Lead Plaintiff Research Articles

Do Shareholders Prefer Institutional Lead Plaintiffs?

Previous research has documented that institutional lead plaintiffs are associated with higher settlements and marginal improvements to governance following securities class action lawsuits. In this study, we examine the market reaction to an institution being named as lead plaintiff to examine whether the market views the improvements in governance to be worth the higher costs. We find that the abnormal returns surrounding the announcement of an institutional lead plaintiff are significantly positive, and significantly larger than the negative market reaction to the appointment of a non-institutional lead plaintiff. However, we find only weak evidence showing that the reaction is more positive for firms in greater need of governance improvement, nor is the quality of governance a consideration in seeking to be lead plaintiff. Instead, our results suggest that the market reaction is more positive when institutions retain ownership in the defendant firm, suggesting that their long-term interests are seen as more aligned with other existing shareholders.

Developments from the PSLRA: Beyond the Lead Plaintiff Provision in Financial Research

Since the passage of the Private Securities Litigation Reform Act in 1995, a robust literature has analyzed the impact of the lead plaintiff provision, which made it more likely for institutional investors to take on the role of lead plaintiff. Recently, less investigated provisions in the PSLRA have had an increasingly relevant role in shareholder litigation, corporate governance, and how firms choose to go public. In this article, we review the law, finance, accounting, and economics literature to show how these other provisions have evolved over time, affecting the incentives for corporate disclosure, how firms go public, and corporate governance.

Lois Curtis, lead plaintiff in Olmstead case, dies

Lois Curtis, the lead plaintiff in Olmstead v. L.C., the monumental Supreme Court case that solidified the right for people with disabilities to receive services in the most integrated settings possible, died of pancreatic cancer on Nov. 3, at 55, reported the nonprofit, disability‐led organization able South Carolina, along with several news outlets. Curtis fought for the elimination of unnecessary segregation of people with disabilities. Curtis had cognitive disabilities and schizophrenia and was known to wander off into the community. Because of a lack of education and understanding of disabled people, Curtis often found herself in the custody of authorities who demanded that her family force her into institutionalization. In the mid‐90s she sought help from the Atlanta Legal Aid Society, asking to be released and given services that would allow her to live on her own in the community. They filed a case against the state of Georgia, the defendant being the commissioner of the Georgia Department of Human Resources, Tommy Olmstead. In 1999, Curtis won her case after the Supreme Court found that she was unjustly segregated as a person with a disability and that such segregation was discrimination in violation of Title II of the Americans with Disabilities Act! Curtis went on to live her life in her community, just as she wanted. Ira Burnim, legal director of the Bazelon Center, in an article in The New York Times about Curtis' life and death, wrote, “This is the first time the court has announced that needless institutionalization is a form of discrimination.”

Fighting for Farmers

Fighting for Farmers

Coalitions among Plaintiffs’ Attorneys in Securities Class Actions

Abstract This article examines contests among plaintiffs’ law firms to become lead counsel in securities fraud class actions. We study lead counsel appointments in all federal securities class actions from 2005 to 2016. Although the typical class action has several lead plaintiff motions, many of these motions will either withdraw or combine before the judge chooses the lead plaintiff and lead counsel. We find that law firms’ decisions to combine correspond primarily with the existence of relationships between law firms rather than case characteristics. When motions combine, the number of selected lead counsel typically increases. We also find that the correspondence of prior relationships between law firms on decisions to withdraw or combine does not increase with our proxies for the importance of synergies between law firms.

Jim Obergefell, Lead Plaintiff in Landmark Same-Sex Marriage Case, to Address APA

Jim Obergefell, Lead Plaintiff in Landmark Same-Sex Marriage Case, to Address APA

Daughter of the Boycott: Carrying On a Montgomery Family's Civil Rights Legacy by Karen Gray Houston

