Category: Sui Generis

The Financial Times has been the platform of two interesting exchanges recently, by way of letters to the editor in rapid succession. The first is between two chief executives of a stock exchange, the second between two US readers of the paper.

Neal L. Wolkoff, Chairman and Chief Execitive of the American Stock Exchange, kicks off (here) with a reference to Roel C. Campos’ AIM ‘casino’ comment (see previous post) before going on to critise SOX as being ‘overly burdensome’ and laud AIM as a base for promoting Amex’s own The American Platform (TAP), the ‘junior equities market for micro and nanocap stocks based loosely on the examples of London’s AIM and Toronto’s Venture markets’ (source) and the US as ‘the home of capitalism’.

Clara Furse, Chief Executive of the London Stock Exchange, deals a blow in response (here). First she accepts the compliments, then points out that he ‘overstates the role of US regulation in the success of Aim’:

Aim is attracting companies from Australia, Canada, China, Germany, Israel, Ireland, Italy, and Sweden among many others. And the last time we checked, none of these countries was subject to the oversight of US regulation! […] [R]ather than navel-gazing based on the dubious premise that the US is “the home of capitalism”, they might be better served by accepting that the flow of capital is global and will seek out the most efficient and effective marketplaces.

Another point she could have made, which was noted in the Bloomberg/Schumer Report, is that ‘[f]or many AIM-listed companies, the US capital markets are never an option: thus far in 2006, for instance, fewer than half of the companies that listed on AIM would have met the lowest initial market capitalization requirements on NASDAQ.’ (p.50 (54 of 142))

In an open letter, Max W. Berger, of Bernstein Litowitz Berger & Grossman LLP, too notes that ‘roughly half the companies listed on AIM fall under the $50 million market capitalization for listing on the NASDAQ, and nearly 75% fall under the $100 million required for listing on the NYSE.’

Amex is currently awaiting approval from the SEC to create its junior market.

The second exchange, between Thomas Niles and Charles L. Trozzo, concerns the plaintiffs’ bar: just growing rich or doing so with benefits to the class the serve too?

What’s more: Add a third exchange to that, between US reader Charles Sieck and the Financial Times itself (editorial), on the issue of ‘Wall Street[‘s] arguments for restricting class actions’, on the basis of Credit Suisse First Boston v Billing and Makor v Tellabs (see here and here for more on these cases).

Now the wait is on to see who will respond to this FT article, on the basis of the former case. Two quotes, including the conclusion, to get you started:

Other nations prefer to let experts oversee complicated sectors of the economy, such as their capital markets. We Americans, on the other hand, like to let Everyman sue Everybody: private lawsuits are a fundamental part of our system of economic regulation. […] The democratic legislature is the place to balance the goals of protecting investors and guaranteeing US capital formation. Amateur regulators, acting in their own interest, should stay off Wall Street.

The National Association of Pension Funds (NAPF) of the UK has published a paper on securities class actions, specifically aimed at pension fund trustees, entitled ‘Securities Litigation – Questions For Trustees’. (press release)

The day following the publication, The Times published an article on the paper in which it incorrectly portrayed the NAPF as a class action advocate and set it against the Association of British Insurers (ABI), which is well-known for its opposition against the use of class actions. In addition, the article contains at least two inaccuracies, namely regarding the distinction between securities and derivative actions and concerning ‘unclaimed’ monies.

From the paper’s introduction (before it answers each of ten questions):

UK investors have become more active in joining class actions, occasionally as lead plaintiff; something which was virtually unheard of until only a few years ago. It has also become noticeable that more European companies are being sued by investors in the US, so, like it or not, class actions are becoming of greater interest to UK investors, including pension funds. (WV&Z’s emphasis)

Granted, ‘joining’ may be an unfortunate choice of words, as it could be read as either ‘moving for lead plaintiff status’ in order to actively litigate a case or ‘filing a claim’ in an action once a settlement has been achieved, depending on the context (see also question 1 there). Be that as it may, the introduction continues thus:

[Notwithstanding litigation risk and cost h]owever, we should recognise that given the limited shareholder rights and protections currently available (most notably the ability to vote a director off the board), litigation will continue to be a feature of the US system. UK pension funds have a growing investment in the US and therefore should not, without careful consideration of their reasons, ignore the potential to recoup losses or encourage better governance there.

Throughout the paper the NAPF comes across as neutral, almost reluctantly stating the facts and options available. The ABI on the other hand is a vocal opponent, as it speaks of, for example, ‘[t]he cost to Europe of America’s class action addiction’ (Financial Times op-ed, by Peter Montagnon, ABI’s Director of Investment Affairs). Its solution is not to litigate but to seek the introduction of “a real system of shareholder rights” and to encourage “better dialogue between shareholders and companies” instead.

