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Securities Class Action - Weekly News

June 27, 2006

Pensions and Investments, June 12, 2006
Money Some Don't Want
By: Barry B. Burr
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EXCERPT: Only 28% of institutional investors with provable losses on average file claims in securities class-action settlements, according to empirical research by two academics. These investors are letting billions of dollars ``slip through their fingers'' by not filing claims, James D. Cox, professor of law, Duke University School of Law, Durham, N.C., and Randall S. Thomas, professor of law and business, Vanderbilt University Law School, Nashville, Tenn., wrote in a study, which contains disturbing findings, valuable insight and useful recommendations. ``In 2004, securities fraud class action settlements produced $5.45 billion in cash to be distributed to defrauded investors'' in settlements, they noted. The ``data provide an inescapable and startling conclusion: Financial institutions with significant provable losses fail at an alarming rate (approximately 70%) to submit their claims in settled securities class actions,'' they wrote in their study in Stanford Law Review last December. ``Moreover, not only are their losses significant, but the sums of money they likely would gain by filing claims are also not trivial, both in the aggregate and on an average individual fund basis.'' They also found that the largest institutions tend to be the most aggressive in the lawsuits, with ``larger public pension funds filing all claims, irrespective of their value.'' Their study of 118 cases found a mean 28.06% of institutional investors filed claims. The average loss is fairly substantial: the mean is $848,376 and the median, $277,405. ``Of course, what most likely should guide the decision whether to file a claim is not the loss suffered, but the recovery expected,'' they wrote. The ``average recovery rates are about one-third of losses,'' or about $280,000 of the mean loss or $90,000 of the median loss. Either amount recovered ``would seem to be a significant return on the small costs (in terms of time and money) of filing a claim in a securities fraud class-action settlement,'' they wrote. In their 44-page study, they suggest a number of reasons for the low filing rate. Among them: conflicts of interest of money managers. ``Financial service providers try not to align themselves with protagonists of their clientele,'' they said. ``This fact may explain why we find no recorded case where a bank, mutual fund, or insurance company has served as a lead plaintiff in a securities class action.

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Mondaq, June 16, 2006
Stock Options Grant Timing: Is Your Company At Risk?
By: Jay Musoff - Orrick, Herrington & Sutcliffe LLP
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EXCERPT: The Securities and Exchange Commission, and United States Attorney's Offices in New York, California and Massachusetts currently are investigating if the abnormal return patterns associated with certain stock option grants are attributable to improper backdating of such grants. Government regulators and prosecutors have noted recent statistical studies in academic journals and the popular press (particularly the Wall Street Journal) that indicate a pattern where stock returns are abnormally negative before the date stock options are granted and abnormally positive afterward, and where the grant is often dated at the share price's monthly or quarterly low. Indeed, some companies have granted options to executives at exercise prices and dates that matched exactly or were close to a 40-day low in the company's stock price. According to some of these studies, the probability of hitting the low on recurring grant dates is extremely low, ranging from 1 in 800,000 to 1 in 100 million. It is these odds that have so peaked the prosecutors' interests, and so concerned the directors, executives and regular legal counsel who planned and executed these stock options grants. Determining the Grant Date Stock options give the grantee the right to buy shares at a fixed price, known as the exercise price or strike price. Stock options for executives typically are granted by a board of directors or compensation committee thereof where the exercise price is equal to the fair market value of the underlying stock on the date the options are granted. Stock option grants with the expense price equal to the fair market value of the underlying stock is required for favorable tax, accounting and securities purposes. If the stock later rises, the grantee can cash in the option for a profit, as long as he or she has held them long enough to vest. The lower the exercise price, the greater the gain for the grantee. There is no securities rule or regulation prohibiting the use of alternative dates for pricing purposes. However, if the effective date of a grant is anything other than the date of approval, the company's finance and tax departments should be informed and involved in those decisions. If a practice of selecting alternative grant dates is not consistent with the company's stock option plan, and the details of that plan are disclosed in the company's financial statements, there may be an issue with false or misleading statements to the public regarding the company's stock option practice, as discussed below.

