With Vigour and Zeal

Clara Furse, chief executive of the London Stock Exchange, outlines her US strategy for and dismisses recent criticisms on its growth market AIM, the latter most recently from NYSE’s CEO John A. Thain, in this editorial in today’s Wall Street Journal (subscription required). (See also this previous post on an AIM company adviser’s mid-Atlantic liability which touches on the US interest in the market and the LSE webcast “AIM in the US“.) In particular, she addresses the complaints of AIM being engaged in ‘regulatory arbitrage’ and the quality of companies the market attracts.

A quote, in direct response to the Paulson Committee’s Interim Report:

AIM’s regulatory system has worked very well in its first decade and the exchange is in the process of completing a regulatory consultation, which is intended to ensure that AIM has the appropriate regulatory context for further strong international growth in its second decade.

She also argues that the relatively greater economic risk associated with investing in AIM companies is due not to the market’s regulatory environment but is inherent to the nature of the early stages of development of these companies.

A few days earlier, Thain ‘lambasted‘ AIM at a media briefing at the World Economic Forum in Davos.

He is reported to have said there that AIM does “not have any standards at all and anyone could list. I think they are starting to tighten up, and they should.” The immediate response was dismissal of those remarks as ‘sour grapes‘, with quotes from a nomad, an AIM company auditor and Martin Graham, LSE’s Director of Markets. (Note the time difference between those two reports.)

Also see the Wall Street Journal’s comments (subscription required) on Thain’s ‘attack’ in the context of the tale of the LSE - NASDAQ combination tussle.

Labaton Sucharow & Rudoff LLP issued a press release earlier this month (10 Jan 07, here and here), announcing its alliance with the Italian firm of Pietro Adami, which is in line with Labaton’s earlier alliance with the firm TILP International of Germany (31 May 06, here and here). That alliance was then billed as “the world’s first truly international [securities litigation] practice” (WV&Z’s emphasis). Schiffrin Barroway Topaz & Kessler LLP, as it now has become, followed with its alliance with another German firm, Winheller Rechtsanwälte (3 Oct 06, here and here), and then, as now widely reported, Cohen Milstein Hausfeld & Toll PLLC with its announcement of going one further and opening an office here in London (16 Oct 06).

Since then it’s been Cohen Milstein primarily who has been held out as the “leading proponent of expanding the American plaintiffs’ bar into the European legal market” (source, with thanks to PointofLaw.com), certainly on the face of it on press inches generated. It prompted articles on the likely effects of plaintiff firms coming over to ply their trade here and quotes from other firms in response that they would not follow, or would but not with their own office here. (See this previous post and just two of many examples more: The American Lawyer, which mentions all three firms, and the running coverage of Lies, Damn Lies, & Forward Looking Statements on the three.) And here’s the latest one commenting on a European move, Todd S. Collins of Berger & Montague PC in Financial News: “It’s going to be necessary to bring lawsuits in more parts of the world. We have consulted European lawyers – the time is coming.”

WV&Z was surprised to learn then that Murray Frank & Sailer LLP had alliances in place with the very same two firms before Labaton had, before the subsequent announcements on partnerships and the following media attention, from which Murray Frank has been notably absent. Murray Frank ran an article in the sponsored supplement to the May 2006 issue of Investment & Pensions Europe magazine on the benefits of transatlantic alliances, outlining its own “strategic partnerships” with TILP and Adami as examples. The article was written by then-Murray Frank partners Brian P. Murray and Eric J. Belfi. The latter has left that firm: he joined Labaton, on 31 May 2006.

Asked for comment, Murray Frank acknowledged that their alliances pre-date Labaton’s, but also that they are now defunct, as of May 2006, though their international scope of practice very much remains. Labaton acknowledged that Murray Frank was there first, but in effect made it clear that the emphasis in its claim should be on the nature of the international practice and the depth of its relationships with its foreign partners. It is here submitted then that, semantics aside, it’s simply truly unfortunate for Murray Frank it has so far missed the attention others have received collectively and individually recently.

