mav·er·ick n.   One that refuses to abide by the dictates of or resists adherence to a group; a dissenter.  adj.  Being independent in thought and action or exhibiting such independence....

How appropriate that the NBA team owner Mark Cuban purchased years ago was called the "Mavericks."  Whether it is his unique style in owning the team, the ideas that he posts on his usually provocative Blog Maverick weblog, or the businesses that he pursues (which range from High Definition TV to the Swash), Cuban is himself a true Maverick (for the record, I'm a Wizards fan rooting for the Mavs for no particular reason, and I don't see how the refs could call that ticky-tack "foul" on Dirk at the end of OT to basically hand the game to the Heat last night).

So why is Cuban appearing on the pages of SLW today?  Let's back up a bit first to put this in context.  There have been many, high-profile insider trading cases brought through the years against people who traded based on non-public information concerning what would be imminently published in influential (and market-moving) newspapers or magazines.  The case against R. Foster Winans, the Wall Street Journal reporter who was sentenced to prison for his part in a scheme to trade stocks based on advance information about WSJ's "Heard on the Street" column, is a prime example.  And please don't even get me started on the Business Week cases.

These "trading in advance" cases, however, have always depended on a curious fact that allowed the SEC or prosecutor to allege that the "breach of duty" required to prove insider trading existed: that the publication whose information was stolen or misappropriated considered the information to be confidential and had a policy in place to protect that information pre-publication.  Indeed, I recall reading a court opinion in one of the Business Week criminal cases years ago and wondering to myself: "So if there was no confidentiality policy then this would be legal trading?"

Enter Mark Cuban.  As discussed in this article, Cuban is an investor in a new website called Sharesleuth.com that will employ investigative journalists to ferret out and blow the whistle on corporate fraud.  Certainly a worthy endeavor, but the story does not end there.  Cuban is quoted in the article as stating,  “there are a million ugly stories in the financial underground....  We plan on finding and sharing and profiting from them.”

Did you catch that last "profiting" part?    According to the article and Cuban's own blog, Cuban plans to buy and sell the stocks of the companies the Sharesleuth site writes about in advance of the publication of these Sharesleuth stories.  As Cuban writes in this post on his blog,

I just hired a young, award winning journalist to partner with me on a blog that will do nothing but try to uncover  corporate fraud. Young, energetic, fired up and damn the stuff  i have seen so far is good.  Will the payoff be about accounting gone bad ? Will it be a Skilling and Lay standing in front of the mike picture with accompanying text ? No chance.

If we found the enron scam, I would push to tell the story with a flash animation parody  of Skilling and Lay to Shaggies “It wasnt me” along side a Bethany McLean/Peter Elkind quality story. Just as the movie “Enron The Smartest Guys in the Room ” told the story in a detailed and entertaining way, our goal will be to do the same.

Business is an easy place for me to start because the fraud and sithlord wannabes  uncovered can not only create great stories of interest for the webite and HDNet World Report,  but also allow me to buy and the sell the stocks of the company.  A journalistic conflict you say ? Not any more. Not in this world. It will be fully disclosed and explained. This site is for the profit of its owners and we will buy and sell stocks that are discussed, before they are made available on the site. So make any decisions based on this information accordingly.

Facts are facts. Right is its own defense. If we can uncover companies whose stock is public and that can be bought or sold and that allows us to pay for more in depth research and effort. Im good with that.

So there you have it, SEC.  Sharesleuth will have no "confidentiality" policy about its information.  To the contrary, it will apparently have the opposite policy--the owners not only may but will trade on the publication's information in advance.  And they are telling you this up front.

I confess that I do not know whether this maverick "business plan" is legal or not.  If it is, I'm sure that Plotkin and Pajcin are kicking themselves right now for not including it in the Insider Trading, Inc. business plan.  I am very curious what insider trading experts such as Profs. Bainbridge, Ribstein or Henning would have to say about it.  Perhaps they will weigh in?