The answer is that the NAPF and ABI are actually aligned, with the difference of the NAPF being more pragmatic: both organisations seek the same solution of influence on corporate governance matters for their members, but the NAPF wants to make clear there is a (passive) benefit along the way to that goal already too.

Finally then, the inaccuracies. The NAPF paper answers questions on securities class actions, which the article refers to (as “advising” to “chase”) in its opening paragraph. Yet nearer the end, the article speaks of “compensation claims against companies” on “corporate issues such as executive remuneration”. The latter kind of action is usually a derivative action, not the separate securities class action, but this distinction is not made.

Secondly, the article states that “[m]uch of the money won goes unclaimed.” Truth is that, once a settlement has been achieved, the notice of the class action settlement will include a plan of allocation section, which describes the pro rata distribution of the settlement fund. Less claimants will result in a higher recovery per share, pro rata, but no monies will be left in the settlement fund. Some plans (for example, In re AT Cross Co Securities Litigation‘s, pp.9,10) include the arrangement for an unlikely balance remaining after distribution and fees to be donated to charity.

The announcement of Cohen Milstein Hausfeld & Toll PLLC‘s move to London created a wave of publicity for the firm (see for example this previous post and here for subsequent WV&Z posts that mention the firm). Now that it has been established here, it seems the second wave is in the works.

The daytime BBC programme Working Lunch recently interviewed Michael D. Hausfeld, a name partner of the firm, in a segment called ‘American Import’. (See the video here, or alternatively here.) As Cohen Milstein notes on its website, the segment discusses the “potential role of US plaintiffs’ law firms in European class actions” as well as, among other things, the benefits of the class action as a mechanism of dealing with a large number of similar complaints.

Yesterday, the Sunday Times, under the headline ‘US class action star targets UK’, published an ‘exclusive interview’ with him, with details of a number of cases the firm has litigated or is currently litigating: “He is already understood to be lining up huge British-based class-action lawsuits based on cases under way in the US.”

What’s more: Also see The Times’ – the Sunday Times’ sister publication – The Water Cooler which reports on the buzz in legal circles, on the firm’s search for City partners to occupy its new office.

(See previous post) Channel 4 News – Channel 4 is one of the five terrestrial, main television channels in the UK – ran a report (watch it) on the action. One of those interviewed is Patrick W. Daniels of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, which is one of two law firms representing the City Council in the action. (The other firm is Provost & Umphrey LLP.) The programme goes into some detail to explain the case and the allegations.

Separately, the City Council may reportedly have been unsure as to whether it will be appointed lead plaintiff, its lawyers are vigorous in their case on behalf of it and fellow movant Amalgamated Bank, as this court document shows (with thanks to an alert reader who prefers anonimity).

There are apparently three individual entities or groups of movants left for the lead plaintiff role at the date of that document’s filing, 15 February 2007, the other two being Pensionskassernes Administration A/S of Denmark, Stichting Pensioenfonds ABP of the Netherlands, Sjunde AP-Fonden of Sweden and Mississippi PERS of the US,
collectively (represented by Schiffrin Barroway Topaz & Kessler LLP and Grant & Eisenhofer PA) and Union Asset Management Holding AG of Germany (Motley Rice LLC and Sturman LLC) on its own. The collective claims to have lost $87.9 million, Union Investment $20.3 million and Wolverhampton/Amalgamated $5.9 million.

Wolverhampton or not, considering the number of foreigners compared with the number of locals, chances are that, if the case does go ahead, it may well be a foreign (co-)lead plaintiff heading it. (See case update ii.)

It’s front page news on today’s Financial Times (top left, no less, and see Lombard, page 18; subscription required for both), on page 18 in the Wall Street Journal and in a whole host of UK newspapers: US Securities and Exchange Commission official Roel C. Campos called the LSE‘s Alternative Investment Market a ‘casino’. One such UK paper is The Times, under the headline, London v New York: top regulator attacks AIM ‘casino’. (It’s also an entry in the WSJ Law Blog‘s SEC Roundup of today.)

Campos, an SEC Commissioner, is reported to have cited a Dow Jones Newswires report, saying that 30 per cent of new listings on that market “are gone within a year”, adding that that “feels like a casino to me, and I believe that investors will treat it as such”. NYSE’s John A. Thain’s recently remarked on the regulation of AIM too (previous post). Campos has since retracted, saying that his comments were “taken out of context”.

The truth, as confirmed by an LSE spokesperson, is that this figure is closer to 3 per cent of listed companies going into liquidiation or being taken over, the same as that for the LSE’s main market.