In separate news, Heller Ehrman LLP has also announced a London office, its first in Europe. One of the firm’s practice areas is securities litigation, but the London office is to focus on corporate, real estate and anti-trust and competition, at least initially. In a statement relating to the news of having landed Lawrence W. Keeshan, formerly PricewaterhouseCoopers‘ Global General Counsel and a senior litigation partner at Gibson Dunn & Crutcher LLP, to head its securities litigation practice, Heller Ehrman chairman Matthew L. Larrabee noted: “We are incredibly pleased to have Larry join us at a time when we are pursuing a strategy of growth in Asia and Europe.”

What’s more: Pietro Adami is mentioned at The 10b-5 Daily (in its ‘Curiouser and Curiouser Archives’) in connection with a US securities class action against the Italian state. (The two US plaintiffs’ firms acting as lead counsel in that case are Pomerantz Haudek Block Grossman & Gross LLP and Berger & Montague PC.)

With thanks to Adam Savett for allowing me to guest post at Lies, Damn Lies, & Forward Looking Statements on the Committee on Capital Markets Regulation’s Interim Report, I would like to add a few updates and comments to that post.

One of the two Bills discussed, the Investment Exchanges and Clearing Houses Bill, as it then was, has since received Royal Assent. The Act “confer[s] power on the Financial Services Authority to disallow excessive regulatory provision by recognised investment exchanges and clearing houses”.

Now we’ll have to see if the FSA will put the Act to use of course. As has been argued elsewhere (no link), Parliament didn’t intervene to prevent Ford Motor Company from manufacturing left-hand drive Jaguars for local sale when it bought the UK brand. (And here not a word on how that acquisition subsequently fared.) That, granted, is of course a no-brainer and the comparison may well stand in the context of ‘regulatory creep’ and capital markets.

Practically though, before the FSA may come into play, the combination of NASDAQ and London Stock Exchange hasn’t actually happened yet and the jury is still out if it will. (Today’s news on the tussle: Financial Times (Companies & Markets and Lombard, free content) and Wall Street Journal, subscription required.) The Fraud (Trials without a Jury) Bill is still in the House of Commons.

At the end of the post I refer to the ‘Ask the expert’ session with Glenn Hubbard, Co-Chair of the Committee, hosted by the Financial Times. The FT has published a selection of questions readers submitted with Hubbard’s answers.

Comments on the Bloomberg/Schumer Report will follow shortly.

Cohen Milstein Hausfeld & Toll PLLC’s London office, as WV&Z reported on in a previous post, remains in the news (though they haven’t updated their locations themselves yet.) In line with the FT’s earlier focus on the firm’s anti-trust practice, today the Wall Street Journal (on the front page, no less; to access online, subscription required) reports on the move and what the move could mean for London in terms of the UK taking on an examplary role in using private litigation to enforce anti-trust legislation in the European Union. (Also, see the WSJ Law Blog on this topic earlier.) It notes too that Howrey LLP, which already has an office here, is hiring competition partners as well.

Philip Collins, formerly a competition partner with Lovells and counsel with Wilmer Cutler Pickering Hale & Dorr LLP and currently Chairman of the Office of Fair Trading, the UK’s competition enforcement agency, is cautiously optimistic: “There’s a lot that can be learned from the American system. […] We must take a measured approach.”

The article mentions the US case against a vitamins cartel, in which among others Cohen Milstein acted as counsel, as an example of a case that could have been beneficial to potential plaintiffs outside the US, but who were not included in the settlement. (See Cohen Milstein’s Vitamins Antitrust Litigation section on its website and for example the US Department of Justice pamphlet ‘Antitrust Enforcement and the Consumer’ for more.)

What the article doesn’t mention is that Cohen Milstein apparently has already had a hand in English and EC proceedings regarding the vitamins cartel, having “worked extensively” with City firm Irwin Mitchell, according to the latter’s April 2006 submission in response to the European Commission’s Anti-trust Green Paper. As it says there (submission p.1), Irwin Mitchell represents a number of claimants in the English courts in “their claims concerning the operation of the Vitamins cartel.” (Note it there also endorses Cohen Milstein’s own Green Paper response submission.) Members of that cartel have been fined by the European Commission in the case also known as Re Vitamins Cartel, now this firm is claiming for compensation.

