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securities litigation

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Andrew Grossman reports on yesterday’s oral argument in Halliburton v. Erica P. John Fund, which “may be the biggest business case of the term. …Basic [Basic v. Levinson, 1988, in which the Court dispensed with the reliance requirement in favor of the "fraud on the market" theory] came at the tail-end of the Court’s decades-long experiment in policymaking by creating and defining the contours of civil actions. … The chief barrier to overturning Basic may not be its logic, its wisdom, or even its correctness as a matter of law, but instead stare decisis.” Earlier here, here, here, and here.

More: Kaye Scholer (possible “midway position” with impact on stock price considered at stage of class certification).

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  • Following vindication, Mark Cuban begins transcribing transcripts of other SEC trials on his blog [Blog Maverick, background] “Why Settling With The SEC Can Be Worse Than Losing At Trial” [John J. Carney, David Choi and Francesca Harker]
  • Congress needs to investigate whether administration browbeat Standard & Poor’s over sovereign debt rating [John McGinnis]
  • As regs squeeze banks out of small business lending, will we like non-bank alternatives as well? [John Cochrane] More: Kevin Funnell;
  • Cash business can’t bank its proceeds: “Robber gangs terrorize Colorado pot shops” [NBC News]
  • “Will Plaintiff Lawyers Cut Down On The Choices In Your 401(k)?” [Daniel Fisher]
  • Does Delaware have an incentive to keep securities lawyers happy with big fees? [Bainbridge]
  • “It’s Time To Grill the Federal Reserve About Bitcoin” [Ira Stoll]
  • SCOTUS to hear case of Susan B. Anthony List v. Driehaus, First Amendment challenge to state laws regulating truth of political speech [IJ/Cato amicus cert brief]
  • Groups of law professors file amicus briefs in Halliburton Co. v. Erica P. John Fund, Inc. arguing that retreat from “fraud on the market” theory is consistent with modern scholarship on capital market efficiency [John Elwood] and sound statutory construction [Elwood, Bainbridge]
  • Behind the Michigan affirmative action plan in Schuette, including colorful background of litigant BAMN (“By Any Means Necessary”) [Gail Heriot, Federalist Society "Engage"]
  • Court dismisses Mulhall v. UNITE HERE (challenge to employer cooperation agreement with union as “thing of value”) as improvidently granted [Jack Goldsmith, On Labor, earlier]
  • Affordable Care Act saga has taken toll on rule of law [Timothy and Christina Sandefur, Regulation]
  • Lol-worthy new Twitter account, @clickbaitSCOTUS, with content like “The nine words no appellate advocate wants to read” [re: Madigan v. Levin]
  • Drug War vs. Constitution at Supreme Court, 1928: Drug War won by only one vote and you might not predict who wrote the most impassioned dissent [my Cato post]

Banking and finance roundup

by Walter Olson on November 21, 2013

  • J.P. Morgan and the Dodd-Frank system: “With Wall Street’s capable assistance, government has managed to institutionalize and monetize the perp walk.” [Michael Greve, related from Greve on the self-financing regulatory state]
  • Harvard needs to worry about being seen as endorsing its affiliated Shareholder Rights Project [Richard Painter]
  • Under regulatory pressure, J.P. Morgan “looking to pull back from lending to politically incorrect operations like pawn shops, payday lenders, check cashers” [Seeking Alpha]
  • Rare securities class action goes to trial against Household lending firm, HSBC; $2.46 billion judgment [Reuters]
  • Car dealers only thought they were winning a Dodd-Frank exemption from CFPB. Surprise! [Carter Dougherty/Bloomberg, Funnell]
  • “Memo to the Swiss: Capping CEO Pay is not an Intelligent Way of dealing with Income Inequality” [Bainbridge]
  • American Bankers Association vs. blogger who compiled online list of banks’ routing numbers [Popehat]

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Fortune reporter Erika Fry profiles the lawyer-allied Louisiana Municipal Police Employees’ Retirement System, pronounced “Lampers,” which has been called a “serial plaintiff,” a “frequent filer,” and in one legal brief “the most prolific filer of shareholder litigation in U.S. history.”

