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