The Wall Street Journal has now picked up on my story, calling out shareholder class action firms for their frivolous class action suits that follow almost every merger announcment. Below is an article written by Dionne Searcy and Ashby Jones published in the Wall Street Journal today. While Searcy and Jones still haven’t figured out that the source of these firms’ ability to start these lawsuits is their ability to use Businesswire.com to publish press releases in order to sign up unsuspecting shareholders, at least this story is finally starting to get the attention they deserve.
The mergers-and-acquisitions market is heating up again, but a new raft of lawsuits claiming shareholders are being shortchanged threatens to complicate and increase the cost of the transactions.
Investors are filing an ever-increasing number of lawsuits against corporations embarking on deals, statistics show. The number of lawsuits filed in state and federal courts has risen from 36 in 2008 to 191 in 2009 and 216 in the first 10 months of 2010, according to Rockville, Md., research firm Securities Class Action Services.
In the hours following the revelation of a deal involving a publicly traded company, plaintiffs’ firms announce investigations into the matter, soliciting clients to join lawsuits seeking class-action status and challenging either the prices or the terms of the deal as unfair to shareholders.
The lawsuits, sometimes called “strike” suits by critics, have long been in existence and they rarely, if ever, scuttle deals. They occasionally lead to benefits for shareholders. They have mushroomed, legal experts say, partly because the practice has proven lucrative for plaintiffs’ attorneys who know that companies are eager to be rid of litigation and have been settling quickly.
“It is virtually guaranteed,” said Robert Brownlie, a San Diego-based attorney who has defended corporations from the suits. Mr. Brownlie, co-chair of DLA Piper LLP’s securities litigaton practice, estimates the suits now consume a quarter of his practice.
The lawsuits sometimes hit the docket before the official paperwork on the deal has even been filed with the Securities and Exchange Commission.
“Plaintiffs know they’re going to be able to wrangle a settlement out of the company so a deal will go through,” said Michael Perino, a law professor at St. John’s University in New York. “The company knows a suit will be on the way so maybe they’ll set aside extra money in anticipation. It all seems like an elaborate kabuki dance.”
On Jan. 5, less than 24 hours after Qualcomm Inc. revealed a $3.1 billion proposed acquisition of Atheros Communications Inc., 10 plaintiffs’ firms announced that they claimed to be looking into the fairness of the deal on behalf of the companies’ shareholders. “Qualcomm may be underpaying for Atheros, thus unlawfully harming Atheros shareholders,” read one such news release.
Plaintiffs’ lawyers—and even defense attorneys—say that some of the suits can do shareholders some good. For instance, a lawsuit that held up the proposed acquisition of Amicas Inc. by Thoma Bravo LLC in 2009 helped enable a third party, Merge Healthcare Inc., to make a higher unsolicited bid for Amicas.
But some critics say that the lawsuits have gotten out of hand—which has oddly been fueled by defense attorneys’ willingness to settle.
Sometimes the only beneficiaries of the settlements are plaintiffs’ attorneys, who collect fees of about $400,000 in an average case, according to several defense attorneys who have knowledge of numerous legal settlements.
“It’s a lucrative area of the law,” said Greg Nespole, a partner at New York law firm Wolf Haldenstein Adler Freeman & Herz LLP, adding that new firms were catching on.
“The company wants to get the deal done quickly,” said Thomas Sabatino, the former general counsel at both UAL Corp. and Schering-Plough Corp. “You’ve worked very hard to reach an agreement and the last thing you want is to get hung up on one of these suits.” Mr. Sabatino said his instinct was to fight such suits, but that some plaintiffs firms’ efforts to earn a fee often stood in the way of the deal moving forward. “So you resolve them as best you can,” he said.
Both Merck & Co.’s acquisition of Schering-Plough in 2009 and UAL’s merger with Continental Airlines Inc. in 2010 spawned shareholder litigation, which Mr. Sabatino pushed to settle quickly.
Plus, settlements can often be had for cheap. In the context of a multimillion-dollar or billion-dollar deal, with its steep underwriting and legal fees, another few hundred thousand dollars to a plaintiffs’ lawyer is, “a rounding error,” says Jeffrey Rudman, a defense lawyer at WilmerHale in Boston.
Some lawyers say that in recent months that judges on the Delaware Chancery Court, a specialized court that hears volumes of cases involving corporations, have grown more skeptical of the suits.