Reviewed by: Daughter of the Boycott: Carrying On a Montgomery Family's Civil Rights Legacy by Karen Gray Houston Jonathan L. Entin Daughter of the Boycott: Carrying On a Montgomery Family's Civil Rights Legacy. Karen Gray Houston. Chicago: Lawrence Hill Books, 2020. ISBN 978-1-64160-303-4. 241 pp., cloth, $27.99. The Montgomery bus boycott was a pivotal chapter in the history of the civil rights movement. That 382-day protest, which culminated in a landmark Supreme Court decision outlawing segregation in public transportation, helped to make Rosa Parks a national icon and launched the public career of Dr. Martin Luther King. In Daughter of the Boycott, longtime journalist Karen Gray Houston provides important new insights into events that have attracted considerable scholarly and popular attention. The author has a unique perspective: her uncle, Fred Gray (whom she affectionately calls Uncle Teddy), represented Parks and King as well as numerous other civil rights activists and the victims of the infamous Tuskegee syphilis experiment. Her father, the late Thomas Gray, played an important behind-the-scenes role in the boycott both as a driver in the car pool that enabled black residents to avoid the buses and as a board member of the Montgomery Improvement Association, which coordinated the protest. The book has a significant Ohio connection: her uncle attended law school at Case Western Reserve University before returning home to Montgomery to fulfill his goal of "destroying everything segregated [he] could find" (33). And her father moved to Cleveland not long after the successful conclusion of the boycott to attend law school, so the author grew up mostly in Cleveland and graduated from Ohio University. Because Ms. Houston was a preschooler when the boycott occurred, the book is only partly a memoir but also a work of long-form journalism that reflects her desire to learn more about those events as well as to assess their long-term impact. To be sure, she does provide a wealth of family perspectives. But she begins by telling the story of Hilliard Brooks, a black war veteran who was killed by a Montgomery police officer on a segregated bus more than five years before Rosa [End Page 159] Parks got arrested. And while she provides plenty of family-related details about the origins and implementation of the boycott, her book contributes important new details of this key historical episode through contemporary interviews with people who lived through the events, or their descendants. One chapter focuses on Claudette Colvin, a teenager who had been arrested for refusing to give up her seat on a segregated Montgomery bus several months before Rosa Parks was taken to jail, but whose story was largely forgotten until recently. Houston tracked down Colvin at her New York home a few years ago and obtained her reflections. That same chapter features interviews with other black women who were plaintiffs in the Supreme Court case after having run afoul of the bus segregation rules. Those women (and in the case of the deceased lead plaintiff, Aurelia Browder, her children) had not gotten a chance to tell their stories until now. Other chapters focus on Robert Graetz, a white minister who actively supported the boycott, and his wife, Jeannie; Sally Mosher, the daughter of the Montgomery police commissioner during the boycott; and Sara Jo Bagley, whose father-in-law was the manager of the Montgomery bus company at the time. Houston's reporting offers some hitherto unknown details that even specialists will find illuminating. But the book also provides valuable insights on racial issues in Ohio. Because Houston's father came to the North for law school, she spent much of her childhood in the Glenville section of Cleveland and then in the Ludlow community that straddles Cleveland and Shaker Heights. The family was among the first blacks to move into Ludlow, and Houston recounts some of the controversy (and violence) that resulted, as well as efforts by the neighborhood association to promote stable residential integration. Unlike her uncle Teddy, Thomas Gray stayed here for most of the rest of his legal career and was deeply engaged in civil rights issues in the Cleveland area. So the book offers...

Short Sellers, Short Squeezes, and Securities Fraud

The modern securities fraud class action lawsuit rests on a legal fiction. Plaintiffs are able to bring claims together and avoid proving individual reliance because over thirty years ago, the Supreme Court assumed that almost all investors purchase and sell securities based on their belief that the market price is accurate. In today's world of short sellers, options traders, algorithmic traders, and institutional investors with more valuation tools than the issuers themselves, that assumption cannot hold. These atypical traders, particularly short sellers, are becoming more and more visible in class actions as lead plaintiffs and lead plaintiff candidates, and sometimes as defendants. Courts have not decided exactly what to do with short sellers in securities fraud cases, and this Article is one of the first to create a theoretical and normative framework for atypical investors in the securities fraud paradigm. Building on a dataset of all 10b-5 cases filed in federal court in 2017, this Article explores the questions of when and whether short sellers and other atypical traders should benefit from the securities fraud class action structure.

The Evolving Delaware Books and Records Jurisprudence and the Caremark Conundrum

Corporate litigation increasingly operates through stockholders’ books and records inspection these days. The rise and expansion of stockholders’ rights to information from corporations have been among the most significant developments, albeit underappreciated, of late under Delaware corporate law jurisprudence. In the aftermath of a few mid-2010’s Delaware Supreme Court corporate law seminal decisions that heightened the pleading standards for stockholder plaintiffs to challenge a wide range of intra-corporate business transactions, the Delaware courts have consistently relaxed the interpretation of a statutory rule (Section 220 of the Delaware General Corporation Law) that grants stockholders a qualified right to inspect corporations’ books and records. This judicial re-balancing of the pendulum, has provided pre-complaint discovery to stockholders seeking to prepare for potential fiduciary-breach litigation. Equipped with strengthened pre-filing discovery tools, stockholders use such access to broad range of intra-corporate materials to substantiate their allegations in order to overcome Delaware’s laxed standard of reviews of corporate transactions, as well as monitor the corporate decision-making process. In this edition of Equity Chambers, Lee Rudy and Eric Zagar, two of the most seasoned stockholder plaintiffs’ litigation counsel, provide an insider’s perspective of Delaware books and records rapid changing doctrinal landscape. In addition, they discuss the clash between corporate litigation actors in the lead plaintiffs process context, as well as the current state of director oversight liability claims.