June 16, 2006

The Total Consciousness Settlement

For the class and plaintiffs' counsel, sometimes even the settlement of a securities class action can fall squarely into the "total consciousness" category we've tracked here for years now. 

The recently settled U.S. Liquids Securities Litigation, for instance, provides a tiny settlement fund of $600,000 (the company's bankruptcy and a lack of D&O coverage or other significant assets for the remaining defendants understandably appear to have put quite a damper on the case).  The Settlement Notice for the case, however, clarifies that neither the class nor plaintiffs' counsel will receive any of the $600,000.  Rather, the $600,000 "will be paid to the Sierra Club of Texas or other similar environmentally conscious organization...."

So the final scorecard in this case that has been actively litigated since August 1999:

Sierra Club--
   Cash: $600,000
  Non-cash: $0

Class members--
   Cash: $0
   Non-cash: Total consciousness on death bed

Plaintiffs' counsel--
   Cash: $0
   Non-cash: Total consciousness on death bed

As shareholder Carl Spackler might have put it:

So we settle the case after 7 years of litigation, and the court is going to stiff me!  And I say, hey!  Judge!  Hey! How about a little something, you know, for the effort? You know.  And he says oh, uh, there won't be any money for you or for plaintiffs' counsel, and the $600,000 settlement will be given to the Sierra Club as a donation.  But when you die--on your death bed--you will receive total consciousness.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

June 15, 2006

Switching to Feedburner

I've consolidated the RSS feeds for this blog into one Feedburner feed.  Your existing RSS feed should continue to work, however, and this change should be invisible to you.  That's a big "should," of course.

If you find that your RSS feed for Securities Litigation Watch is no longer working properly, kindly let me know in the comments or by email so I can try to fix anything I've broken!

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Weil, Gotshal & Manges' "2005 Securities Litigation Survey"

Load up the printer with 133 sheets of paper and print yourself a copy of Weil, Gotshal & Manges' 2005 Securities Litigation Survey.  The Survey provides an excellent and quite thorough review of recent securities litigation decisions, broken down by topic and circuit, and should be quite helpful to lawyers practicing in this area.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

June 14, 2006

Litigation About Litigation, Part II

It seemed the "litigation about litigation" trend that I thought I spotted and posted about last summer had run out of steam ... but wait!  What's this?  Justin Scheck of the The Recorder writes in this article that "a group of plaintiffs lawyers is being sued in L.A. federal court for breaching their fiduciary duty -- to a company whose board they were suing."

The article notes that the new case

grows out of long-running securities litigation against Tenet Healthcare, and the competing state and federal derivative suits against the Tenet board of directors that were filed on its heels.

Lawyers from the Arkansas plaintiff firm Cauley, Bowman, Carney & Williams filed a derivative suit in federal court around the same time a separate group of plaintiffs filed parallel state court claims.

That, Cauley lawyers argue, let Tenet's board, and its lawyers with Skadden, Arps, Slate, Meagher & Flom, engage in what plaintiffs lawyers call a reverse auction: a situation in which a defendant facing competing suits chooses to settle with the plaintiff asking for the smallest recovery, killing the costlier parallel claims.

In a complaint filed late last month in L.A. federal court, Cauley partner Joseph (Hank) Bates III says that after spending two years litigating derivative claims in federal court -- and even having detailed settlement talks -- Tenet decided the federal plaintiff's demands were too high, and turned to the state plaintiff, who quickly settled the case.

That deal jettisoned the federal suit, and resulted in $5 million in attorney fees for the plaintiffs firms Faruqi & Faruqi and Robbins Umeda & Fink.

This left the Cauley lawyers irate.