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Securities Regulation & Law Report, June 19, 2006
SEC Staying Neutral On Potential Exchange Mergers
By: Staff Writer
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EXCERPT: The Securities and Exchange Commission June 16 said it was not taking a position on any potential cross-border exchange mergers, but acknowledged that such U.S.-foreign market acquisitions "may make business sense to shareholders" of those exchanges. In a fact sheet released by the commission, the SEC said it wanted to investors to "clearly understand the regulatory issues created by such mergers." As such, the SEC stated that:  "many forms" of integration involving cross-border exchange mergers "would not result in mandatory registration" of non-U.S. exchanges or their listed companies with the commission, nor in required compliance with federal securities laws, including Sarbanes-Oxley; and that joint ownership of a U.S. exchange and a non-U.S. exchange "would not result in automatic application of U.S. securities regulation to the listing or trading activities of the non-U.S. exchange; The SEC said further that the question of whether a non-U.S. exchange and its listed companies would be subject to U.S. registration "depends on a careful analysis of the activities of the non-U.S. exchange in the United States."

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New York Law Journal, June 19, 2006
PSLRA Stay Does Not Always Halt The Process - Plaintiffs At Times Have Received Discovery Prior To Motion To Dismiss
By: Gary L. Cutler
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EXCERPT: Milberg Weiss Bershad & Shulman's recent indictment, along with two of its partners, for allegedly paying secret kickbacks to individuals for serving as named plaintiffs in some of its securities class-action lawsuits, may be viewed as part of a continuing federal effort to reform the plaintiffs' securities class-action bar. In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA) to combat 'abuse in private securities lawsuits.' [FN1] That legislation was focused on the practices of plaintiffs' securities class-action law firms including Milberg Weiss' predecessor firm, which had the bulk of the business. [FN2] In passing the PSLRA, Congress cited evidence of abusive practices by plaintiffs and their law firms, which included routine filing of lawsuits whenever there was a significant change in stock price, without regard to underlying culpability, and with 'only faint hope that the discovery process might lead eventually to some plausible cause of action.' [FN3] As the Senate Report on the Act noted, '[t]he cost of discovery often force[d] defendants to settle abusive securities class actions....[P]laintiffs sometimes file frivolous lawsuits in order to conduct discovery in the hopes of finding a sustainable claim not alleged in the complaint.' [FN4] One of the more significant reforms of the PSLRA was the automatic stay imposed on discovery during the pendency of any motion to dismiss. In this respect, the PSLRA provides: In any private action arising under this chapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party. [FN5] One court has commented that the PSLRA 'creat[ed] a strong presumption thatno discovery should take place until a court has affirmatively decided that a complaintdoes state a claim under the securities laws, by denying a motion to dismiss.' [FN6] Other courts have stated that only in 'exceptional circumstances' may the court allow discovery prior to deciding the motion to dismiss. [FN7] Yet, in the intervening years since the passage of the PSLRA, despite the  'strong presumption' against discovery, plaintiffs have had a measure of success in having the PSLRA stay lifted. While the need to preserve evidence has not been a winning argument, in numerous ways, parties have successfully claimed that discovery was necessary to prevent undue prejudice.

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San Jose Mercury News, June 20, 2006
Silicon Valley Turning Into Litigation Valley Shareholders Want Their Money Back
By: Scott Duke Harris and Therese Poletti
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EXCERPT: Silicon Valley has become a legal battle zone this month as angry shareholders have filed a raft of lawsuits against executives they suspect fattened their wallets by manipulating stock option grants. Investors large and small are seeking answers and money back from the leaders of 13 companies that were already under scrutiny by federal prosecutors, regulators and the IRS. More companies could be in the cross hairs. The legal dust-up already ranks among the most contentious in Silicon Valley history. If shareholders win, executives could be required to pay back millions of dollars to their companies. Stock options give the owner the right to buy a company's stock at a set price, usually the market price on the day they're granted. The idea is that workers will be motivated to improve the company, which will boost the stock price and their personal wealth. Options were popularized by Silicon Valley companies during the tech boom as a means of recruiting, motivating and rewarding employees. But shareholders say some companies have corrupted the stock options process by labeling options with dates that guaranteed hefty returns. Critics liken this to placing a bet on a horse after it's already won the race. Seeking more clients Law firms that represent shareholders seem eager for more action. When Weiss & Lurie followed two other firms in suing KLA-Tencor last week, the Los Angeles firm issued a press release listing 41 other companies -- from Affiliated Computer Services to Zoran -- that it was "currently investigating (for) similar stock grant practices." The wave of lawsuits and federal investigations from the Department of Justice and the Securities and Exchange Commission came after academic researchers studied highly lucrative grants and said it was likely that the prices had been rigged. .. At this early stage, the arguments are aimed at public opinion, said Joseph Grundfest, co-director of the Rock Center for Corporate Governance at Stanford University. The shareholders' attorneys "want to make the problems seem as big and ugly as possible," he said. When the defense speaks, Grundfest said, "they'll take a difficult, complicated problem and make it seem as innocent as possible." For some companies, the wrongdoing could amount "to corporate hygiene issues" that involved nothing underhanded and had little financial consequence, Grundfest said.

