Wall Street Law Blog

CASINO CAPITALISM: Accountability Time. (greatest hits collection)

BY BRETT SHERMAN

ARE RESPONSIBILITY AND ACCOUNTABILITY NOT TWO SIDES OF THE SAME COIN?   

 If you "Google" the right keywords and patiently read through hundreds of search results, you will eventually find some senior level Wall Street executives who take some responsibility for wrecking the financial services industry and pushing the entire economy to the brink of, well, [readers - please insert your own hyperbole here].

Jimmy Cayne apologized for the collapse of Bear Stearns.  He even admitted he had no clue what he was doing as Bear struggled through the the summer and fall of 2007 (at the time, however, he talked a very different game). Hell, Cayne has all but labeled Bear's independent directors a gaggle of yes men who did not dare interfere with management or corporate governance at Bear Stearns.  

We've also read scores of interviews with senior managing directors at Lehman and Bear Stearns that give chapter and verse on mismanagement by senior officers like Dick Fuld (CEO of Lehman) and Jimmy Cayne.  

Everyone seems to take it for granted that men like Dick Fuld, Stan O'Neil and Jimmy Cayne are responsible for the demise (or de facto demise) of Lehman Brothers, Merrill Lynch, and Bear Stearns. 

And you know what?  Everyone is right.

However, responsibility doesn't mean a whole lot unless it comes with consequences. The near total absence of meaningful consequences for extreme misconduct by Wall Street executives - the kind of consequences that may actually have a sliver of deterrent value - is, quite frankly, shocking. 

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Motivated by unquenchable thirst for wealth and power, many senior Wall Street executives, at minimum, committed acts of extreme recklessness that manifestly jeopardized the long range prospects of their companies.  Did management intend to destroy their companies?  No. But our society is about instant gratification, not long-term rewards.  

A whole lot of executives were so blinded by greed that they refused to look very far beyond the tremendous windfalls they expected to receive at bonus time.     

Of course, many shareholders suffered large losses when the investment banks went down. Victimized shareholders deserve to be made whole.  After all, If Wall Street executives did not commit "fraud," then the federal securities laws and all other statutes that protect investors should be torn from all law books and fed into shredders.  

Oh, we know all about D&O insurance and indemnification agreements.  We don't care about that stuff. The top dogs on Wall Street killed their companies. So what if the D&O insurers pay? Who cares if Bank of America pays legal costs on behalf of Merrill Lynch executive officers?  Who cares if JPM does the same on behalf of Bear Stearns management?  Whatever. Just make defrauded shareholders whole.

Hey, damaged shareholders-     
 

Drag the men and women responsible for your losses into the muck. Sue them, expose them, take action.  Make sure the history books blame the right individuals for the most severe threat to capitalism since the Great Depression.  

It is time for accountability.  Don't you think?  

Please take the time to share your opinion.  Leave a comment.  Wall Street Law Blog values reader feedback, even the negative kind.

Investment Losses? Learn how to opt out of class action.

Update of report originally published in or around May of 2008 (data is current to that time period).

SECURITITES FRAUD CLASS ACTIONS

Why Aggrieved Shareholders Should Strongly Consider Opting Out of Securities Fraud Class Action Lawsuits...

 

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Based on available data, state and federal statutes, and a well developed body of case law, The Sherman Law Firm recommends that current and former aggrieved shareholders of Wall Street financial institutions (i.e., Bear Stearns, Merrill Lynch, Bank of America, Citi, Lehman Brothers, Goldman Sachs) and other large corporations strongly consider "opting out" of any securities fraud class action litigation. 

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On average, investors stand to recover a far higher percentage of their losses by opting out of a securities fraud class action rather than participating as a class member plaintiff.

 

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A.  Class Action Overview      

A class action is a special type of lawsuit in which a group of plaintiffs that share substantially similar legal claims against one or more defendants band together in a single lawsuit.

 

Class actions lawsuits are classified as “representative actions” because one or more plaintiffs are actually named in the complaint as representative(s) of the entire class of aggrieved individuals and/or entities (in this instance a class might consist of one or more categories of former Bank of America shareholders). 

Investors must keep in mind that securities fraud class actions are frequently dismissed for failing to meet the strict pleading requirements of the Private Securities Litigation Act of 1995.

Most class action claims that survive dismissal motions settle. The end result, however, is that there often is not much money distributed to individual class members. In a 2006 article, Lawsuitssearch.com stated:

“Often being part of a class action lawsuit is not financially advantageous to an individual. Even though the defendant named in the case may be required to pay out a large sum of money, one individual who is part of the class action will only receive a small portion of that sum.” 

A study published by NERA Economic Consulting (NERA) supported the statements of Lawsuitsearch.com. NERA reported that the average settlement recovery in securities class actions in 2006 was only 2.2% of investor losses. 

B.  “Opt out” Cases: An Overview                                                                    

Opt out cases receive have received little attention from the press to-date.   For this reason, it is not surprising that many Bear Stearns employees are unaware of the right to opt out of any class action litigation. 

By opting out, shareholders elect not to be part of a class, not to be bound by rulings that affect the class, and not to be forced to accept any class action settlement.

Investors / shareholders that choose to opt out of securities fraud class action lawsuits generally hire their own lawyers and file their own independent claims against in an individual litigation. 

Research reveals very clearly that opt out plaintiffs can and often do fare much better than the 2.2 percent average securities class action settlement in 2006. 

A prominent opt out success story is the recent AOL Time Warner Class Action. In April 2007, Oakbridge Insurance Services wrote in its “Insights” report that AOL Time Warner opt-out plaintiffs reported recoveries that were between 6.5 and 50 times higher than amounts  plaintiffs received in the AOL class action settlement. Other sources indicated that the average AOL Time Warner opt-out investor recovered 20 times more than the average class action investor. 

It is too early to tell whether the huge advantage for AOL Time Warner opt out plaintiffs will prove to be high or typical. Still, Oakbridge noted that, as a whole, the “the elevated percentage of investment loss recoveries in the opt-out cases” is a concern to class action defendants and to D&O insurers. 

C.  Conclusion

 

Information in report is intended to illustrate the potential relative merits of class action litigation and opt out litigation for securities fraud plaintiffs. Based on statistical evidence from NERA and the outcomes of prominent securities class actions, our conclusion is that shareholders with substantial losses have a strong chance to recover a higher percentage of losses in individual opt out cases.

 

 

*All aggrieved investors should seek professional advice prior to selecting any course of action

Disclaimer

 

Because the report is largely statistically based, it does not take into account individual circumstances such as quality of counsel, and facts which may be unique to any institution or individual.

This report is solely for informational purposes. It is not legal advice.

Brett D. Sherman, Esq.

Managing Attorney

The Sherman Law Firm

Email:

Info@shermanlawyers.net

 web:  

www.shermanlawyers.net

blog:  

 The Wall Street Law Blog

Phone: 201-723-9470

Fax: 646-395-1438