Last month, during a hearing involving a shareholder suit concerning a merger between two radiology companies, one of the judges, Delaware Vice Chancellor J. Travis Laster, criticized these suits, saying that “a lot of these sue-on-every-deal cases” are “worthless” and “all a bunch of movement for nothing,” according to a transcript of the hearing.
But in a March ruling in a shareholder lawsuit concerning a proposed MacAndrews & Forbes merger with Revlon Inc., Vice Chancellor Laster said that such lawsuits weren’t always fruitless.
“Stockholder plaintiffs can and do achieve meaningful results,” he said. “But it requires effort.”
Vice Chancellor Laster, who didn’t respond to a request for comment, has a nickname for the plaintiffs’ firms who take the cases: “frequent filers.” Among them he lists New York firms Wolf Popper LLP and Abbey Spanier Rodd & Abrams.LLP.
“There are firms that file more than we do,” said Carl Stine, a partner at Wolf Popper. A spokewoman for Abbey Spanier didn’t return calls for comment.
Lawyers in turn have been filing the suits in state courts where they think they may be able to find an unsuspecting judge who won’t see the harm in holding up a deal while the matter works its way through court. Edward Welch, a defense lawyer at Skadden, Arps, Slate, Meagher & Flom LLP in Wilmington, Del., said some companies are putting provisions into their corporate charters dictating that all “fiduciary litigation” must be tried in Delaware.
Finally, some other journalists are starting to pick up on my story. Dan Primack, of Fortune.com, has written the below story, titled “Attack of the M&A ambulance chasers,” which can also be found here , calling out shareholder class action firms for their so-called “investigations” that follow every merger announcement. While Primack still hasn’t figured out that the source of these firms’ ability to publish these press releases is Businesswire, at least these frivolous press releases are finally getting the attention they deserve.
It’s the holiday season and time once again to say “bah humbug” to the most cold-hearted and greedy CEOs, corporations and politicians who exemplify the spirit of Ebenezer Scrooge.
This is the 11th year that Jobs with Justice (JwJ) will “honor” the person or group that has done the most to “scrooge” workers. And the floor is open for nominations. Beginning today, you can nominate your candidate for Scrooge of the Year, along with a brief description of why he or she deserves the award by clicking here.
The winner will join an infamous group. Last year’s winner was the Chamber of Commerce. Voters singled out the Chamber for its narrow, radical agenda advocating anti-worker, profit-focused solutions to the broken health care, labor and environmental systems.
In 2008, voters picked the entire lot of Wall Street executives whose unchecked corporate greed led to our nation’s economic disaster.
via AFL CIO blog.
Thanks to Businesswire, the below screenshot is what appeared on Streetinsider.com under “Company Press Releases” for TeamTech Global. Yeah, I’m really sure TeamTech would be promoting these law firms fishing for clients as a “Company Press Release.”
Here are the top 10 CEOs of puclic companies in prison.
1. Jeff Skilling, former CEO of Enron – Serving 24 years for fraud, insider trading, and other crimes related to the collapse of Enron.
2. Bernie Ebbers, former CEO of WorldCom – Serving 25 years for accounting fraud that cost investors over $100 billion
3. Dennis Kozlowski, former CEO of Tyco – Serving 8 to 25 years for stealing $134 million from Tyco
4. John Rigas, former CEO of Adelphia Communications -Serving 25 years for bank, wire, and securities fraud related to the demise of Adelphia.
5. Sanjay Kumar, former CEO of Computer Associates – Serving 12 years for obstruction of justice and securities fraud
6. Walter Forbes, former CEO of Cendant -Serving 12 years for fraud
7. Richard Scrushy, former CEO of HealthSouth – Serving 7 years for bribery and mail fraud
8. Joseph Nacchio, former CEO of Qwest Communications -Serving 6 years for insider trading
9. Sam Waksal, former CEO of ImClone – Served 7 years for securities fraud (released last year)
10. Martin Grass, former CEO of Rite Aid – Served 6 years for fraud and obstruction (just released this year)
In 2009, Michael S. Jeffries received $36,335,644 in total compensation. This put Jeffries as the 8th highest paid CEO. By comparison, the average worker made $32,048 in 2009. Michael S. Jeffries made 1133 times the average worker’s pay.
While Jeffries was raking in the money, his employees were getting LAID OFF!
In April 2009, Abercrombie & Fitch announced that it was cutting 170 jobs at its home office in the wake of a steep decline in sales. That followed a January 2009 layoff where the company terminated about 50 employees at its New Albany headquarters, and confirmed that it would not fill dozens of open positions.
You’d think greedy CEO Jeffries could have given up 1% of his salary (approximately $363k) to help keep some jobs for his employees. Jeffries, you are a GREEDY CEO!
