.