Wednesday, March 01, 2006

Two to Five is a Crowd

Yep, it’s official. Judge Richard Owen (S.D.N.Y.) (of recent reverse psychology fame) doesn’t want groups. Groups of proposed lead plaintiffs that is. You see, in the battle between five movants for the lead plaintiff spot in the Doral securities class action, Judge Owen said “with the exception of the 1199SEIU Fund, which is a single-party movant, the putative plaintiffs have aggregated themselves into ‘groups’ of otherwise unrelated investors, and their collective financial interest is thus calculated. Nothing before this Court indicates that these random cumulations of plaintiffs are anything more than an effort to achieve the highest possible ‘financial interest’ figure to be chosen, which, however, also cumulates case control problems and rival disagreements, resulting in delay and increased expense. I reject this approach as essentially inconsistent with the intention of the PSLRA.”

He pointed out that “by allowing attorneys to designate otherwise unrelated plaintiffs as a purported ‘group,’ and by allowing unrelated groups to aggregate investments in an effort to generate the ‘largest financial interest,’ a strong possibility emerges that lawyers will form such groups to manipulate the selection process, and thereby gain control of the litigation.”

So Judge Owen selected the movant (who was part of a proposed group by the way) with the largest loss, the West Virginia Investment Management Board, to be the sole lead plaintiff.

You can read In re Doral, issued February 8, 2006, at 2006 U.S. Dist. LEXIS 7189.

Nugget: “Moreover, the statute itself states simply that the most adequate plaintiff ‘is the person or group of persons,’ deemed to have the largest financial interest in the relief sought -- but it does not say ‘groups’ of persons, which obviously could easily result in substantial multiplication of costs and consequent diminution of stockholder recovery.”

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