Is Everything Securities Fraud?

Securities litigation is a virtually inevitable fact of life for any public company. Often, investors sue because the firm’s managers engaged in fraud that directly harmed the shareholders – say, by doctoring the firm’s financials, or lying about known business prospects. However, shareholders also sue their companies when those companies engage in conduct that primarily harms a different set of constituents. When a drug on the market proves to have dangerous side effects, a faulty car battery bursts into flames, or an oil rig explodes, it’s difficult to say that the most direct victims are the companies’ shareholders. Yet shareholders commonly sue under the federal securities laws based on precisely this kind of conduct, on the ground that the managers should have better disclosed the underlying facts, and investors were harmed by the resulting drop in stock price because they did not. In recent years, these cases, dubbed “event-driven securities litigation,” have become more common, and have drawn increasing criticism on the grounds that they are opportunistic and generally lack merit. However, there has so far been no comprehensive examination of these lawsuits. This paper seeks to fill the gap by investigating the prevalence and attributes of these lawsuits. In a sample from 2010-2015, I find that roughly 16.5% of securities class actions arise from conduct where the most direct victims are not shareholders. However, I find that these cases have roughly a 20% lower likelihood of being dismissed, and settle for significantly higher amounts. These lawsuits are also more likely to be brought against large defendant firms, more likely to involve an institutional investor as a lead plaintiff, and much more likely to involve a non-SEC investigation or inquiry than cases where the primary victims are shareholders. Many of these attributes are used in the literature as proxies for merit. However, I argue that the merit of these cases is not clear-cut. Further, from a policy perspective, while these cases may have deterrence value, they may not be an optimal means to monitor corporate misconduct that harms outsiders.

Coalitions among Plaintiffs’ Attorneys in Securities Class Actions

This paper examines contests among plaintiffs’ firms to become lead counsel in securities fraud class actions. We study lead plaintiff appointments in all federal securities class actions involving a disclosure claim from 2005 to 2016. We find that law firms’ decisions to combine correspond primarily with the existence of relationships—either with clients or between firms—rather than case characteristics. In the case of initial motions, the presence of a relationship between attorney firms and certain institutional investor movants for lead plaintiff corresponds with motions that propose multiple lead counsel. We also find that although the typical class action has several lead plaintiff motions, many of these motions will either withdraw or combine before the judge chooses the lead plaintiff and lead counsel. When motions combine, the number of selected lead counsel typically increases. The existence of prior relationships between law firms corresponds with the decision to withdraw or combine. Finally, we find that the correspondence of prior relationships between law firms on decisions to withdraw or combine does not increase with our proxies for the importance of synergies between law firms.

May Class Counsel Also Represent Lead Plaintiffs?

For decades, courts and commentators have been aware that the potential for conflicting interests among the class representatives, class counsel, and absent class members is inherent in the class action device. Notwithstanding this realization and a substantial amount of scholarly and judicial commentary on class conflicts, one kind of conflict has not received due attention: the conflict that inevitably arises when class counsel also represents class members as individuals. We demonstrate that this conflict—so common to be almost invisible—arises from the very beginning of a putative class representation, and may create a fraught situation for a lawyer concurrently representing both the class (or putative class) and the class representative individually. We examine three situations in which these conflicts are most acute: holdouts (where the class representative holds out against a settlement that would benefit the class as a whole), sellouts (where the class representative could benefit personally by settling individual claims only), and payouts (where the class representative could use class action procedures to benefit personally at the expense of the class). We canvas potential solutions and conclude that radical ones—for instance, banning concurrent representation of a class and a class member individually—would do more harm than good. We therefore recommend more measured responses, primarily: (1) greater disclosure of risks to individual clients by their attorneys, (2) greater judicial oversight, and (3) an amendment to Rule 23 of the Federal Rules of Civil Procedure, or its advisory committee notes, calling on courts to police the types of conflict we identify.

