Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
I found this on the LU board. It pertains to NSPR, too.

C.

-------------------------------------------------------
Warning: long post.

In view of recent lawsuits against LU, some may find this an interesting read. I was especially taken by the last paragraph.

Starts -

Class-action suits that shareholders file against companies they
hold stock in peaked in 1998 and are coming on strong again
this year. But shareholders who think they'll recoup lost
investments are in for a surprise.

By ROBERT TRIGAUX

© St. Petersburg Times, published February 14, 2000


John Sykes just faced a modern corporate rite of passage. It wasn't pretty.

His company, Tampa's Sykes Enterprises, last Monday restated its 1999
earnings downward but admitted it had unresolved issues with its auditors.
Speaking that morning to irate analysts and investors -- a teleconference
called "grisly" by one participant -- CEO Sykes wanted desperately to explain
why the financial numbers of the company he founded did not add up.

But the normally chatty Sykes could not. With
its stock in free fall, Sykes Enterprises was
deluged by class-action lawsuits claiming
shareholders were misled and defrauded. Under strict orders from his
attorneys to keep mum, Sykes could only apologize to his teleconference
listeners.

"I know that is hard to understand," a distressed Sykes said. "You certainly
have known us for a long time, and you know that we have always been
straightforward and honest."

Sykes is the latest unwilling executive to join a growing club of companies
nailed by the explosion of shareholder class-action lawsuits. Since 1995,
nearly 800 companies nationwide have been targeted by class actions alleging
securities fraud, misleading information and funny accounting.

These companies know the class-action drill by heart.

Strike 1: Quarterly earnings slip and fail to meet analyst forecasts.

Strike 2: Company's stock price falls when earnings expectations not met.

Strike 3: Law firm is contacted by or finds shareholder plaintiff, looks back at
rosier earnings statements by company and files class-action for securities
fraud and misrepresentation.

Many companies like Sykes must deal with multiple class-action suits. One
besieged company, New Jersey's Cendant Corp., became the Mother of All
Class Actions when more than 70 lawsuits were filed claiming the franchiser
of Ramada hotels and Avis rental cars had cooked its financial books for
years. Cendant settled most of those suits for a staggering $2.83-billion.

To be sure, 90 to 95 percent of class actions never go to trial. Many are
dismissed. But many more are settled by companies that chalk up litigation as
just another business cost to pass on to their customers.

Unfortunately, experts say, the booming business of class actions often ends
up costing everybody more. A company's litigation expenses often are
passed on to the consumer. And plaintiffs rarely win big sums. In most
settlements, the lawyers end up with the lion's share of the money.

Plaintiffs tend to win about 10 percent of the damages they seek, says Joseph
A. Grundfest, a Stanford University law professor and former Securities and
Exchange commissioner. Lawyers get as much as 30 percent off the top of a
class action.

That's not to say all class actions are frivolous or driven by money.

"We want securities fraud lawsuits because they help deter fraud," says
Michael A. Perino, who has tracked securities class actions and teaches at St.
John's Law School in New York. "But we don't want so many that it's easy
to bring lawsuits against companies that do not commit fraud. What we need
to ask is: Are we at a place of reasonable policy compromise?"

•••

The relentless press of class actions against corporate America wasn't
supposed to happen. Congress in 1995 passed reforms meant to raise the
litigation bar and curtail unfounded class actions.

Instead, the pace accelerated for several reasons:

* Several big law firms such as New York's Milberg Weiss Bershad Hynes
& Lerach or West Palm Beach's Burt & Pucillo became extremely successful
by specializing in shareholder class actions and now dominate that niche of
law with the skill and speed of highly trained SWAT teams.

* The booming stock market and strong merger activity in the late 1990s
created prime conditions for class-action lawsuits. The IPO boom also created
many new public companies characterized by rapid growth, a limited product
line and a dependence upon stock option compensation of executives that
made them more prone to getting in trouble under federal securities laws.

* Given Wall Street's willingness to punish companies that do not meet their
financial goals, corporations increasingly are under pressure to stretch
accounting rules or inflate investor perceptions. The result: a rash of
companies in the recent years forced by auditors to restate earnings from
earlier periods.