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Securities Mosaic, June 20, 2006
SEC Calms Europe On Sarbanes-Oxley
By: Staff Writer - Deal.com
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EXCERPT: Objections have been mounting from European politicians to the NYSE Group Inc.'s $10 billion agreed takeover of pan-European bourse Euronext NV. In an effort to clear the air and mollify fears, the Securities and Exchange Commission staff said in its statement that cross-border mergers won't necessarily bring foreign exchanges or companies under the purview of U.S. securities rules. The SEC said it was "not taking a position on any particular mergers" between U.S. and overseas exchanges. However, it added, "In light of recent developments, SEC staff wants to ensure that all affected parties "particularly investors" clearly understand the regulatory issues created by such mergers," the regulator noted in a statement. Deals similar to the one proposed for NYSE and Euronext "would not result in the mandatory registration of a non-U.S. exchange's listed companies with the SEC or the mandatory compliance with the provisions of the federal securities laws, including the Sarbanes-Oxley Act, that would derive from that registration," the SEC said. The SEC also stated that foreign exchanges themselves would not have to comply with U.S. securities laws simply because they were owned by U.S. exchanges. "Joint ownership of a U.S. exchange and a non-U.S. exchange would not result in automatic application of U.S. securities regulation to the listing or trading activities of the non-U.S. exchange," the statement read. Besides the NYSE deal, New York-based Nasdaq Stock Market Inc. recently acquired a large stake in the London Stock Exchange plc and looks likely to carry on with an effort to ultimately gain control of the U.K.-based exchange. Both situations have raised fears in Europe over the extent of the SEC's reach into European affairs and the effects of the Sarbanes-Oxley corporate governance reforms on Continental companies.

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The San Francisco Chronicle, June 21, 2006
Tech Execs Push For Privacy Rules; Key Supporter Also Wants To Hold Back Customer Lawsuits
By: Verne Kopytoff
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EXCERPT: Silicon Valley executives pushed were in Washington Tuesday to push for a federal privacy law that would regulate the use of customer data in an era of increasing concern about identity theft and the security of digital records. Speaking at a congressional hearing that was broadcast on the Internet, Meg Whitman, chief executive of eBay, the online marketplace in San Jose, described existing privacy laws as a crazy quilt of state and federal regulation that should be replaced by unified rules to reduce business costs. But Whitman balked at allowing customers to sue companies that misuse data, at least for unlimited damages, because of a potential "onslaught of class-action lawsuits" that could force businesses to their knees. She preferred that the Federal Trade Commission be the only government office to enforce the privacy laws and levy fines. The retention, use and sharing of customer data has emerged as a hot-button issue. Consumer groups complain that businesses fail to adequately safeguard personal information and that they share data too freely with partners. Texas Republican Joe Barton, chairman of the House Commerce Committee, promised that Congress would weigh in on the issue with legislation later this year. The idea appeared to get a warm reception from fellow members, who generally applauded eBay's support and that of Hewlett-Packard, which also had a speaker at the hearing. Both companies are part of the Consumer Privacy Legislation Forum, a lobbying group that was unveiled Tuesday to press for privacy legislation. Google, Intel, Oracle, Microsoft and Sun Microsystems are among the other members.

