On Friday, plaintiffs’ lawyers at Pomerantz Haudek Grossman & Gross filed the latest class action related to banks’ alleged manipulation of the London interbank offered rate, or Libor, an interest-rate benchmark that affects trillions of dollars of securities. The new complaint, filed in federal court in Manhattan on behalf of Berkshire Bank, asserts claims for all New York financial institutions that “originated, purchased outright or purchased a participation in” loans paying interest rates pegged to Libor.
Karen Seymour had high hopes for Sarbanes-Oxley. Ten years ago, when the law was passed, Seymour was chief of the criminal division of the U.S. Attorney’s Office in Manhattan, which is regarded as the country’s most prolific prosecutor of financial crimes. When she read Sarbanes-Oxley’s certification provisions, which specify that CEOs and CFOs can be sent to prison for falsely certifying corporate financial reports and reports on internal controls, she thought she finally had a way of getting at wrongdoing by top officials. “I thought it was going to be a really good tool,” she said in an interview this week. “But it never really developed.”
Bernstein Litowitz Berger & Grossmann and Robbins Geller Rudman & Dowd are the most successful members of the securities class action bar. Check the ISS rankings for 2011: Bernstein Litowitz is in the top slot, with $1.37 billion in settlements last year; Robbins Geller is second, with $1.14 billion. Those total dollars, though, mask the very different business models of the two firms, which are reflected in two other numbers on the ISS chart. Bernstein Litowitz settled only 13 cases in 2011, for an average settlement of about $106 million. By contrast, Robbins Geller settled 28 – more than twice as many as Bernstein Litowitz and 12 more than any other leading class action firm. Robbins Geller’s average settlement was about $49 million, less than any firm in the top 10 except Milberg. Both models work, or you wouldn’t always see Bernstein Litowitz and Robbins Geller at the top of the ISS rankings, but the firms are the yin and yang of securities class action litigation.
Last Friday, when lawyers from three firms – Robins, Kaplan, Miller & Ciresi, Robbins Geller Rudman & Dowd and Berger & Montague – asked to withdraw as counsel to the National Association of Convenience Stores in the proposed $7 billion antitrust class action settlement with Visa and MasterCard, they said that they only learned of NACS’s opposition to the deal right before the settlement was filed with U.S. District Judge John Gleeson in Brooklyn. That’s not what NACS’s new lawyers at Constantine Cannon said in a brief filed Tuesday night. If there was any doubt that there’s going to be a battle royal over this settlement, the new brief should remove it.
It is the rare securities fraud class action that goes to trial. Typically, once shareholders have survived a motion to dismiss and won certification of a class, defendants pull out their wallets. Settlements may not come until summary judgment motions are decided and a mediator has entered the case, but they are a near certainty for class actions that get past the preliminaries. Only a vanishingly small number of securities fraud cases go to trial.
Late last month, without any fanfare, a New York appeals court issued a terse, one-page ruling that upheld the dismissal of Walnut Place’s breach-of-contract suit against Countrywide, Bank of America and Countrywide’s mortgage-backed securitization trustee, Bank of New York Mellon. It was an abrupt end for what was once a promising attempt at vindication for an MBS investor. It was also a huge setback for Walnut, its lawyers at Grais & Ellsworth and all the other Countrywide MBS investors who were counting on litigation against BofA as an alternative to the bank’s proposed $8.5 billion global settlement of breach-of-contract, or put-back, claims.
In the mid-1950s, a small-time New York publisher named Samuel Roth was indicted for distributing books, magazines, photos and advertising circulars that were accused of being “obscene, lewd, lascivious, filthy and of an indecent character.” The precise content of Roth’s offensive mailings has been lost to history, although it’s probably tame by modern standards. Nevertheless, a federal jury in New York concluded that the publisher violated a law barring distribution of pornography, and the court sentenced Roth to five years in prison. The case eventually made its way to the U.S. Supreme Court. In 1957, the justices upheld Roth’s conviction, in a landmark ruling that obscenity is not entitled to First Amendment protection. The court said that the law had always assumed sexual material is not covered by the Constitution’s free speech provision, so its ruling merely codified that assumption. The Roth decision placed obscenity in the tiny category of exceptions to First Amendment freedom, along with incitement and fighting words.
It was big news last September when Standard & Poor’s disclosed that it had received a Wells Notice in connection with the Securities and Exchange Commission’s investigation of the $1.6 billion Delphinus collateralized debt obligation. The SEC sends Wells Notices to potential targets, not mere witnesses, so there was a lot of speculation that the Delphinus investigation might be the government’s long-awaited attempt to hold a rating agency accountable for colluding with a bank to misrepresent the quality of a mortgage-backed instrument.
Reporting on the implications of the bond insurer Syncora’s $375 million settlement with Bank of America has been a Rashomon experience: Everyone I talked to had something different to say about what drove Tuesday’s settlement and what it means for MBIA, which has been litigating its own mortgage-backed securities breach-of-contract claims in parallel with Syncora. So if you were expecting a clear-cut answer on whether the Syncora settlement is good or bad for MBIA, you’re going to be disappointed. Syncora and MBIA were both litigating put-back claims against Countrywide and BofA before New York State Supreme Court Justice Eileen Bransten, who has delivered important simultaneous rulings for the bond insurers. But the similarities between Syncora and MBIA end in Bransten’s courtroom. When it comes to negotiations with BofA, they’re in very different postures.
There’s an antitrust conspiracy in Delaware Chancery Court. Chancellor Leo Strine and Vice Chancellor Travis Laster are engaged in a cooperative effort to restrain the trade of shareholder lawyers who file derivative suits without obtaining books and records discovery. I’ve told you about Laster’s decision in the Allergan case, in which he found that shareholders who rushed to sue in California didn’t adequately represent the corporation (the nominal plaintiff in derivative litigation); and about Laster’s follow-up explanation that “diligent plaintiffs should get to litigate,” when he certified the case for appeal. On Monday, Strine echoed Laster when he refused to appoint a lead plaintiff in the derivative litigation over Wal-Mart’s alleged bribes in Mexico.