The FT rightly points out that, also considering the swift responses from the LSE and other London market participants and Campos’ equally expeditious retraction of the statement, this is another example of the intensity of the competition between London and New York.

What’s more: Online-Casinos.com has this report on the comments, alongside online game and gambling resources, rules and tools.

What’s more, too: Today’s (12 March 2007) Wall Street Journal adds to the dismissal of Campos’ casino comment in its breakingviews column, from the question “Why do the Americans keep bashing AIM?” onward. The Financial Times has this letter in response to its earlier reporting.

As promised some time ago (here), some comments subsequent to the Bloomberg/Schumer report (press release; presentation (video)); but not without first having referred to The D&O Diary, The 10b-5 Daily and PointofLaw.com for their (extensive) analyses of the report. Here then is a collection of a few articles and op-eds on the report and the issues it raised from over here.

Mind you, next week another report is to be released on US competitiveness and regulation, this time by the US Chamber of Commerce‘s Capital Markets Commission, or, in full, the Commission on the Regulation of US Capital Markets in the 21st Century. (Whatever the full name of the report, coining it here first, let’s agree to call it the Daley/Culvahouse report.) It will be presented at the First Annual Capital Markets Summit: Securing America’s Competitiveness, 14 March 2007, Washington DC (event details; webcast). (Interesting advance note on that upcoming report: the CIO of the Pennsylvania State Employees’ Retirement System is a Commission Member; SERS has been lead plaintiff in a number of securities actions, including against CIGNA Corp. and Royal Dutch/Shell Transport, as they then were.)

Earlier this week Charlie McCreevy, MEP and Commissioner for the Internal Market and Services, stressed the importance of “[t]ransatlantic regulatory cooperation in capital markets”, in an op-ed in the Wall Street Journal (subscription required):

For one thing, anything that hurts U.S. capital markets also hurts European companies and our economy. Economic integration runs deep, particularly in financial markets. Companies active on both sides of the Atlantic are also affected by the rules on both sides of the Atlantic. Competitiveness is a two-way street. We in Europe have improved the competitiveness of our financial markets by integrating, changing our financial regulatory structures, adopting best practice and transparent policy making, and avoiding intervention except when really necessary.

Irwin M. Stelzer, Senior Fellow and Director of Economic Policy Studies at the Hudson Institute, dutifully explores the regulatory angle in his opinion piece in the Sunday Times, but therein also incorporates more about the cities beyond the capital markets, such as property prices and this conclusion: “It’s one thing for a New York investment banker to lose a big deal to a London rival, quite another to know that the victor is celebrating in a bar superior to one in which the loser is drowning his sorrow.”

The economists at Goldman Sachs Group Inc. have weighed in on this report and the earlier Paulson Committee report as well, in a research note entitled “Is Wall Street Doomed?” (available to clients via the GS Institutional Portal, with thanks to Golman Sachs International – Media Relations for their kind submission to WV&Z): “[W]e do not think this [regulatory climate and policy reform] is the main problem – nor indeed that Wall Street is “losing out” in a regrettable way. Instead we see the growth of capital markets outside the US as a natural consequence of economic growth and market maturation elsewhere.”

It puts the reports’ emphasis on the legislative factor in perspective:

Legal and regulatory factors probably do matter, and policy reform might strengthen New York’s competitiveness. Nonetheless, we do not see them as the critical drivers behind the shift in financial market intermediation, even in the aggregate. Quite simply, economic and geographic factors matter more. […] [For example, in deciding not to list in the US,] the key factors were liquidity and execution [and not legislative and regulatory burdens].

The note then goes on to compare New York with London in particular (“The question of ‘is New York losing out?’ is typically phrased as ‘is New York losing out to London?’”) and explore trends in investment management and the world economy. In conclusion, it answers the question in the title:

So, is Wall Street doomed? Certainly not. […] At the very least, many US-based firms are likely to profit from this trend – including financial intermediaries, lawyers and accountants.

Finally, in chronological order, a selection from the Financial Times:

• Larsen: City is fast catching up with Wall Street (subscription required)
• Wighton: Threat to New York as centre of finance (subscription required), which generated this letter in response
• Beales: Cut red tape on US regulation, but keep the culture
• Willman: The City v Wall Street: the smart money is on (and in) London

What’s more: with a hat tip to London financial daily CityA.M. for spotting this, why the New York Post accompanied its article on the report with a picture of the Houses of Parliament, the UK’s governmental buildings, is anyone’s guess. (Subscribe to WV&Z here.)

