Securities Fraud
Class Actions
“Most adequate plaintiff”
(last updated 17 Apr 12)
Securities Fraud Action
Rule 10b-5
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•
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Transactional nexus
Plaintiff
Defendant
Elements
Procedure
… litigation under Rule 10b-5
presents a danger of
vexatiousness …
Blue Chip Stamps (US 1975)
Private Securities Litigation Reform Act
Solve problem of securities fraud
class action “strike suits”
Prof. Elliott Weiss
Univ of Arizona
Private Securities Litigation Reform Act
Lead plaintiff
• Notice of lawsuit to class
members
• Appointment of lead plaintiff
–
–
Presumption: “largest financial
interest”
Rebut: “Not adequately represent
class”
• Selection of lead counsel
–
–
By lead plaintiff
Subject to approval of court
Prof. Elliott Weiss
Univ of Arizona
In re Cendant Corp. Litigation
(3d Cir 2001)
Hold SHs
Buy SHs
CalPERS
Group
Milberg
Weiss
What are the issues?
In re Cendant Corp. Litigation
(3d Cir 2001)
Questions:
•
Hold SHs
Buy SHs
CalPERS
Group
Who is the lead plaintiff?
– What is presumption? Can group
be lead Pl?
– Is Pl typical if “holding” Sh (class of
“buying” SHs)?
– What determines adequacy? Lowrate counsel?
– How rebut presumption?
Milberg
Weiss
•
How is class counsel chosen?
– Can lead Pl choose more expensive
law firm?
– Must Lead Pl conduct auction? Can
trial court?
– Is “pay to play” politics OK?
•
How are atty fees set?
– Presumption for fees set by
agreement with lead Pl?
– What is % method / lodestar
method?
– Can court re-compute fees?
PSLRA
Not later than 90 days after the
date on which a notice [of class
action] the court shall consider
any motion made by a purported
class member in response to
the notice, … and shall appoint
as lead plaintiff the member or
members of the purported
plaintiff class that the court
determines to be most capable
of adequately representing the
interests of class members
(hereafter in this paragraph
referred to as the "most
adequate plaintiff")
PSLRA
… the court shall adopt a
presumption that the most adequate
plaintiff in any private action arising
under this title is the person or group
of persons that-•
•
•
has either filed the complaint or
made a motion in response to a
notice under subparagraph (A)(i);
in the determination of the court, has
the largest financial interest in the
relief sought by the class; and
otherwise satisfies the requirements
of Rule 23 of the Federal Rules of
Civil Procedure.
PSLRA
The presumption described in
subclause (I) may be rebutted
only upon proof by a member of
the purported plaintiff class that
the presumptively most adequate
plaintiff-• will not fairly and adequately
protect the interests of the class;
or
• is subject to unique defenses
that render such plaintiff
incapable of adequately
representing the class.
PSLRA
Selection of lead counsel
The most adequate plaintiff shall,
subject to the approval of the court,
select and retain counsel to
represent the class.
Restrictions on professional plaintiffs
Except as the court may otherwise
permit, consistent with the purposes
of this section, a person may be a
lead plaintiff, or an officer, director,
or fiduciary of a lead plaintiff, in no
more than 5 securities class actions
brought as plaintiff class actions
pursuant to the Federal Rules of
Civil Procedure during any 3-year
period.
Netflix case
[click here]
(see Stanford clearinghouse)
The end