And these "irate" Cauley lawyers reportedly then sued the plaintiffs' lawyers that settled the state case.  So add this case to the pile of "litigation about litigation" cases we started collecting last summer.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

June 13, 2006

The Trifecta

As stated in this press release last week by the SEC, the disbursement of $750 million to Bristol-Myers Squibb shareholders began on Thursday, June 8.  This $750 million includes (1) $150 million BMS paid to settle the SEC's case against it, (2) $300 million BMS paid to settle a related securities class action, and (3) $300 million BMS paid in a deferred prosecution agreement with the U.S. Attorney's Office in New Jersey to address the company's criminal liability.  The combined $750 million in funds from the SEC case, civil action and criminal case is being distributed all at once to shareholders who filed a claim last year with the claims administrator--The Garden City Group--in the BMS securities class action settlement. 

As a result, we have what I believe to be the first claims filing "trifecta"--civil, SEC and criminal settlement money all rolled into one giant distribution.    Shareholders who filed a timely proof of claim in the BMS securities class action settlement will actually receive a share of $750 million, not just the $300 million from the civil settlement.  Conversely, shareholders who fail to file a claim in the BMS civil settlement miss out on the money from that settlement, as well as the additional $450 million from the SEC and criminal settlements.

The moral of the story, as usual:  File those claims.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

June 8, 2006

"Morgan Stanley's Recipe for Disaster"

I previously highlighted in this post a May 2005 WSJ article that I described as  "breaking down the three-ring-circus that was Morgan Stanley's effort to collect and produce responsive emails to Ronald Perelman in Perelman's high-profile lawsuit against MS."  Having just finished reading the outstanding article, "Morgan Stanley's Recipe for Disaster," by Susan Beck of the American Lawyer, I now know that the WSJ article was just the Cliffs Notes.  And Morgan Stanley's effort wasn't a three-ring circus, it was a train wreck. 

Beck provides the truly excruciating details of how this case played out and spiraled into despair for Morgan Stanley and its law firm, Kirkland & Ellis, in a deeply-researched, must-read article.  Indeed, three peaceful years after I left the practice of law (where I defended securities litigation cases like this), the details of this article make me squirm in some combination of empathy and bewilderment.

In the words of one of the Kirkland lawyers who had "parachuted" into the case late trying to minimize the damage, and who made the following plea to an infuriated court:

"I've been practicing for over 30 years, I've tried over 40 cases. And when you do that, you have your ups and downs. Time has a merciful way of somewhat diminishing the memories of painful experiences, but even trying to account for that, at least right now, I can't remember a more painful one than the ones that I've been going through in this case. I am embarrassed about this case and the problems that it's caused with the court. Among other things, I'm embarrassed for our firm, which I've always been very proud of. What will happen at our firm and what will happen to our firm as a result of this has already begun and will be handled promptly and decisively at the conclusion of this case, which is the proper time and place for that to occur. But as for the court, you know, I regret it. I apologize. No excuses."

Seriously--go read this article.

Permalink | Comments (1) | TrackBacks (0) | Print Article

Back To Top

Guest Post: "The Quiet Revolution in Attorneys' Fee Requests"

Wayne Schneider, General Counsel for the New York State Teachers' Retirement System, is back with another thoughtful guest post entitled "The Quiet Revolution in Attorneys’ Fee Requests in Federal Securities Class Actions - Why Isn’t It Less Quiet?" (His first guest post on a related topic is available here).

Mr. Schneider observes that public sector pension plans have worked hard to significantly reduce attorney fees in recent cases such as AOL Time Warner (7% ); Royal Ahold (15%); McKesson HBOC (7.8%); Raytheon (9%); and Waste Management (7.93%).  Accordingly, Mr. Schneider asks and sets out to answer the following question:

Although these fee requests, as a percentage of the settlement amounts, are astonishingly low compared to the typical fee requests in the days before the enactment of the Reform Act, why haven’t the successful efforts of public sector funds in reducing class action fees received greater attention and galvanized greater interest in seeing lower fee awards in the numerous cases in which public sector plans are not serving as lead plaintiffs?

The full post is available here.