Reforming China’s Securities Civil Actions: Lessons From U.S. PSLRA Reform and Taiwan’s Government-Sanctioned Non-Profit

Reforming China’s Securities Civil Actions: Lessons From U.S. PSLRA Reform and Taiwan’s Government-Sanctioned Non-Profit

Securities class action filings: 2017 year in review

PurposeThis paper aims to provide an analysis of securities class action filings in 2017 along with related trends over time and a comprehensive current view of the securities class action landscape.Design/methodology/approachThe paper details 2017 securities class actions and related trends by measures including the number and size of filings; market capitalization losses; litigation likelihood for US versus non-US exchange-listed companies; status and outcomes of filings (settled, dismissed, continuing); core versus merger and acquisition filings; individual versus institutional investors as lead plaintiffs; and concentration of class action activity by industry sector, stock exchange and court circuit.FindingsThe number of federal securities class action lawsuits filed in 2017 reached a record high for the second straight year. The jump was spurred by a sharp increase in lawsuits targeting mergers and acquisitions. The 412 securities class action filings in 2017 represented a more than 50 per cent increase from the previous record of 271 filings in 2016.Originality/valueThis paper details analysis by legal and industry experts.

Accountability and Competition in Securities Class Actions: Why 'Exit' Works Better than 'Voice'

The rules of litigation governance class actions are diametrically different from the rules of corporate governance, large part because the former works off an rule while the latter employs an in rule. This results higher agency costs the former context. To address this problem, reformers have long favored remedies such as the lead plaintiff provision of the Private Securities Litigation Reform Act (PSLRA), which theory give class members a stronger voice. Empirically, however, such voice-based reforms appear to have had no more than a modest impact. But an alternative remedy appears to be more promising: exit-based reforms that seek to provoke greater competition between class counsel and attorneys soliciting class members to opt out of the class and file individual actions with them state court. Unnoticed by academics, a major trend towards institutional investors opting out of securities class actions has developed over the past five years. More importantly, these opt outs appear to be recovering per share amounts that are a multiple of the class per share recovery. This development poses a variety of issues that this paper examines: (1) Why do opt outs do better?; (2) Do the opt outs gains come at the expense of those who remain the class?; (3) Can defendants feasibly restrict opt outs and how should courts respond to such attempts?; (4) Are pension funds and other institutional investors under a fiduciary or ERISA-based duty to opt out?; and (5) Will greater competition produce greater accountability?

Litigation risk and institutional monitoring

According to the existing literature, institutional investors have a significant impact on the litigation risk of publicly traded companies. This should be particularly true after the Private Securities Litigation Reform Act (PSLRA) of 1995 that encourages institutional investors to serve as lead plaintiffs in securities class actions. Using a large sample of securities class action lawsuits, we distinguish between different types of institutional investors based on their investment horizon and ownership structure and find that both factors significantly affect a firm's litigation risk. Short-term institutional investors are more likely to monitor firms through ex-post litigation, whereas long-term institutional investors prefer to monitor firms internally. Further, we document a nonlinear relation between the stock ownership of the largest institutional investor and a firm's litigation risk. In particular, as measures of long-term (short-term) ownership increase, the likelihood of litigation declines (increases). In summary, shareholder litigation may be an effective external monitoring device for short-term investors that serves as a substitute for internal corporate governance mechanisms.

Lead Plaintiffs and Their Lawyers: Mission Accomplished, or More to Be Done?

This chapter, written for the Research Handbook on Shareholder Litigation, surveys empirical work studying the lead plaintiff provision of the Private Securities Litigation Reform Act (PSLRA). That work finds that the lead plaintiff provision has encouraged institutional investors to participate in securities class actions, and that those institutional investors have negotiated lower attorneys' fees. Those benefits from the lead plaintiff provision are undercut, however, by political contributions made by plaintiffs' lawyers. We suggest additional reforms to promote transparency and competition among lawyers for lead plaintiffs. We also suggest reforms to the lead plaintiff provision intended to enhance the screening effect of the PSLRA.