With election Tuesday underway, here are the top 15 (in chronlogical order) political upsets over the past 75 years. Let me know if I missed any.
• 1937 – Virtually unknown 29-year-old Lyndon B. Johnson won the special election over the House Seat of Texas Tenth Congressional District in a landslide. He achieved this by heavily campaigning the country side of the district.
•1945 – Winston Churchill called a snap election at the end of World War II to take advantage of his heroic status as a war leader and 83% approval rating in the polls. Labour had never had a majority in the House of Commons, but they took 239 seats, the Tories lost 190 and Clement Attlee became prime minister with an overall majority of 145. It was one of the biggest landslides in British politics and the most unexpected.
•1948 – Unpopular Democratic United States President Harry Truman defeated the highly favored Republican candidate Thomas Dewey, which featured in a famous newspaper headline: “Dewey Defeats Truman”. It is considered by most historians to be the greatest election upset in American history.
•1972 – New York attorney Elizabeth Holtzman defeated 50-year incumbent congressman Emanuel Celler, who was also the Judiciary Committee chairman in the Democratic primary.
•1989 – Ernesto Ruffo Appel was elected Governor of Baja California, defeating the Institutional Revolutionary Party candidate and becoming the first state governor not belonging to the PRI since 1929.
•1990 – Paul Wellstone, an underfunded professor, defeated popular Senator Rudy Boschwitz in the United States Senate race.
•1992 – Arkansas Governor Bill Clinton overcame several damaging scandals to come in second in the New Hampshire Primary, famously calling himself the “comeback kid”. Clinton went on to win the Democratic Primary and defeat incumbent President George H. W. Bush in a three-way race that also included Texas businessman Ross Perot.
•1994 – Texas Republican George W. Bush defeated highly favored and popular Democratic incumbent Ann Richards in the race for Texas governor.
•The 1994 U.S. House of Representatives elections, during which Republicans gained 54 seats, featured a number of notable upsets:
- Republican George Nethercutt defeated Democratic Speaker of the House and 30-year incumbent Tom Foley. It was only the second defeat of a sitting Speaker of the House in U.S. History and the first since 1860.
- Plastic Surgeon Greg Ganske a Republican defeated 36-year incumbent Iowa Congressman Neal Edward Smith.
- Steve Stockman a Republican defeated 41-year incumbent Texas Congressman and Chairman of Judiciary Committee Jack Brooks (politician).
- Republican attorney Michael Patrick Flanagan defeated 36-year incumbent Illinois Congressman and Chairman of the Ways and Means Committee Dan Rostenkowski.
•1998 – Retired dairy farmer Fred Tuttle, who had starred in a independent mockumentary about a retired farmer who ran for Congress, won the Republican nomination for U.S. Senator from Vermont. Tuttle defeated Jack McMullen, a multimillionaire businessman who had spent most of his life living in Massachusetts, by ten points. Tuttle ran a tongue-in-cheek campaign that highlighted McMullen’s perceived lack of knowledge about the state. After winning the primary, he endorsed his general election opponent Democrat Pat Leahy but received 22% of the votes nonetheless.
•2000 – Vicente Fox of the National Action Party (Mexico) was elected President of Mexico in the 2000 presidential election defeating the Institutional Revolutionary Party candidate Francisco Labastida. It was the first time that the PRI lost a presidential election.
•2006 – Dave Loebsack, a Democrat and a political science professor at Cornell College, defeated 30-year incumbent Iowa congressman Jim Leach.
•2006 – Dawn Marie Sass, a parole officer and store clerk at Boston Store, defeated incumbent Wisconsin Treasurer Jack Voight a Republican. She had run for the office twice previously, in 1998 and 2002. In her 2006 campaign, Sass won in a narrow upset (8,648 votes, or 0.42%), with little party support. She had spent almost $4000 on the race, most of it coming from her own pocket
•2006 – Jim Webb, a Democrat who had served as Secretary of the Navy under Reagan, upset incumbent Republican senator and former Governor of Virginia George Allen, after Allen had made a series of mistakes, starting with the Macaca Controversy during the 2006 Midterm Elections in Virginia.
•2008 – New Orleans lawyer Joseph Cao a (Republican) defeated scandal-plagued nine-term Democratic U.S. Representative William Jefferson in a district that usually voted 75 to 80 percent Democratic. That same year, Charlottesville attorney Tom Perriello, a Democrat, defeated incumbent Virginia Congressman Virgil Goode.