In another early settlement, Citigroup, Inc. (NYSE: C) has announced a preliminary settlement of the claims brought against it as part of the Enron securities class action pending in the S.D. of Texas. The settlement is for $2 billion and will be covered by the company’s existing litigation reserves. Bloomberg has this report.
Fox In The Chicken Coop?
The nomination of Congressman Chris Cox as SEC chairman has come under criticism, with many opponents citing his sponsorship of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Professor Stephen Bainbridge of UCLA Law School has an interesting post on whether the PSLRA has actually “weakened investor protections” and provides links to a number of empirical studies to the contrary.
Filed under All The News That's Fit To Blog
More On The Revival Of Time-Barred Claims
The Sarbanes-Oxley Act of 2002 (“SOX”) extends the statute of limitations for federal securities fraud to the earlier of two years after the discovery of the facts constituting the violation or five years after the violation. Although the legislation clearly provides that it “shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act [July 30, 2002],” left unresolved is whether Congress intended to revive claims that had already expired under the earlier one year/three years statute of limitations.
Two circuit courts (the 2nd and 7th) have declined to apply the new statute of limitations to revive time-barred claims. In the past week, the Eleventh and Eighth Circuits have also issued opinions addressing the question.
In its long-awaited decision in Tello v. Dean Witter Reynolds, Inc., 2005 WL 1279130 (11th Cir. June 1, 2005), the Eleventh Circuit held that it could not decide “the statutory-interpretation issue of whether previously time-barred claims are revived by the [SOX] statute of limitations” until the district court determined if the plaintiffs were on inquiry notice of their claims prior to the passage of the legislation.
In contrast, the Eight Circuit’s opinion in In re ADC Telecommunications, Inc. Sec. Litig., 2005 WL 1322576 (8th Cir. June 6, 2005) simply follows the earlier appellate holdings in finding that SOX did not revive time-barred claims. The opinion (in a footnote) and concurrence clarify that the issue of the retroactivity of the new statute of limitations (i.e., its application to “causes of action that had already accrued at the time of the change in law”) is separate from the issue of whether Congress intended to revive time-barred claims.
Filed under Appellate Monitor
Impact Of Dura
The Supreme Court’s recent loss causation decision in the Dura case has been the subject of considerable commentary. The author of The 10b-5 Daily, along with one of his colleagues, has written an article on the topic – “Lower Courts Will Determine Impact of Supreme Court’s Securities Fraud Ruling” – for the Washington Legal Foundation. A link to the article can be found here.
Filed under All The News That's Fit To Blog
Break In The Action
The 10b-5 Daily will not be updated again until next week (June 6).
Filed under Uncategorized
Finding A Plaintiff
The Star-Ledger (N.J.) ran an article this week on the named plaintiff in one of the securities class actions filed against Able Laboratories in the D. of N.J. According to the article, the small, individual investor was unaware of the exact problems at the company until he was cold-called by a plaintiffs’ firm and asked to participate in the suit. Thanks to Securities Litigation Watch for the link.
Quote of note: “‘The law firm called me,’ said Lodish, 31, who bought the shares on the advice of an investment counselor. ‘I know the stock went up and went down. For me to guess is speculative if it was the right thing for it to go up or the right thing for it to go down.'”
Filed under Lead Plaintiff/Lead Counsel
2004 PWC Securities Litigation Study
The 2004 Securities Litigation Study from PricewaterhouseCoopers contains a number of interesting statistics. A few highlights:
(1) Securities class actions were filed against 29 foreign companies listed on U.S. exchanges. This is the highest number of cases against foreign companies ever filed in one year.
(2) Securities class actions alleging accounting-related securities fraud versus securities class actions alleging non-accounting-related securities fraud divided roughly 60/40 percent. This has been a relatively constant statistic since the passage of the PSLRA.
(3) Public retirement and investment funds and other institutional entities comprised 47 percent of the lead plaintiffs in all securities class actions filed through June 30, 2004. This compares to 41 percent of all cases with such lead plaintiffs in 2003 and 51 percent in 2002.
Quote of note: “Exactly what 2004 securities litigation statistics, trends and events are telling us is that the future will be more challenging. Look for steady, or somewhat increasing, trends in the number of private securities litigation class actions and regulatory enforcement actions on average over the next several years. Expect continuing significant increases in the dollar-values of private securities class action settlements of the average, median, and ‘high-dollar’ values of settled cases for years to come. Contemplate the knock-on effects of Sarbanes-Oxley, increased regulatory enforcement actions, and enhanced vigilance by independent auditors (regarding accounting irregularities and financial frauds), and expect a significant increase in ‘Section 10A’ matters, SEC (and other regulators) investigations, and internal corporate investigations leading to more restatements, more regulatory enforcement actions, and more private securities litigation. And, assume that a few bad management of a number of some publicly-listed companies will continue to try to game the system and securities markets.”