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AccountingWeb.com, June 22, 2006
IASB Chairman Calls For Accounting Standards Convergence By 2011
By: Staff Writer
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EXCERPT: Sir David Tweedie, chairman of the International Accounting Standards Board (IASB), sees small differences in worldwide accounting standards within five years. CFO.com reports that Robert Herz, the Financial Accounting Standards Board (FASB) chairman, predicts that within three to five years, U.S. and international accounting standards will be virtually interchangeable. Tweedie told the committee that some 100 countries now allow or require use of global accounting standards by resident companies. Herz predicted that Canada would convert to international accounting standards from their current standards within five years. He said that Japan is currently seeking accounting standards convergence, according to CFO.com. Scott Taub, Deputy Chief Accountant of the Securities and Exchange Commission (SEC) made comments concerning convergence of U.S. and international accounting and auditing standards in May 2004. Taub began by saying, "Whatever transaction we're dealing with, it seems obvious to me that the best accounting for it is the same, whether the reader of the financial statements is in the US, the UK, Japan, or wherever. Similarly, the auditing procedures that are the most effective in the U.S. are likely to be just as effective in Canada, China, or France. Disclosures relevant to investors in Italy, Greece, or the Middle East, are likely to be just as useful to investors in the U.S. And having one set of high-quality standards in any or all of these areas would benefit investors and reduce the administrative costs of accessing the capital markets around the world," according to the SEC. The SEC reports that, "That being said, getting from where we are to where we all like to be with respect to convergence is not easy. In order to realize the benefits of truly global financial reporting, we need convergence in all the area I just mentioned, accounting, auditing, and disclosures. And we all need to work to enhance cooperation and consistency in regulatory review and enforcement, and to improve training and interpretive mechanisms as well. The amount of coordination necessary to do all of this is daunting, and much still needs to be done. But a lot is already happening..." His comments are still relevant today.

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Forbes.com, June 22, 2006
Just What Wall St. Needs
By: Liz Moyer
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EXCERPT: Wall Street is backing yet another regional stock exchange in a bid to counteract the increasing market dominance of Nasdaq and NYSE Group. The Chicago Stock Exchange says it has received a $20 million infusion from a consortium of firms--Bank of America, Bear Stearns, Goldman Sachs Group and E-Trade--to help it improve on its electronic-trading systems. The Chicago Exchange, which demutualized last year, is one of several regional markets that seemed doomed to oblivion amid the consolidation of market share by Nasdaq and the Big Board. Profit and share have been eroding at the privately held Chicago Exchange. Last year, average daily trading volume fell to 55 million shares, down from 107 million as recently as 2000. In 2004, the most recent year for which data is available, it had a net loss of $10.8 million. But Wall Street seems determined to ensure it has a variety of trading venues by injecting capital into sleepy regional exchanges. Last year, the Philadelphia Stock Exchange sold 80% interest to a large group of banks and institutions, led by Merrill Lynch and Citadel Investments and also including Morgan Stanley, Credit Suisse, Citigroup and UBS. Another group, including Lehman Brothers, Citi, Credit Suisse and Fidelity, is working with Boston Options Exchange to build another electronic-trading operation, the Boston Equities Exchange. And earlier this year, International Securities Exchange, one of the biggest options markets, announced plans to open its own stock exchange. Bear Stearns, Deutsche Bank, Interactive Brokers, Knight Capital, Sun Trading and Citadel collectively have invested $32 million in that effort. For most of these regional exchanges, electronic-trading systems are seen as the key to improving market share. Under new regulations, trade orders will be executed at the best price found at any exchange, allowing smaller markets to compete with NYSE and Nasdaq. Before that new regulation, traders tended to migrate to the markets that had the most liquidity--namely the Nasdaq and NYSE. Goldman Sachs is a hidden factor in the support of the regional exchanges. With its large NYSE specialist operation and stakes in both the old floor-trading system (which has since been converted to shares) and in NYSE's merger partner, Archipleago Holdings, the firm is seen as closely tied to the new NYSE Group.

