May 20, 2012

EIGHTH CIRCUIT RULES NOVASTAR COMPLAINT FAILED TO PLEAD FALSE & MISLEADING STATEMENTS WITH SPECIFICITY

September 8, 2009 By

In In re: 2007 Novastar Financial Inc., Securities Litigation, No. 08-2452 (8th Cir. Sept. 1, 2009), the Eighth Circuit recently addressed the issued of whether the plaintiffs’ complaint satisfied the pleading requirements of the PSLRA which requires a plaintiff to “specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading.”

In Novastar, the lead plaintiff filed a 104 page consolidated complaint. The consolidated complaint included a thirty-six page section which “reproduce[d], either in their entirety or lengthy excerpts from, press releases, SEC filings, and transcripts of conference calls made by Novastar and the individual defendants during the class period.” Noting that the “PSLRA’s heightened pleading requirements compel the plaintiff to ‘plead the ‘who, what, when, where and how’ of the misleading statements or omissions,’” the Eighth Circuit stated:

[Lead Plaintiff] also argues that the district court erred in concluding that his complaint failed to specify the reasons why the allegedly misleading statements were false or misleading. However, absent an indication of precisely what statements [Lead Plaintiff] alleges to be misleading, it is difficult, if not impossible, to determine whether the complaint adequately specified why each statement was misleading. Even if we were able to identify specific statements that were alleged to be misleading, we would still conclude that [Lead Plaintiff's] complaint failed to specify the reasons why each statement was false or misleading. The complaint does not provide any link between an alleged misleading statement and specific factual allegations demonstrating the reasons why the statement was false or misleading, as the PSLRA requires. See Cerner, 425 F.3d at 1083; 15 U.S.C. § 78u-4(b)(1). Instead, the complaint merely contains “[a] litany of alleged false statements, unaccompanied by the pleading of specific facts indicating why those statements were false.”

Filed Under: Class Actions, Exchange Act, PSLRA Tagged With: , , , , , , , , , , , , ,

EASTERN DISTRICT OF PENNSYLVANIA JUDGE DISMISSES NUTRISYSTEM SECURITIES LITIGATION

September 4, 2009 By

On August 31, 2009, United States District Judge Mary A. McLaughlin dismissed the the complaint filed in the In re Nutrisystem Securities Litigation, No. 07-4215 (E.D. Pa.). In this matter plaintiffs alleged that the defendants made false and misleading statements concerning Nutrisystem’s financial health in the face of competition from Alli, an over-the-counter anti-obesity drug produced by GlaxoSmithKline.

Applying the U.S. Supreme Court’s decision in Tellabs v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), the court found that the

allegations of actual knowledge, contructive knowledge on a ‘core business’ theory ["which allows for scienter to be pleaded through the combination of an officer's position within the company and fraud allegations related to the corporation's core business"], and self-interested stock sales by directors” in this matter failed to “raise an inference of scienter that is strong in light of competing nonculpable inferences.

See the order here.

Filed Under: Class Actions, Exchange Act, PSLRA, Securites Fraud Tagged With: , , , , , , , , , , , , , , , , , ,

RHODE ISLAND TREASURER RETURNS CONTRIBUTIONS AMID PAY-TO-PLAY ISSUE

August 20, 2009 By

On August 20, 2009, The Providence Journal reported that Rhode Island’s Treasurer returned campaign contributions “amid a Providence Journal inquiry of donations from employees at law firms awarded state business under Caprio’s watch.” According to the paper, the move “came the day after The Journal met with his chief of staff at length about the selection of firms to help monitor or manage Rhode Island’s $6.4-billion pension fund.” The Journal also noted that the Treasurer “acknowledged the perception of a conflict with donations from eight out-of-state firms that specialize in class-action securities lawsuits.” (Emphasis added).

Filed Under: Class Actions, Pay to Play, SEC Tagged With: , , , , , , , , ,

BANK OF AMERICA TO PAY $33 MILLION FINE TO SEC IN CONNECTION WITH MERRILL MERGER

August 3, 2009 By

On August 3, 2009, the Securities and Exchange Commission (“SEC”) announced that it was entering into a Consent Judgement with Bank of America Corporation (“BoA” or the “Company”) in connection with the Company’s issuance of a joint proxy statement filed with the SEC as to BoA’s acquisition on Merrill Lynch & Co., Inc. (“Merrill”) on January 1, 2009.

