The 10b-5 Daily

The New York Times is keeping on top of the AOL Time Warner securities class action. In a followup to its July 7 overview of the case (posted on The 10b-5 Daily), the paper has an article on the recently filed motion to dismiss. Among other things, AOL Time Warner argues that its restatement of $190 million is just 1% of its revenue over the period in question and that it disclosed all of its two-way deals with customers.

Quote of note: “The company’s motion to dismiss the suit is an expected part of the proceedings, and legal scholars consider it unlikely to succeed. But the relative strength of AOL Time Warner’s legal defense will help determine how costly it is for the company to resolve the suit, most likely through a settlement payment.”

The securities class action (along with another securities fraud case) against the former executives of Suprema Specialties, a bankrupt cheese manufacturer, have been dismissed by Judge William Walls of the D. of N.J. The Newark Star-Ledger reports that testimony and evidence in the related bankruptcy case raised questions about the validity of the company’s “hard cheese” sales, but Judge Walls held that the allegations of fictitious sales in the securities fraud cases lacked details and failed to meet the applicable pleading standards.

Quote of note: “‘The complaints certainly paint a picture of a company which was troubled and ultimately failed, a picture where, perhaps, something smelled a little funny,’ Walls wrote in his June 25 decision. ‘But the complaints lack the factual specificity demanded by (securities fraud law) and may not be so maintained.'”

The The New York Times has a lengthy article in today’s edition on the securities class action against AOL Time Warner. The author concludes that a dismissal of the case appears unlikely.

Quote of note: “In what one legal scholar called ‘the judicial equivalent of a Freudian slip,’ Judge Shirley Wohl Kram of United States District Court in Manhattan responded to a preliminary letter from shareholders’ lawyers by ordering AOL Time Warner to turn over millions of pages of documents before the lawyers filed a formal motion or the company had a chance to respond. When AOL Time Warner’s lawyers complained, she quickly rescinded the order.”

Quote of note II: “[L]egal experts say that the settlement in this case may well exceed previous benchmarks and formulas because of the political impetus among judges and regulators these days to crack down on corporate fraud. ‘There has been a regime change,’ said Joseph A. Grundfest, a law professor at Stanford and a former member of the S.E.C., adding that ‘settlements are more difficult for companies to negotiate in the post- Enron environment.'”