* More people than ever are invested in the stock market and, as a result,
more likely to sue in the event of an investment loss.

Charles Elson, a Stetson Law School professor and expert in corporate
governance, argues that if class actions served their real purpose -- deterring
companies from committing fraud -- then the volume of lawsuits should be
declining.

"But there are no signs that number is coming down," Elson said. Since most
class actions are settled by companies and never end up in court, Elson says
many suits get filed with a quick settlement fee in mind.

Shareholder class-action suits hit a high in federal courts in 1998 when 244
cases were filed. (Class actions are discouraged in state courts.) The federal
number dipped last year to 216 cases. But in the first six weeks of 2000,
class actions have hit a torrid pace. Just last week:

* Friday: Philadelphia law firm Barrack, Rodos & Bacine filed a class-action
suit against California software developer Legato Systems Inc.

* Thursday: Stull, Stull & Brody of New York said it sued Michigan's Lason
Inc., which converts text documents into electronic formats.

* Wednesday: Boca Raton's Shepherd & Geller filed a class-action suit
against SunStar Healthcare Inc. of Florida.

* Tuesday: Philadelphia's Spector, Roseman & Kodroff sued Sunterra
Corp., an Orlando vacation ownership company with 89 resorts in North
America, Europe, the Caribbean and Japan.

* Monday: West Palm Beach's Desmond Law Firm said it was seeking class
actions against companies ranging from network security firm V-One Corp.
in Germantown, Md., to telecom giant Lucent Technologies in Murray Hill,
N.J.

•••

If there's a 'king' of securities class-action lawsuits, William Lerach of
Milberg Weiss Bershad Hynes & Lerach may be it. With more than 300 suits
over the past several years under his belt, he's become a legal legend.

In 1995, for example, a band of carolers paraded around a San Diego, Calif.,
courthouse, singing songs (He sues if you've been bad or good . . .) just to
mock the shareholder king.

Lerach, who earns close to $12-million a year, described his firm's strategy
for choosing what company to sue in remarks at a recent legal seminar. If a
company's stock price declines, he starts hunting for possible cover-ups.

"If you can't figure out a crisp, clear economic motive to deceive, the case is
not going to have any appeal. But the motives can be all over the place,"
Lerach said. Does a company need a high stock price to pay for an acquisition
spree? Was there insider trading before the stock fell?

As part of the 1995 reform act to trim litigation, judges must appoint the
investor alleging the largest losses as lead plaintiff in a class action. That rule
tends to favor institutional investors. To counter that, Milberg Weiss' Lerach
tries to attract and aggregate numerous individual shareholders into one group
and argue the group suffered the largest loss. (The lead plaintiff can control
the class action and tends to get the biggest rewards from a settlement.)

To help its cause and recruit shareholders to its class actions, Milberg Weiss
markets its lawsuits vigorously. The law firm regularly publishes a list of the
companies it has sued on wire services tracked by the media. And like many
law firms, Milberg Weiss has an Internet Web site devoted to information
about its securities class-action suits.

Another way the 1995 law sought to trim weak class-action lawsuits was to
reduce the role of "professional plaintiffs" -- small shareholders who crop up
as plaintiffs in numerous legal actions. The law prohibits an individual from
serving as a lead plaintiff in more than five cases in a three-year period.

In three class actions filed in recent weeks against Tampa's Sykes
Enterprises, plaintiff Richard Miller says he is not involved in any other
class-action litigation. But in two separate suits, plaintiffs Katherine Piven
and James Biglan each acknowledge being involved in two other class
actions.

Still, that's a big step up from how some earlier plaintiffs played the game.

One lawyer, San Francisco's Tower Snow, recently recalled his favorite
professional plaintiff: a Florida retiree, now deceased. Snow called him "the
most defrauded man on Earth" for his role as a plaintiff in an estimated 120
securities lawsuits.

Ends.

After reading this, is there anyone who honestly believes these lawsuits are REALLY in the interests of the shareholders???
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.