The 10b-5 Daily

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 (i.e., the movant who alleges the most potential damages). Although the statute expressly refers to the selection of a “person or group of persons” to fill the lead plaintiff role, some courts have expressed hostility to proposed lead plaintiff groups that are merely aggregations of unrelated investors.

In an unusual decision in In re Pfizer Inc. Sec. Litig., 2005 WL 2759850 (S.D.N.Y. Oct. 21, 2005), the court took this a step further. First, the court rejected the various proposed groups of investors, finding that they had been “artificially grouped by [their] attorneys.” Second, the court declined to appoint the investor with the largest claimed losses because “inaccuracies in its damages calculations” called into question its reliability. Finally, the court selected as lead plaintiff an investor whose counsel had withdrawn its motion for appointment as lead plaintiff (at least conditionally) in favor of another movant.

Quote of note: “Several of the putative plaintiffs are aggregated into artificial ‘groups.’ Nothing before the Court indicates that this aggregation is anything other than an attempt to create the highest possible ‘financial interest’ figure under the PSLRA and I reject it.”

As any law student quickly learns, a lot of interesting points can be found in the footnotes of judicial opinions. “Footnote 4” in the Molson Coors Brewing Company lead plaintiff decision, authored by Judge Kent Jordan (D. Del.), is already lighting up the blogosphere and citations are sure to follow.

In his decision – In re Molson Coors Brewing Co. Sec. Litig., 2005 WL 3271488 (D.Del. December 2, 2005) – Judge Jordan describes his task as deciding “which of the plaintiffs’ law firms will win the money race.” The judge’s accompanying footnote states that he means “no disrespect” to the plaintiffs’ firms competing to be named lead counsel, but that the “‘pick me’ urgency seems far more likely to come from the lawyers than the parties because, in the real world, people are not so eager to undertake work that someone else will do for them.” He goes on to state that the proposed lead plaintiffs’ natural inclination to let someone else “shoulder the burden of supervising the litigation” gets “overridden because securities lawyers are involved, lawyers who are vying for the chance to take the laboring oar in litigation and the monetary rewards that go with it.” The judge concludes that PSLRA’s lead plaintiff provisions may be ineffective because “lawyers are still very much in the driver’s seat.”

Both The PSLRA Nugget and Securities Litigation Watch have posts on the decision and a copy of the memorandum order can be found here.