The Journal concludes with a quote from a representative of the US Chamber of Commerce affiliated Institute for Legal Reform. No points for guessing its position and views on the plaintiffs’ bar. (But here are two clues: one, two.)

Today’s latest reporting aside, WV&Z dug up two earlier articles - published in Forbes and in TheLawyer - on Cohen Milstein’s Michael D. Hausfeld’s ambitions outside the US. A quote:

“I wish I had no opportunity. […] I only have an opportunity if someone has committed a mass wrong. We’re answering a need in a void. There’s a void in the sense that there aren’t many lawyers that practise at our level and undertake the cases that we do.”

Thankfully accepting the hat tip to WV&Z from the D&O Diary in its post on the “light touch” approach to regulation in the UK, I would like to add the following note of clarification on the nature of the fraud report mentioned therein which “may be pertinent” (WV&Z’s emphasis) to the question of whether US exchanges are better off without those companies that are ‘avoiding “tougher” US listing requirements’.

The accounting firm BDO Stoy Hayward LLP tracks and reports on a very wide range of frauds that UK businesses in general are subject to. The definitions of ‘fraud’ and ‘fraudster’ it uses for its FraudTrack reports are not limited to listed companies, though it may well be inferred so from the New York Post article the post refers to and the blog White Collar Fraud’s subsequent running with the post and article.

One example of fraud the report tracks is ‘VAT carousel fraud’, which is a tax scam designed to evade Value Added Tax. A main finding in the forthcoming edition referred to is that “[a] very significant cause of the increase [in the value of reported fraud] is the rise of high value ‘VAT carousel frauds’”. It also includes ‘non-corporate’ frauds, such as of individuals “who commit an act against another individual, resulting in financial loss” and of individuals “who commit fraud against the [UK tax authority]”. It is therefore arguably not wholly representative to discuss the report’s findings in the context of securities markets, “London’s share of new listings” and the Committee on Capital Markets Regulation without qualification.

For more about the UK listing requirements, a good source to start with may be the Financial Services Authority (FSA), referred to as the UK Listing Authority in its capacity as the competent authority for listing in the UK.

What’s more: The D&O Diary has updated its post in response to the above and has also posted a comment here.

Friday and Saturday last week, the Wall Street Journal (subscription required) and the Financial Times, respectively, published opposing views and arguments in their op-eds regarding the departure of Home Depot Inc. (NYSE: HD) President and CEO Robert L. Nardelli and his $210 million pay.

Who said what:

Wall Street Journal

[B]y the way, the terms were disclosed in the annual Home Depot proxy. That contract can’t be abrogated now simply because the board has concluded it made a mistake. Of that $210 million figure, more than $180 million is owed to Mr. Nardelli as part of his original job offer. […] [T]he beginning of wisdom would be for the tub-thumpers to stop confusing “severance” with hiring pay.

Financial Times

CEO salaries do not come from the pockets of ordinary employees but from the pockets of shareholders, and it is the shareholders who need to take a stand against rewarding failure. [US shareholders] could do with a UK-style non-binding vote on executive pay.

What’s more: See Ted Frank’s take at PointofLaw.com (one day prior to the Journal’s), Kevin LaCroix’s at The D&O Diary and Home Depot’s own words.

It was The Lawyer who broke the news in October last year, which was picked up the same day by Lies, Damn Lies, and subsequently by at least The Times and The Guardian. Today the Financial Times (subscription required) can be added to the list making the following announcement: Cohen Milstein Hausfeld & Toll PLLC is coming to town. (Mind you, alert readers of Legal Week could have figured it out for themselves half a year ago already, on 6 July 2006. Dig up that day’s copy and skip to the recruitment pages, then look for two positions under the headings ‘Litigation (Class Actions) 4-8 pqe’ and ‘Class Action (US Firm) Lonndon’ [sic]; recognise which firm is the anonymous client’s name from the description there?)