Banking and finance roundup

by Walter Olson on October 22, 2013

  • “Dodd-Frank and The Regulatory Burden on Smaller Banks” [Todd Zywicki]
  • Side-stepping Morrison: way found for foreign-cubed claims to get into federal court? [D&O Diary]
  • “Alice in Wonderland Has Nothing on Section 518 of the New York General Business Law” [Eugene Volokh, swipe fees]
  • “Financial Reform in 12 Minutes” [John Cochrane]
  • Why the state-owned Bank of North Dakota isn’t a model for much of anything [Mark Calabria, New York Times "Room for Debate"]
  • Regulated lenders have many reasons to watch SCOTUS’s upcoming Mount Holly case on housing disparate impact [Kevin Funnell]
  • Cert petition: “Time to undo fraud-on-the-market presumption in securities class actions?” [Alison Frankel]

Matt Levine concludes that a large share of it was for making dumb trades, as opposed to intentional malfeasance. (Earlier on whether regulators had taken a bead on Morgan because of chief Jamie Dimon’s perceived bad attitude.) Will Morgan’s admissions materially help plaintiff’s lawyers in the inevitable shareholder class action? Don’t be so sure [Alison Frankel, Reuters] More: WSJ (sees politics), Hank Greenberg via FedSocBlog, Iain Murray.

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Banking and finance roundup

by Walter Olson on September 5, 2013

  • With arbitrary power to order capital levels, FDIC is Death Star to community banking [Kevin Funnell]
  • “Oh please. We’re not going too easy on [convicted inside trader] Raj Rajaratnam.” [John Carney]
  • “Ronald Coase and the nature of shadow banking” [also John Carney]
  • “Say-on-pay” as “lawyer-driven” litigation [Pepper Hamilton via Bainbridge]
  • I’m a guest on Jim Puplava’s “Financial Sense” podcast [link]
  • Wall Street, housing lobby to get their way again: “I’m afraid that the fix is in on housing finance reform.” [Arnold Kling]
  • Channeling Bernie Sanders? Thumbsucker on decline of IBM as employer fingers shareholder value theory promoted by ever-so-wicked Chicago school [Washington Post]
  • Wells Fargo gets a lending-discrimination class action tossed, but there’ll be others where it came from [Andrew Trask]
  • After bank burglarizes Ohio woman, law will give her curiously little satisfaction [Popehat]
  • North Las Vegas scheme to seize underwater mortgages through eminent domain raises constitutional opposition [Kevin Funnell]
  • “The SAC Insider Trading Indictment” [Bainbridge, WSJ MoneyBeat]
  • “He who sells what isn’t his’n/Must buy it back or go to prison.” Most naked short selling driven by fundamentals, study says [Daniel Fisher]
  • NY AG Schneiderman to Thomson Reuters: don’t you dare sell early access to the market-moving survey you pay for [Bainbridge]
  • “The Confidential Witness Problem in Securities Litigation” [Kevin LaCroix]
  • “The puzzling return of Glass-Steagall” [Tabarrok]
  • “FATCA: How to Lose Friends, Citizens and Influence” [Colleen Graffy, WSJ via Paul Caron/TaxProf, earlier]

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Why Elizabeth Warren is wrong about them [Prof. Bainbridge]

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To allege scienter (intent or knowledge of wrongdoing) in securities fraud cases, lawyers sometimes avow to the court that they have one or more confidential sources who tipped them off to the wrongdoing. If the court accepts this story, they may keep a case alive for which there would otherwise be no or inadequate evidence. Trouble is, the confidential informants can be, if not entirely a mirage, then flimsier on inspection than the court might have assumed. Cory Andrews of WLF tells of a recent ruling by Judge Richard Posner in a case called City of Livonia Employees’ Retirement System v. Boeing:

Seeking hundreds of millions of dollars in damages, plaintiffs filed a putative class action alleging that Boeing Company, along with its CEO and the head of its commercial aircraft division, committed securities fraud in violation of federal law. The district judge dismissed the complaint for failing to allege sufficient facts to properly plead the requisite scienter for fraud. Not to be deterred, plaintiffs promptly filed an amended complaint, but this time with detailed bombshell revelations from a confidential source. Ultimately, however, the allegations in the amended complaint could not withstand even the slightest scrutiny.