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Securities Mosaic, June 22, 2006
4 Major Firms Buy Minority Stake In CHX: Each To Pay $5 Million For Share Of Operations
By: Staff Writer - Chicago Sun Times (IL)
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EXCERPT: The Chicago Stock Exchange, its volumes drooping from the hectic markets of a few years ago and its finances ailing, said Wednesday it's received a $20 million vote of confidence from four big trading firms. The exchange said the firms will pay $5 million each for a collective minority stake in its operations. The firms are Bank of America Corp., Bear Stearns, E-Trade Financial Corp. and Goldman Sachs Group. Terms were not revealed, but the sale appears to value the exchange richly. The buyers could be paying more than four times the recent price its shares commanded on the open market. "Share price is not always an indication of where a stock ought to be trading," said a pleased David Herron, the exchange's chief executive. He said the buyers are voicing confidence that the exchange is prepared to attract more orders. Federal regulators are set to impose rules to prod exchanges into posting the best and fastest price quotations. Many experts believe the changes will bring more volume to competitors of the New York Stock Exchange and the Nasdaq stock market. Herron said each of the new investors looked at similar transactions with other regional markets. "They have concentrated their efforts on this exchange," he said. Known by its ticker symbol CHX, the exchange reorganized a year ago as a for-profit company, distributing 450,000 shares among its members. They last traded for $20 apiece, according to CHX data. One source said 225,000 new shares, representing a one-third stake, are being issued to the buyers.

SETTLEMENTS & DISMISSALS (12)

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Class Action Law Monitor, June 15, 2006
Sanctions Imposed For Frivolous Allegations After Class Action Dismissed On The Merits; Morris v. Wachovia Securities Inc., No. 05-1217 (4th Cir. May 17, 2006)
By: Staff Writer - (Judges: M. Blane Michael, Dennis W. Shedd, Allyson K. Duncan)
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EXCERPT: The Fourth U.S. Circuit Court of Appeals affirmed a district court's ruling that an investor's attorney violated the Private Securities Litigation Reform Act (PSLRA) by failing to base claims against an investment brokerage firm on reasonably based facts in violation of Fed. R. Civ. P. 11(b). However, the Fourth Circuit reversed and remanded the district court's decision to deny a sanctions award. Patrick Morris invested $1.4 million into the Masters Program, an investment service offered by Wachovia Securities Inc. for investors to invest more than $100,000 and have their portfolios handled by money managers. Morris' account balance decreased by $300,000 from $1.4 million in a few months. Morris sued Wachovia Securities for violation of the Securities Exchange Act of 1934 §  10(b) and Rules 10b-5 and 10b-10 (see 2 Cl.Act.L.Mon. 19-3, Nov. 30, 2002). The district court dismissed Morris' claims for failure to state the claims. Wachovia Securities moved the district court to impose Rule 11(b) sanctions upon Morris' attorneys for making baseless allegations. Specifically, Wachovia Securities alleged that Morris' attorneys wrongfully accused Wachovia of engaging in wrongful "soft dollar arrangements," citing the deposition of one of Morris' Wachovia money managers, Charles Baldiswieler. However, Baldiswieler testified that, "I believe Wachovia is not a soft dollar broker I don't believe they even have the apparatus to do soft dollars." Wachovia Securities also contended that Morris misstated the testimony of a Wachovia executive, Burt White. .The district court ruled that Morris' attorneys violated Rule 11(b), but did not impose sanctions. Both parties appealed. .The Fourth Circuit found that, because Morris' attorneys violated Rule 11(b) with regard to White and Baldiswieler, the district court should have ordered sanctions. The Fourth Circuit vacated the district court's decision to not impose sanctions and remanded to the district court to enter an order naming and admonishing Morris' attorneys.

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Class Action Law Monitor, June 15, 2006
Securities Fraud Class Action Sustained As Adequately Pled; In Re Veritas Software Corp. Sec. Litig., No. 04-0831 (D. Del. May 23, 2006)
By: Staff Writer - (Judge: Sue L. Robinson)
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EXCERPT: The U.S. District Court for the District of Delaware denied a software company's motion to dismiss a securities fraud class action, ruling that the complaint was adequately pled with particularity and scienter. Shareholders of Veritas Software Corp. sued Veritas and its officers and directors for violations of the Securities Exchange Act of 1934 §  10(b) and Rule 10b-5, alleging that Veritas' officers and directors knowingly and fraudulently inflated revenues in violation of GAAP. In the complaint, the shareholders identified five confidential informants who stated that Veritas' officers knowingly included unsigned contracts with clients in calculating revenue for several quarters in 2003 and 2004. The shareholders claimed that such recognition of unsigned contracts was regular practice within Veritas and known throughout the company. Veritas moved to dismiss, arguing that it was protected by the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act (PSLRA) and that the shareholders failed to meet the particularity requirements of the PSLRA and Fed. R. Civ. P. 9(b). . The district court denied Veritas' motion to dismiss, finding that shareholders adequately pled the securities fraud with particularity as required under the PSLRA.