Repeat Players in Multidistrict Litigation: The Social Network

As class certification wanes, plaintiffs’ lawyers resolve hundreds of thousands of individual lawsuits through aggregate settlements in multidistrict litigation. But without class actions, formal rules are scarce and judges rarely scrutinize the private agreements that result. Meanwhile, the same principal-agent concerns that plagued class-action attorneys linger. These circumstances are ripe for exploitation: few rules, little oversight, multi-million dollar common-benefit fees, and a push for settlement can tempt a cadre of repeat players to fill in the gaps in ways that further their own self-interest. Although multidistrict litigation now comprises 36 percent of the entire federal civil caseload, legal scholars have offered little sustained theoretical or empirical analysis as to how repeat players’ enforcement efforts shape litigation or claims resolution. We wade into this increasingly controversial territory to offer the first comprehensive empirical investigation of private attorneys’ efforts in multidistrict leadership on both the plaintiff and defense side. We found that transferee judges regularly appoint the same lead attorneys. To then uncover what the naked eye cannot see, we employed a social-network analysis to reveal repeat actors’ connections to one another. No matter what measure of centrality we used, a key group of attorneys maintained their elite position within the network. This matters considerably, for lead lawyers control the proceeding and negotiate settlements. They can bargain for what may matter to them most: defendants want to end lawsuits, and plaintiffs’ lawyers want to recover for their clients and receive high fee awards along the way.By identifying settlement provisions that one might argue principally benefit the repeat players, we examined the publicly available nonclass settlements these elite lawyers designed. Over a 22-year span, we were unable to find any deal that didn’t feature at least one closure provision for defendants, and likewise found that nearly all settlements contained some provision that increased lead plaintiffs’ lawyers’ common-benefit fees. Bargaining for attorneys’ fees with one’s opponent is a stark departure from traditional contingent-fee principles, which are designed to tie lawyers’ fees to their clients’ outcome. Based on the evidence available to us, we found reason to be concerned that when repeat players influence the practices and norms that govern multidistrict proceedings — when they “play for rules,” so to speak — the rules they develop may principally benefit them at the expense of one-shot plaintiffs.

Book Review: Low Power to the People: Pirates, Protest, and Politics in FM Radio Activism, by Christina Dunbar-Hester

Low Power to the People: Pirates, Protest, and Politics in FM Radio Activism. Christina Dunbar-Hester. Cambridge, Massachusetts: MIT Press, 2014. 320 pp. $36 hbk.Low Power to the People focuses on the Prometheus Radio Project, a Philadelphia-based media reform group that had its origins in the pirate radio upsurge of the 1990s. After the FCC shut down their station in 1998, these pirates turned their attention to media policy activism-in particular to promoting low-power FM by lobbying to expand opportunities for legal broadcasting and by providing technical and other assistance to community organizations interested in radio. The book also explores issues of identity (gender and geek, activist and expert) and technology, how Prometheus navigates the tensions between its political and technical objectives, its conception of radio as a medium for creating and maintaining community, and the politics of radio in the 21st century.The activists who founded Prometheus consciously set out to demystify and democratize technology. They were embedded in a do-it-yourself culture deeply committed to skills sharing, and to overcoming often-gendered divisions of labor that concentrate expertise, and hence power. But for many of the constituencies Prometheus served such considerations were at best secondary-they were primarily interested in communicating and community building. Dunbar-Hester documents a persistent tension between these objectives. Many of those most committed to local radio broadcasting have few technical skills or, more critically, a deep desire to acquire them; those prepared to lend their technical skills are often not experienced teachers and are eager to get on with the work. As a result, the skill sharing that characterizes Prometheus' work often has a largely symbolic character.Outside of the low-power and pirate radio movement, Prometheus is probably best known as the lead plaintiff in a successful legal challenge to the FCC's dismantling of ownership limits. At its peak, Prometheus had a half-dozen paid staff and a larger pool of volunteers working out of its offices in the basement of a West Philadelphia church. These served clusters of radio activists around the country who Prometheus assisted with seeking low-power FM broadcast licenses, and then helping successful applicants build their stations and start broadcasting.Christina Dunbar-Hester is an assistant professor of journalism and media studies at Rutgers University. Low Power to the People is based on ethnographic research from 2003 to 2007, supplemented by interviews and documentary research. Although she now teaches in a communications program, she originally approached the subject as part of doctoral research in science and technology studies. As a result, there is much stronger emphasis on questions of identity, gender, pedagogy, and the social construction of technology.The activists who launched Prometheus had broader interests in technology and do-it-yourself culture. But they chose to focus their activism specifically on radio, seeing it as a medium rooted in local communities, affordable, and capable of being highly democratic. …

The Role of Directors’ and Officers’ Insurance in Securities Fraud Class Action Settlements

AbstractBecause of previous data unavailability, it is unclear how important directors’ and officers’ (D&O) insurance is in securities fraud class action settlements. Using a unique data set of US D&O policies, we find that D&O insurance coverage is a less significant determinant of settlement amounts than estimated damages and proxies for the merits of cases. Limits on D&O insurance are related to settlements in only the weakest cases (those without allegations of accounting violations or institutional lead plaintiffs) where proxies for cases’ merits play a minimal role. Our findings suggest that most securities fraud class action settlements are meritorious and that accounting-related cases are a reasonable proxy for fraud.