As Posner describes it:

The plaintiffs’ lawyers had made confident assurances in their complaint about a confidential source — their only barrier to dismissal of their suit — even though none of the lawyers had spoken to the source and their investigator acknowledged that she couldn’t verify what (according to her) he had told her.

Their failure to inquire further puts one in mind of ostrich tactics —of failing to inquire for fear that the inquiry might reveal stronger evidence of their scienter regarding the authenticity of the confidential source than the flimsy evidence of scienter they were able to marshal against Boeing.

Noting that the same law firm [Robbins Geller Rudman & Dowd] had been accused of “similar conduct” in three other reported cases, Posner [on behalf of a unanimous panel] remanded the matter back to the district judge, who would be in a better position to calculate a dollar amount for Rule 11 sanctions.

May 2 roundup

by Walter Olson on May 2, 2013

  • After bank trespass, Occupy Philadelphia benefits from jury nullification and a cordial judge [Kevin Funnell]
  • Cato commentaries on Cyprus crisis [Steve Hanke and more, Dan Mitchell, Richard Rahn podcast]
  • “NY Court Reinstates Foreclosure, Chides Judge For `Robosigning’ Sanctions” [Daniel Fisher] “Impeding Foreclosure Hurts Homeowners As Well As Lenders” [Funnell]
  • SEC charging Illinois with pension misrepresentation? Call it a stunt [Prof. Bainbridge]
  • “Plaintiff Lawyers Seek Their Cut On Virtually All Big Mergers, Study Shows” [Fisher] As mergers draw suits, D&O underwriting scrutiny escalates [Funnell] “Courts beginning to reject M&A strike suits” [Ted Frank]
  • Will Dodd-Frank conflict minerals rules actually help folks in places like Congo? [Marcia Narine, Regent U. L. Rev. via Bainbridge, earlier here]
  • “Securities Lawyers Gave To Detroit Mayor’s Slush Fund”; city served as plaintiff for Bernstein Litowitz [Fisher]

Never mind the (alleged by former employee) lurid sex stuff, says Daniel Fisher, let’s talk about this law firm’s shortcomings in filing securities actions [Forbes]

“I mean, frankly, I am totally puzzled, given that plaintiffs’ bar in this area uses the Wall Street Journal as their source of clients and cases, right? You guys read it every day, looking for scandal, right? Other people read People Magazine, but you read the Wall Street Journal.” – Judge Naomi Reice Buchwald (S.D.N.Y.), during a proceeding on the LIBOR class actions. [Staci Zaretsky, Above the Law] “And in other news, the Sun rose today.” [@LawyerKitty]

The Economist on an unplanned (at least one hopes it was unplanned) effect of Dodd-Frank:

THE Dodd-Frank law of 2010 requires a “say-on-pay” vote for shareholders of American companies. Clever lawyers scent a payday for themselves.

One law firm in particular, Faruqi & Faruqi, has filed a series of class-action suits demanding more information about how companies decide what to pay their senior executives. It seeks to prevent its targets from holding their annual meetings until the extra information turns up. One such suit, against Brocade Communications, a Californian company, forced the suspension of the annual meeting last February. Brocade quickly settled. Faruqi’s fees were $625,000. Several other companies, not wanting to delay their meetings, have settled similar suits.

Prof. Bainbridge is reminded of the specialized group of non-lawyers in Japan known as sokaiya, who extract money from target companies by threatening (among other things) to disrupt annual meetings.

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