According to the SEC’s Complaint, on November 3, 2008, in a joint proxy statement soliciting votes from BoA and Merrill shareholders for the merger of the two companies. In the proxy statement, BoA represented that Merrill had agreed to refrain from paying year-end performances bonuses or other discretionary incentive compensation to its executives prior to the closing of the merger under BoA gave its consent. However, the SEC alleges that this representation was false insofar as it was contrary to the merger agreement which allowed Merrill to pay up to $5.8 billion, or approximately 12% of the total consideration of the $50 billion deal. Although the merger agreement was included as an exhibit to the joint proxy agreement distributed to 283,000 shareholders of both companies, the provision to allow Merrill to pay the discretionary bonuses was in a separate schedule of the merger agreement which was “omitted from the proxy statement and whose contents were never disclosed before the shareholders’ voted on the merger on December 5, 2008.” As a result, the SEC contends that BoA violated Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) and Rule 14a-9, 17 C.F.R. §240.14a-9, promulgated thereunder.

In settling the SEC’s charges, BoA neither admitted nor denied the allegations and consented to the entry of a judgment that permanently enjoins BoA from violating the proxy solicitation rules: Section 14(a) of the Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. BoA also agreed to pay a $33 million financial penalty.

S.E.C. v. Bank of America Corp., Case No. 09 Civ. 6829 (S.D.N.Y.) (Rakoff, J.).

A class action regarding BoA’s disclosures in the Merrill merger is currently pending in the Southern District of New York before District Judge Denny Chin. On June 30, 2009, Judge Chin entered an Order organizing the class litigation.

In re Bank of America Corp. Securities, Derivative and ERISA Litigation, Case No. 09 MDL 2058, No. 09 Civ. 580 (S.D.N.Y.) (Chin, J.)

Filed Under: Class Actions, Exchange Act, Mergers & Acquisitions, SEC Tagged With: , , , , , , , , , , , , , , , , , , , , , , , , , ,

NERA REPORTS SAYS 20% OF 2009 CLASS ACTION FILINGS RELATED TO MADOFF AND OTHER PONZI SCHEMES

July 28, 2009 By

A mid-year report by NERA Economic Consulting noted that class action filings related to Madoff and other Ponzi schemes contributed to 20% of the 2009 filings. Further, the report noted – not surprisingly – that approximately 67% of the 2009 filings named at least one financial company as a primary or co-defendant. The report also noted that “of cases resolved after the Supreme Court’s decision in Dura in April 2005, which required that plaintiffs’ show loss causation related to a corrective disclosure of an alleged misstatement, a higher fraction have been dismissed.”

Filed Under: Class Actions, Ponzi Scheme Tagged With: , , , , , , , , ,

SECURITIES CLASS ACTION FILINGS FALL 22.3%

July 25, 2009 By

According to a report by Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, the number of federal securities class action filings fell significantly during the first half of 2009. In the first half of 2009 there were 87 filings represented a 22.3 percent decrease in activity from the 112 filings in each half of 2008. Further, during the second quarter of 2009 there were only 35 filings which was the lowest quarterly total since the first quarter of 2007. According to the report, financial services firms are defendants in 66.7 percent of these filings, an increase over the 50.0 percent share of all filings in 2008.

Filed Under: Class Actions, PSLRA Tagged With: , , , ,

NO SEC INVESTIGATION OF LAW FIRMS ENGAGED IN “PAY TO PLAY” AT PUBLIC PENSION FUNDS

July 24, 2009 By

On June 6, 2009, Utah Senator Robert Bennett wrote a letter requesting that the SEC investigate whether the campaign contributions made by law firms and attorneys were leading to the retention of such firms and attorneys as counsel to public pension funds in lucrative class action securities litigation.

According to Senator Bennett’s letter, “Numerous press reports have shown that state officials with control over pension fund decisions, or with the power to appoint those who make decisions, receive very substantial campaign contributions from out-of-state law firms with no apparent interest in their election – other than the possibility of being chosen as the pension fund’s lawyer in a class action.”

According to the WSJ Law Blog, Chairman of the SEC, Mary Schiavo responded on July 14, 2009, declining to engage in the requested investigation stating, among other things, that “the Commission’s review of play-to-play practices involving public pension funds relates to fund managers and other financial firms subject to Commission regulation under the securities laws. In light of our statutory mandate, our ongoing review necessarily focuses on those entities and conduct that fall squarely within our jurisdiction.”

Filed Under: Class Actions, Pension Funds, SEC Tagged With: , , , , , ,
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