Congressional Hearings on Plaintiff's Attorneys

With the Milberg Weiss indictment, Congress is holding hearings to amend the Private Securities Litigation Reform Act, to include provisions regarding "attorney accountability." Once again, Congress and regulators are attempting to address a problem by creating new laws, when the ones that we already have are not being enforced.

I understand that Congress is comprised of politicians, who feel this need to appear to be "doing something" when a problem arises, but enacting new rules and regulations is simply a feel-good solution, and often has unintended consequences.

Witness Sarbanes Oxley - a hastily and poorly drafted series of statues and regulations has impacted the financial markets far beyond the original issue, and created new rules and regulations when the existing ones were just fine - they simply were not being enforced.

Now, this amendment, to address the Milberg Weiss issue. Why is there a need for more legislation? The individuals accused of wrongdoing have been INDICTED! If the indictments are correct, these individuals will go to prison. Is there a need for another law to make illegal that which is already illegal?

For those interested, the proposed bill, entitled the "Securities Litigation Attorney Accountability and Transparency Act," would add "loser pays" provisions, compel disclosure of conflicts (we already have that rule) and add "competitive bidding" to the process of selecting lead plaintiff's counsel.

I am a defense attorney, and have participated in the defense of a number of class actions. I am certainly not a fan of class actions, but this bill is over the top.

Congress is trying to make the appointment of the lead plaintiff's attorney subject to competitive bidding? Have they lost their minds? First, there is nothing more important in litigation than the relationship between an attorney and his client. While it is certainly true that a class action plaintiff's attorney represents more than the lead plaintiff, it is that relationship that drives the litigation. The court is now going to put out to bid who represents the lead plaintiff?

Additionally, this is not some pork barrel construction project, where a large part of the costs for materials and labor are fixed. This is often high end securities litigation, where you do get what you pay for. Some of these class action law firms spend millions of dollars and years of work on these cases. This is not something that any law firm can handle. It requires expertise, skill and experience.

The 10b-5 Daily has the links to the bill, and the prepared remarks. The Secretary of Massachusetts, William Galvin, an outspoken investor advocate, and Professor James Cox of Duke University School of Law, were two of the four witnesses, and largely opposed the bill. For those of you interested in theory and practical aspects of class action litigation, their testimony is an interesting overview of recent events in class action litigation.

You Leaving Me?—Mother Merrill Asks Some Top Producers If They’re Fixin’ to Depart

You Leaving Me?—Mother Merrill Asks Some Top Producers If They’re Fixin’ to Depart: "If you are one of Merrill Lynch’s best financial consultants and you have been flirting with other brokerages or financial-planning firms, watch out: You could get hit with a Merrill loyalty statement.

Merrill Lynch acknowledged that it has asked some of its best producers -- ones it suspects are actively pursuing new jobs -- to answer a series of questions about whether they are in talks—or have had talks—with other companies about leaving. Further, the questionnaire asks if the FCs have already given a commitment to join a rival financial-services firm. The firm says it has produced the two-page document entitled, Present Employee Interview Questionnaire, in rare cases and only when the firm had proof of an advisor’s contact with rivals"

This is interesting. If you say yes, you get canned. If you mislead them and say no, you get sued. It is probably not much of a lawsuit, but the first Merrill rep to get sued for lying on this "Loyalty Statement" is going to have an interesting case.

Appellate Court Strikes Hedge Fund Registration Rule

The United States Court of Appeals for the DC Circuit has stricken the SEC's rule which required the registration of hedge fund managers under the Investment Advisers Act of 1940. The rule, which was ill concieved and premised upon questionable factual findings, caused approximately 1,000 hedge fund managers to register under the Act.

The ruling now throws into question those registrations, and managers are going to have to decide whether to withdraw their registrations, or to remain registered pending an SEC response to the ruling.

Of Politics, Regulation and Hedge Funds

The NYTimes has a piece titled S.E.C. Is Reported to Be Examining a Big Hedge Fund which addresses an alleged investigation by the SEC into the trades of Pequot Capital Management,a $7 billion fund overseen by Arthur J. Samberg. However, the article is really about a fired SEC attorney who claims that the Commission terminated his employment during the course of his investigation of Pequot. One of his allegations is that he was fired because he wanted to subpoena John Mack, the chief executive of Morgan Stanley.

Quattrone Overview

Ann Woolner at Bloomberg.com has an interesting analysis of the Quattrone legal battles

Option Investigations Continue to Expand

The Associated Press is reporting that the parent of job search site Monster.com was subpoenaed on Monday by the U.S. attorney for the Southern District of New York over the timing of stock options grants to executives.

This investigation, being conducted by multiple agencies, is increasingly causing concern. While the mere fact that documents have been requested means nothing, and in reality a criminal investigation also means nothing, there are certainly a significant number of companies who are involved.

While it may well turn out that these firms did not backdate options, and that the pricing and issuance of options was properly reviewed and approved by attorneys and accountants, these multiple investigations cannot be good for the shareholders of these companies, or the markets as a whole.

In Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D

In Switch, Company Sues NASD For Fraud, Says NASD Aided FBI In Creating Bogus B/D: "In an unlikely lawsuit, a private company is suing the NASD for securities fraud. A small cancer-research firm called Shimoda-Atlantic, based in Bentonville, Arkansas, filed a lawsuit against the NASD on Wednesday because, the company says, the self-regulatory organization helped several men, allegedly employed by the FBI, to create and perpetrate a fraudulent securities scheme against the company "

Alito - Scalia Clash

When Justice Alito was confirmed as a Supreme Court Justice, most observers (on both sides of the aisle) assumed/feared/hoped/expected that Justice Alito would join Justice Scalia and move the Court in a more conservative direction. We maybe seeing the start of another example of the dangers of expecting too much from judicial appointees.

Law.com's article, linked above, discusses an small, but perhaps important, rift between the two Justices, with Justice Scalia refusing to join in an opinion written by Justice Alito because of the use of legislative history in the opinion, which Justice Scalia does not believe is an appropriate source for interpreting a statute.

As pointed out by Law.com, Alito could have easily appeased Justice Scalia and simply deleted the paragraph that Justice Scalia found so offensive, and there would not have been a concurring opinion. But Justice Alito chose to keep the paragraph, and the public rift between the two Justices.

Not earth shattering, and perhaps not significant, but it is always good to see the new kid on the team flex his muscle a bit.

NASD Dismisses Quattrone Case

Frank Quattrone, the former Credit Suisse Group technology banker, who handled some of the hottest Internet deals, said the NASD dropped its case accusing him of improperly awarding shares in initial public offerings during the Internet boom.

The end of the NASD cases eliminates the remaining legal barrier for a return to the securities industry by Quattrone, who was paid $120 million in 2000 as the top banker promoting Internet stocks. According to Bloomberg, Quattrone will not re-enter the business.

Feds - NYC Has No National Icons to Protect

In connection with the 40% cut in funds to New York City for homeland security, the federal government apparently feels that New York City is not a prime terrorist threat, finding that the city had just four major financial assets at risk, and no national monuments or icons.

Financial capital of the world, the New York Stock Exchange, the American Stock Exchange, the Federal Reserve, (heck, the entire Wall Street area), the Empire State Building, the Chrysler Building, Yankee Stadium, the United Nations, Ellis Island, the Staute of Liberty.

No national icons in New York City?