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Class Action Law Monitor, June 15, 2006
Securities Fraud Class Action Against McDonald's Dismissed; Selbst v. McDonald's Corp., No. 04-2422 (N.D. Ill. May 17, 2006)
By: Staff Writer - (Judge: Blanche M. Manning)
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EXCERPT: The U.S. District Court for the Northern District of Illinois dismissed a securities fraud class action for failure to adequately plead the alleged facts and scienter with particularity. Shareholders of McDonald's Corp. sued McDonald's for violation of the Securities Exchange Act of 1934 § §  10(b), 20(b) and Rule 10b-5, alleging that McDonald's knowingly made false forward-looking and historical statements with regards to its financial growth (see 4 Cl.Act.L.Mon. 7-4, Apr. 30, 2004). The shareholders claimed that McDonald's violated GAAP in a venture known as the "Innovate Project," where the shareholders contended that McDonald's failed timely write down the value of hundreds of underperforming restaurants. McDonald's moved to dismiss the complaint, arguing that the shareholders failed to plead with particularity the factual allegations and the element of scienter. The district court initially declined to dismiss the suit, giving the shareholders an opportunity to amend their complaint to include more specific facts regarding a confidential informant. . The district court granted McDonald's motion to dismiss, ruling that, even though the shareholders adequately pled that McDonald's violated GAAP in its accounting of the Innovate Project, they failed to plead scienter with particularity. Further, the district court ruled that the shareholders failed to plead the particular factual basis in support of their forward-looking statements, noting that the complaint failed to allege that the confidential informant had first-hand knowledge of the company's allegedly fraudulent misstatements.

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Securities Class Action Reporter, June 15, 2006
Statute Of Limitations And Non-Reliance Defenses Do Not Bar Certification; In Re Cornerstone Propane Ptrs. L.P. Sec. Litig., No. 03-2522 (N.D. Cal. May. 3, 2006)
By: Staff Writer - (Judge: Marilyn Hall Patel)
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EXCERPT: The U.S. District Court for the Northern District of California certified a class of shareholders in a securities fraud class action, ruling that possible statute of limitations and non-reliance defenses against the class representative did not bar certification. Shareholders of Cornerstone Propane Partners L.P. sued Cornerstone and its directors and officers for securities fraud pursuant to § §  10(b), 20(a) and Rule10b-5 of the Securities Exchange Act of 1934. The shareholders alleged that Cornerstone falsely represented its financial success and violated GAAP. Cornerstone's stock rose to an all time high of $22 a share. When the truth about Cornerstone's debt came to light, Cornerstone's stock fell to $0.35. The shareholders moved for class certification. Cornerstone objected to the typicality and adequacy elements of Rule 23(a), arguing that the proposed class representative was subject to unique defenses and had interests that conflicted with other class member. . The district court ruled that the statute of limitations and non-reliance defenses against the class representative did not bar certification. The district court granted certification to the class of shareholders, but excluded shareholders who purchased their stock prior to any corrective disclosure. (For an earlier decision in this case, see 3 S.Cl.Act.Rep., 3-32, Feb. 15, 2005.)