Permalink | Comments (0) | TrackBacks (1) | Print Article

Back To Top

June 7, 2006

The Wisdom of Solomon

First it got its own worldwide society and then a World Championship tournament.  Now the game/sport/strategy tool of  "Rock, Paper, Scissors" has gone to the next level.  Yes, RPS has now received the judicial imprimatur of a federal court in Florida as a "new form of dispute resolution."

According to this order signed yesterday by the Hon. Gregory A. Presnell resolving a motion filed in a squabble between the parties over the location for a deposition,

Upon consideration of the Motion – the latest in a series of Gordian knots that the parties have been unable to untangle without enlisting the assistance of the federal courts – it is

ORDERED that said Motion is DENIED. Instead, the Court will fashion a new form of alternative dispute resolution, to wit: at 4:00 P.M. on Friday, June 30, 2006, counsel shall convene at a neutral site agreeable to both parties. If counsel cannot agree on a neutral site, they shall meet on the front steps of the Sam M. Gibbons U.S. Courthouse, 801 North Florida Ave., Tampa, Florida 33602. Each lawyer shall be entitled to be accompanied by one paralegal who shall act as an attendant and witness. At that time and location, counsel shall engage in one (1) game of “rock, paper, scissors.” The winner of this engagement shall be entitled to select the location for the 30(b)(6) deposition to be held somewhere in Hillsborough County during the period July 11-12, 2006....

(Which I suppose will ultimately lead to this attorney time sheet entry: "2.0 hours--Prepare for and engage in ADR proceedings at federal court").

Permalink | Comments (0) | TrackBacks (1) | Print Article

Back To Top

June 5, 2006

Mr. 10b-5 Daily Moves On to LeBoeuf Lamb

Lyle Roberts, author of the excellent blog The 10b-5 Daily, has left Wilson Sonsini in favor of a partnership with the DC office of the law firm LeBoeuf Lamb.  We learned about this from a post on his blog, of course (how else?).

Hopefully The 10b-5 Daily, which Lyle appears to have packed up and taken with him, will live on!

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

June 1, 2006

Are Corporate Execs Gaming Rule 10b5-1?

An article in yesterday's LA Times discusses a new study by professors at Stanford Business School that reportedly shows at least some statistical link between corporate executives' "planned" sales under Rule 10b5-1 and negative corporate news.  Under Rule 10b5-1, an affirmative defense to a charge of insider trading exists if the person making the purchase or sale in question can demonstrate that "before becoming aware of the [inside] information, the person had ... adopted a written plan for trading securities" and the trading was done pursuant to the terms of the plan.

Since its enactment six years ago, Rule 10b5-1 has become a popular and heavily-relied upon tool for executives who wish to sell stock over time without being accused (hopefully) of insider trading.  The idea is that an executive with no inside information at the time he or she creates the plan can lay out a schedule for selling stock and then strictly follow that plan--even if they later come into possession of inside information.

The Stanford study reportedly showed that

On average, executives participating in the programs initiated 10.4 percent of their stock sales before a negative earnings report that would send share prices lower. Sales were initiated only 5.2 percent of the time in advance of positive earnings news.

If the sales pattern were truly random, one would expect those percentages to be about equal, Stanford business professor Alan D. Jagolinzer wrote in the report, which is undergoing peer review. The study examined stock sales at 191 companies.

The article further notes that while Jagolinzer didn't find any conclusive evidence that executives were gaming the system, he "speculated that executives could be timing the release of corporate news that might have an effect on their stock sales, given that insiders know when their trades are scheduled to occur."

I suppose that "release timing" is theoretically possible in some small subset of cases.  Rule 10b-5 plans are very widespread among corporate executives, however, and it seems to me that the vast majority of executives do not control the timing of the release of negative news in their companies.  In addition, it is quite likely that if multiple executives at a corporation had trading plans, the dates and relative amounts of the planned sales of these executives would vary so widely that a conspiracy to time the release with any particular date would be ineffective (and pretty far-fetched). 

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top