The comparitive law paper Disney in a Comparative Light (author; with thanks to Adam Savett, now at Securities Litigation Watch, for the notification) explores a number of differences between Delaware and German corporate law, using cases against The Walt Disney Company (NYSE: DIS; opinion) and Mannesmann AG (opinion and press release, both in German) as a starting point. (Note that Mannesmann AG, as it then was, is no more (see here, in German or here, in English) and that the case was actually not against the company but six of its directors.)

The Disney case was brought in Delaware Chancery Court, the Mannesmann case in the German Federal Court of Justice (Bundesgerichthof).

After having given the details of the two cases, the paper examines the following six differences between the two jurisdictions’ laws and policies: the degree of courts’ deference to the business judgment of corporate directors; the role of disinterested directors; employee representation on the board of directors, or ‘co-determination’ (Mitbestimmung); the attitude towards executive compensation; the ability for shareholders to waive fiduciary duties; and the means by which to enforce fiduciary obligations.

Each of the six contrasts is conclusively discussed on its own and there is no final, single conclusion, other than that, well, the two jurisdictions are different and have dealt with common concerns with executive compensation in their own ways.

The paper ends with this final thought on convergence of laws:

[B]efore becoming too immersed in debate about whether Germany should import corporate law from Delaware or Delaware should import corporate law from Germany, it is useful to keep in mind that Japanese automobile corporations currently are outperforming both the Americans and the Germans.

What’s more: if you haven’t taken The Economist’s Corporate Non-Governance quiz yet, the answer to question 7 is in the paper, on page 32. But, of course, you’ll know the answer anyway.

WV&Z has contributed content on recent developments of London’s Alternative Investment Market rules and regulations to The D&O Diary in the past few days, which has resulted in two posts, here and here, both a well recommended read.

On the same topic of UK market regulation, the Financial Times (Lombard) yesterday presented its case for the Financial Services Authority – who in its capacity as UK Listing Authority is the competent authority for listing – to learn from Gucci’s brand management mishaps in the past in managing the integrity of its “London listing” brand. (The consultation paper the article refers to on hedge fund listings is CP06/21: Investment Entities Listing Review.)

The previous print issue of The Economist (of February 17th 2007) contains three articles on class actions. They can be found online, as follows (with thanks to Best in Class for the second link):

• Accepting the ambulance chasers (subscription required, pp.16,17)
• If you can’t beat them, join them (pp.71,72)
• Classier actions (pp.80,81)

To regular readers of WV&Z and learned friends however, there is hardly anything new here, rather, all three together serve as a tidy collection of what’s already elsewhere. The basic theme of the first two articles is that ‘the American-style collective lawsuits [are] coming to Europe’ and what the differences in practice are between the US and the various European jurisdictions – of the latter, some do and some do not (yet) accommodate for ‘group actions’.

Jurisdictions singled out include Britain, the Netherlands, Germany and France; cases mentioned, among others, are Royal Ahold NV (securities, settlement), Parmalat SpA (securities, pending), BP Plc (derivative, see this previous post) and British Airways Plc (anti-trust, previous post).

In addition, a recent example of a ‘collective action’ brought in the Dutch courts by an investor association and institutional investors which led to a court-approved settlement for the whole class is the Unilever NV settlement (previous post).

The third article is about the drop in the number of US class actions, but how those fewer actions yield higher settlements by an increasing share of institutional lead plaintiffs. For links to the sources of competing filing statistics and a thorough analysis of them and the trends behind them, see The D&O Diary, The 10b-5 Daily and PointofLaw.com.

Now, for more fun, also at The Economist, check out its Corporate Non-Governance quiz. You’re unlikely to finish it without at least a chuckle or two.

With all eyes on New York and London on the current topic of who’s the leader of the pack as the financial capital of the world, spare a thought for Frankfurt. The report Finanzplatz Frankfurt – Ein Standort bewegt sich (in German, or see this summary), which it must be noted was published some time ago in June last year, was the recent subject of review in the Financial Times and the Bahrain Tribune – the latter, admittedly, not one of my daily reads – under such headlines as ‘Frankfurt suffering’.

Frankfurt am Main, sometimes optimistically referred to as ‘Mainhattan’ or less often as ‘Bankfurt’, is compared with London and Paris in this report, which was co-authored by Landesbank Hessen-Thüringen Girozentrale (or Helaba for short) and HA Hessen Agentur GmbH, the state’s economic development agency, among others. In its comparison it covers equity markets, business education, logistics and costs.

The authors make several recommendations, including making existing legal frameworks more competitive internationally (report p.72, summary p.8) and conclude that:

[t]he British financial centre holds a position of uncontested pre-eminence in Europe. On the European continent, Frankfurt and Paris are competing for leadership. Frankfurt as a financial centre has good chances of capturing that leading position over the medium term and securing it over the long term.