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Securities Class Action Reporter, June 15, 2006
Action Against Check Point Sustained As Adequately Pleaded; In Re Check Point Software Tech. Ltd. Sec. Litig., No. 03-6594 (S.D.N.Y. Apr. 26, 2006)
By: Staff Writer - (Judge: Richard M. Berman)
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EXCERPT: The U.S. District Court for the Southern District of New York denied a company's motion to dismiss a securities fraud class action, ruling that the investors adequately pled § § 10(b), 20(a) and Rule 10b-5 violations under the Securities Exchange Act of 1934. Investors sued Check Point Software Technologies Ltd. for violations of § §  10(b) and 20(a), and Rule 10b-5, alleging that Check Point misrepresented its financial health and failed to reveal that defects in its flagship product caused Check Point to lose customers. Further, the investors claimed that Check Point engaged in illegal anti-competitive conduct by forcing its customers to drop all competing products in order to allow the customers to distribute Check Point products. The investors alleged that Check Point officers knew that its financial health was negatively affected by the flagship product's defect and the anti-competitive conduct but failed to disclose such information to the public. Thus, Check Point caused the shareholders economic loss. . The district court ruled that the investors' allegations that Check Point directors and officers discussed the flagship product's defect and sales problems at meetings, along with evidence that Check Point told its customers to drop competitors' products, was sufficient to show scienter. The district court denied Check Point's motion to dismiss, finding that the investors adequately pled securities violations under § 10(b) and Rule 10b-5. Because the investors successfully stated an underlying § 10(b) claim, the § 20(a) claim was also adequately pleaded.

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Securities Class Action Reporter, June 15, 2006
Motion To Stay Discovery Of Documents In Securities Fraud Class Action Denied; In Re NTL Inc. Sec. Litig., No. 02-3013 (S.D.N.Y. May 3, 2006)
By: Staff Writer - (Judge: Lewis A. Kaplan)
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EXCERPT: The U.S. District Court for the Southern District of New York denied a company's motion to stay a magistrate judge's order compelling discovery of documents in a securities fraud class action. NTL Inc. was a defendant in a securities fraud class action. Shortly after the suit was filed, NTL filed for bankruptcy. During the plan of reorganization, two separate companies emerged, NTL and NTL Europe Inc. Plaintiffs sought sanctions against Europe and NTL for failing to provide discovery documents. The magistrate court ordered Europe to produce 50 boxes of documents that were located in England to the plaintiffs. .The district court denied Europe's motion, finding that Europe produced other documents during the litigation, indicating that Europe had control over the documents. The district court also noted that Europe's counsel consented to the order.

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Securities Class Action Reporter, June 15, 2006
Class Members Dismissed Because They Did Not Have § 11 Claims; In Re Exodus Comm. Inc., No. 01-261 (N.D. Cal. Apr. 28, 2006)
By: Staff Writer - Judge: Maxine Chesney
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EXCERPT: The U.S. District Court for the Northern District of California dismissed class members who did not have remaining claims in a securities fraud class action. Further, the district court ruled that the lead plaintiff could not decline to answer discovery until another plaintiff intervened to seek appointment as class representative.. The district court dismissed all of the claims except for the §11 claims against the underwriter defendants. The defendants moved to dismiss certain class members who originally filed § § 10(b) and 20(a) claims, but did not have claims under § 11. Lead plaintiff must answer discovery. The district court ruled that the lead plaintiff may not refuse to answer discovery while waiting for another plaintiff to intervene as class representative. The district court dismissed the class members' who did not have §  11 claims. The district court denied dismissal of the lead plaintiff, granting the plaintiff an opportunity to decide whether he would serve as class representative and to answer discovery.

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Securities Class Action Reporter, June 15, 2006
Shareholders' Claims Against Electronic Connector Manufacturer Adequate; The Takara Trust v. Molex Inc., No. 05-1245 (N.D. Ill. Apr. 28, 2006)
By:  Staff Writer - (Judge: Ruben Castillo)
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EXCERPT: The U.S. District Court for the Northern District of Illinois denied a company's motion to dismiss a securities class action because the complaint was adequately pled with particularity and scienter. Shareholders of Molex Inc. sued the company for violations of § §  10(b), 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 (see 3 S.Cl.Act.Rep. 5-51, Mar. 15, 2005). The shareholders alleged that Molex misrepresented its financial health by failing to disclose an error that resulted in an overstatement of Molex' income by $8 million. Specifically, the shareholders claimed that Molex' officers and directors met to discuss the overstatement and whether they should report the error to their auditor. Further, the officers and directors discussed whether they should reverse a $2.7 million reserve for self-insurance in order to boost Molex' earnings. The shareholders also alleged that Molex failed to disclose its inability to absorb rising raw material prices and known trends and uncertainties about the raw material price increase. In a series of press releases, the defendants repeatedly assured investors that Molex was able to overcome the impact of the higher costs of raw materials. . The district court ruled that the shareholders adequately alleged material misrepresentations. Scienter is established by pleading particular facts that would give rise to a strong inference of scienter. General allegations of violations of GAAP or of insider trading alone are insufficient to establish scienter. However, such factors taken together are sufficient to establish scienter. The district court ruled that the allegations of misstatements made during press conferences, the insider trading and the accounting violations were sufficient to plead scienter. Finding the complaint was adequate and met the requirements of particularity and scienter, the district court denied Molex' motion to dismiss.