The previous articles emphasise the securities practice of the firm in their headlines first, before describing the various other practices as well, including the anti-trust one. Today’s article however confirms that the initial focus of the London office will be on anti-trust and probably not so much on “encourag[ing] British pension funds to sue the companies they invest in.”

Bernstein Litowitz Berger & Grossman LLP and Grant Eisenhofer PA are mentioned in the article as examples of firms - with quotes from John P. (”Sean”) Coffey and Stuart M. Grant, respectively - that will not immediately follow here but who have been cultivating relationships with foreign institutional investors.

For what may be a flavour of what’s coming, See Cohen Milstein’s March 2006 submission to the European Commission in response to its Anti-Trust Green Paper and the firm’s June 2006 price-fixing case against British Airways plc (LSE: BAY; NYSE: BAB) and Virgin Atlantic Airways Limited.

What’s more: To find all WV&Z posts in which Cohen Milstein is mentioned (including updates to this post), you may use the Search function.

The Financial Times Deutschland reports today (in German; see here for a related article in today’s Financial Times in English, subscription required) that the so-called Schrempp-Prozess, or “Schrempp litigation” after DaimlerChrysler AG’s (NYSE, XETRA: DCX) former chairman Jürgen E. Schrempp, has come to an end by way of settlement.

The case, which was on course for a 9 January trial date, relates to the DaimlerChrysler securities litigation as settled in 2003. The trigger of that litigation was the remark and alleged misrepresentation by Schrempp that, following the initially claimed “merger of equals” of Daimler-Benz AG with Chrysler Corporation wasn’t a merger but actually a takeover by the German company. The settlement was for $300 million, paid for by DaimlerChrysler. The insurers didn’t want to pay out on the €200 million D&O policy cover, claiming that Schrempp acted with intent and so DaimlerChrysler then sued. Only AIG reportedly contributed €25 million toward the cover, the suit was for the remainder. This settlement sees the remaining eight insurers – ACE, AXA, Baseler, Chubb, HDI, Gerling, XL and Zurich Financial - contribute a further €168 million towards the US recovery.

Lead Counsel in the securities class action were Entwistle & Cappucci LLP, Grant & Eisenhofer PA, Bernstein Litowitz Berger & Grossman LLP, Barrack Rodos & Bacine; Defendants’ Counsel was Skadden Arps Slate Meagher & Flom LLP.

But that doesn’t end all proceedings related to the merger. Two more class actions, one in the US and one in Germany, are still ongoing.

According to regulatory filings by the company, a class action, containing allegations similar to those in the prior class action complaint, was filed against it in 2004 in the US District Court for the District of Delaware on behalf of shareholders who are neither US citizens nor residents of the United States and who acquired their DaimlerChrysler shares on or through a non-US based stock exchange. The Court granted DaimlerChrysler’s motion to dismiss the complaint in January 2006. Plaintiffs then filed a notice of appeal to the Court of Appeals for the Third Circuit the following month.

In 1999 in Germany, former shareholders of Daimler-Benz AG instituted a valuation proceeding (a so-called Spruchstellenverfahren) against DaimlerChrysler AG in Stuttgart district court, claiming that the ratio used in the course of the merger with Chrysler Corporation to determine the value of the Daimler-Benz shares was too low. In August 2006, the court ruled that, based on the December 2005 report produced by an expert commissioned by the court, DaimlerChrysler must pay an additional €22.15 per share, bringing the cost of the decision to an approximate €232 million (based on 1.8% of Daimler-Benz shares claiming). (See this article in the financial daily Börsen-Zeitung (in German) on the decision, which comes to the conclusion that, even though it may take seven years, this outcome confirms that “complaints for shareholders (nearly) are always rewarding”.) DaimlerChrysler, which earlier in the year rejected a settlement, notes that it “continues to believe that the exchange ratio set by the company at the time was appropriate and has appealed the decision of the district court.”