Filed under Lies, Damn Lies, And Statistics
Coffee On Dura
Professor John Coffee has a column (via law.com – free regist. req’d) in today’s New York Law Journal examining the Supreme Court’s recent loss causation decision. Among other issues, the column discusses the court’s failure to reject the idea that an investor can claim an economic loss even if the price of his shares increased. (Regular readers will note that Professor Coffee’s analysis of the pleading standard discussion in the Dura opinion differs from The 10b-5 Daily’s analysis.)
Quote of note: “In the real world, however, there is a major difference: price declines are real phenomena that demonstrate that the market considered information to be material; in contrast, a price that does not change may be the result of either offsetting developments or, more likely, the fact that the allegedly material misrepresentation simply never was deemed material by the market. Indeed, to permit recovery in this case hypothesized by the Court is to permit recovery based on a double speculation — first, as to the original uncorroborated price inflation and, second, as to what would have been the later price increase in the absence of discovery of the original inflation. Even the 9th Circuit has never gone this far.”
Filed under All The News That's Fit To Blog
Enforcing The Discovery Stay
As part of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), Congress mandated that “a court may stay discovery proceedings in any private action in state court, as necessary in aid of its jurisdiction, or to protect or effectuate its judgments, in an action subject to a stay of discovery pursuant to [the PSLRA].” One of the primary goals of this provision was to prevent plaintiffs from using a simultaneous state court action to circumvent the mandatory discovery stay imposed by the PSLRA in federal securities fraud cases. Exactly when, where, and under what circumstances a court should use this power, however, has been the subject of recent debate.
In City of Austin Police Ret. Sys. v. ITT Educational Services, Inc., 2005 WL 280345 (S.D. Ind. Feb. 2, 2005), the court addressed whether it should stay a related books and records action brought in Delaware state court. Plaintiff’s counsel in the books and records action had previously filed “several” of the federal securities cases consolidated by the court and had unsuccessfully sought to be named lead counsel. In addition, the books and records action sought company records directly related to the fraud allegations in the federal securities case, albeit as a stated precursor to bringing a derivative suit for breach of fiduciary duties.
While the plain language of SLUSA states that it is applicable to any private action in state court, the court found that an intent to evade the PSLRA’s stay of discovery “should probably be the biggest factor in deciding how far to extend SLUSA’s discovery stay provision beyond the securities fraud cases that are its principal target.” In the instant case, the court found that there was no convincing evidence of an intent to circumvent the PSLRA. The court also noted that plaintiff’s counsel had no further involvement in the federal litigation and was “willing to enter a protective order in the Delaware case that would bar them from sharing information with plaintiffs’ counsel in this case.” Under these circumstances, the court declined to enter the requested stay.
It did not take long for another federal district court to strongly disagree with the ITT Educational decision. In In re Cardinal Health, Inc. Sec. Litig., 2005 WL 894693 (S.D. Ohio March 1, 2005), the court addressed whether it should stay discovery in a state court derivative action relating to the same accounting issues raised in the pending federal securities class action. The court found that “[h]ad Congress intended to limit [the SLUSA discovery stay] to securities fraud actions, it could have done so.” Moreover, the plain language of the statue “includes no mention of a requisite intent to circumvent the PSLRA.” The court held that the imposition of a discovery stay in the derivative case was appropriate for three reasons: (1) trial in the derivative case was set to begin within a year, leading to a strong possibility that some form of discovery would reach the federal plaintiffs; (2) the derivative case involved the same subject matter as the federal securities class action, raising concerns that the courts might issue inconsistent rulings; and (3) complying with similar discovery requests would be duplicative and burdensome.
Addition: A similar situation arose in the El Paso Corp. securities litigation last year. In a post about an unsuccessful SLUSA discovery challenge brought by the defendants in state court, The 10b-5 Daily questioned whether the defendants would have been better off making the same arguments in federal court. The answer is provided in the ITT Educational decision – “After the Delaware court declined to stay the action under SLUSA, the district judge presiding over the Wyatt case in the Southern District of Texas issued a one-line order staying the Cohen Section 220 action. Wyatt v. El Paso Corp., No. H-02-2717 (S.D.Tex. Dec. 8, 2004).”
Filed under Discovery Stay
The Hazards Of Cooperation
The New York Law Journal has a column (via law.com – free regist. req’d) on the hazards of cooperating with government investigations. Among the possible consequences is that securities plaintiffs may be able to lift the PSLRA’s mandatory discovery stay. The 10b-5 Daily has covered the district court spit on this issue extensively, most recently in a post from last September entitled “The ‘Government Investigation’ Exception.”
Quote of note: “Recently, some courts have been moved by the argument that sustaining the mandatory stay would unduly prejudice or unfairly disadvantage plaintiffs otherwise unable to gain access to documents already produced to government agencies conducting investigations that mirror plaintiffs’ claims. Reasoning that securities plaintiffs would be unfairly kept out of the judicial loop without access to the documents already held by those agencies while parallel investigations and prosecutions proceeded, these courts have determined that plaintiffs are entitled to have these same documents.”
Filed under All The News That's Fit To Blog, Discovery Stay
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