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HUGIN AS, June 17, 2006
Ahold Receives Court Approval Of Settlement Of Securities Class Action In The United States
By: Staff Writer
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EXCERPT: Amsterdam, the Netherlands, June 17, 2006 - Ahold today announced that the United States District Court for the District of Maryland, located in Baltimore, Maryland, has entered a final order and judgment approving Ahold's agreement with the lead plaintiffs to settle the securities class action entitled "In re Royal Ahold N.V. Securities & ERISA Litigation." Under the terms of the agreement in the securities class action, the lead plaintiffs in the securities class action agree to settle all claims against Ahold in the securities class action for the sum of USD 1.1 billion (EUR 937 million). The settlement covers Ahold, its subsidiaries and affiliates, the individual defendants and the underwriters.

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Forbes.com, June 21, 2006
Qwest Loses Court Dispute Over Documents
By: Staff Writer - Associated Press
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EXCERPT: Qwest Communications International Inc. has lost a bid to withhold 220,000 pages of documents from shareholders in a civil securities fraud lawsuit. Qwest attorneys had argued the documents were protected by attorney-client and work-product privilege, but the 10th U.S. Circuit Court of Appeals on Monday upheld a lower court's decision that the company waived its privilege when it gave the documents to the Securities and Exchange Commission and Justice Department. Qwest spokesman Bob Toevs declined comment Tuesday. Many shareholders involved in the lawsuit have reached a $450 million class-action settlement with Qwest, but claims are pending against former Chief Executive Officer Joseph Nacchio and former Chief Financial Officer Robert Woodruff.

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AFX International Focus, June 21, 2006
Nortel Settles Class-Action Suits
By: Staff Writer
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EXCERPT: Nortel Networks Corp. said Wednesday it has reached an agreement with the plaintiffs of two Canadian shareholder class-action lawsuits sparked by revised financial results that helped drive down the value of the company's stock in recent years. Settlement of the two Canadian suits was a condition of Nortel's previously announced agreement in principle to settle two related major U.S. shareholder suits, which were essentially based on the same events. The Canadian telecommunications company said the settlements encompass 'most' pending class- actions suits and demands filed by shareholders against Nortel due to financial revisions between 2001 and 2005. 'Nortel has now also reached agreement with the plaintiffs in those Canadian actions with respect to the global settlement as set forth in the stipulations and agreements of settlement,' the company said in a brief statement Wednesday. The company said it and the lead plaintiffs in the two U.S. suits pending in New York have entered into 'stipulations and agreements of settlement,' but noted various court, regulatory and stock exchange approvals were still required. In the U.S. suits, announced in February, Nortel said it would make a payment of $575 million in cash and issue 628,667,750 of its common shares -- about 14.5 percent of its equity -- as a major part of its compensation to shareholders. The company has also agreed to contribute one-half of any recovery in the existing litigation by Nortel against three former senior officers, including former chief executives Frank Dunn, who were fired in April 2004. The settlement contains no admission of wrongdoing by the company or any of the other defendants.

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AFX CNF, June 22, 2006
KPN Settles Class Action
By: Staff Writer
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EXCERPT: KPN has reached an agreement with the lead plaintiffs to settle the securities class action related to the bankruptcy of KPNQwest N.V. for an amount of USD 4.175 million (approx. EUR 3.1 million). The securities class action is pending before the US District Court for the Southern District of New York. The settlement covers KPN, its subsidiaries and affiliates and certain individual defendants. The settlement is worldwide and applies to all those who purchased KPNQwest securities between November 9, 1999 and May 31, 2002. The agreement is subject to approval of the US District Court for the Southern District of New York.