In that context, Elizabeth Benjamin’s piece today at the NY Daily News reporting that Coffey managed to raise $1.5 million over the past six weeks hardly came as a surprise to those who know this industry.  Benjamin reports:

This puts Coffey on near-equal footing with former state Insurance superintendent Eric Dinallo, the only other of the potential Democratic AG candidates (so far) who has never before held elected office. Dinallo reported raising $1.75 million.

To date, the contender with the most amount of cash is Nassau County DA Kathleen Rice, who reported raising $1.4 million over the past six weeks…

With his personal wealth, copious political connections and the class action industrial complex fully behind him, I’d be surprised if his campaign coffers were unable to keep up with his more well known competitors.  What I’m curious to see is whether he can spin that spigot of campaign cash into name recognition and ultimately, votes.

An offer of $800,000 up front and 10% of any class action legal fees: That’s what law firm Milberg Weiss Bershad Hynes & Lerach proposed paying me in July 2003 to serve as its Marketing Director….

…After working for the Securities and Exchange Commission, I’d spent two decades advising pension funds on investigating financial wrongdoing among money managers and had connections to the union members, cops, firefighters and various others who oversee such funds. Milberg Weiss’ offer had obvious financial appeal. However, I wasn’t about to risk getting involved in criminal activity, regardless of the monetary incentive.

The practices described by Mr. Siedle are all too common among plaintiffs firms.  Additional documented examples of such unethical arrangements will be forthcoming on this blawg in the near future.

Unlike traditional securities class actions which allege violations of Rule 10b-5, or shareholder derivative cases which are brought by a shareholder in the name of the corporation, takeover suits are traditionally brought in state courts under state law and are not governed by the Private Securities Litigation Reform Act (the PSLRA).

The inapplicability of the PSLRA means the the “first to file” rule (and all it implies) still applies to takeover litigation. Indeed, Fisher argues that these lawsuits are filed without so much as a good faith belief in the very claims they advance, but are rather:

…designed to capitalize on the dynamics of acquisitions. To avoid further lawsuits companies frequently announce a takeover price that they later negotiate upward, providing strong evidence that the ultimate price was arrived at through arms-length bargaining.

If a substantial portion of takeover litigation is lawyer-driven and aimed at recovering fees for doing little more than filing a complaint with the court clerk faster than anyone else (not an Olympic event as far as I know) then the transactional inefficiencies on mergers and acquisitions generally could be quite significant.

However, even if the litigation costs associated with a single major acquisition can easily be shrugged off, the systemic inefficiencies cannot. A 2004 Vanderbilt Law Review Article by Robert Thompson and Randall Thomas highlights just how prevalent these suits are:

When we analyzed data that we had collected on all suits filed in 1999 and 2000 in the Delaware Chancery Court, the nation’s leading corporate trial court, we were surprised to find that approximately 80 percent of the breach of fiduciary duty claims, the vast bulk of state court representative litigation are class actions against public companies challenging director action in an acquisition.

These acquisition-oriented class actions dominate all other forms of state court shareholder litigation.  Moreover, in 1999 and 2000, the number of these class actions filed in Delaware alone equaled about half of the total number of federal securities fraud class actions filed in all federal district courts during that same two-year period.

Given the potentially unnecessary systemic litigation costs  involved,  this issue cries out for further empirical investigation.

I. Whether the antifraud provisions of the United States securities laws extend to transnational frauds where: (a) the foreign-based parent company conducted substantial business in the United States, its American Depository Receipts were traded on the New York Stock Exchange and its financial statements were filed with the Securities Exchange Commission (“SEC”); and (b)the claims arose from a massive accounting fraud perpetrated by American citizens at the parent company’s Florida-based subsidiary and were merely reported from overseas in the parent company’s financial statements.

II. Whether this Court, which has never addressed the issue of whether subject matter jurisdiction may extend to claims involving transnational securities fraud, should set forth a policy to resolve the three-way conflict among the circuits ( i.e., District of Columbia Circuit versus the Second, Fifth and Seventh Circuits versus the Third, Eighth and Ninth Circuits).

III. Whether the Second Circuit should have adopted the SEC’s proposed standard for determining the proper exercise of subject matter jurisdiction in transnational securities fraud cases, as set forth in the SEC’s amicus brief submitted at the request of the Second Circuit, and whether the Second Circuit should have adopted the SEC’s finding that subject matter jurisdiction exists here due to the “material and substantial conduct in furtherance of” the securities fraud that occurred in the United States.

We previously reported on the opening of the Vivendi trial in the Southern District of New York (also in the Second Circuit).  For a thorough and prescient look at how the Morrison issues above may impact the Vivendi case, I recommend Kevin LaCroix’s October 6 piece in The D&O Diary, Vivendi Securities Suit Goes to Trial.

Chin’s ruling does not carve out an exception for privileged materials. The protective order issued by Manhattan federal district court Judge Jed Rakoff in the SEC’s case against Bank of America states that BofA is not deemed to be waiving its privilege “regarding other information that may be of interest in related private lawsuits.” That language can be construed to mean that BofA can still claim privilege over materials government investigators didn’t ask for — not necessarily that plaintiffs in private lawsuits can’t have access to the documents the bank did turn over.

The class action plaintiffs asked Judge Chin to lift the discovery stay automatically imposed by the Private Securities Litigation Reform Act in an Oct. 6 letter to Chin. The three-page letter — signed by co-lead counsel from Kaplan Fox & Kilsheimer; Bernstein Litowitz Berger & Grossmann; and Barroway Topaz Kessler Meltzer & Check — argues that the discovery stay, which typically remains in place until after motions to dismiss have been decided — placed the class at a disadvantage compared to others investigating BofA’s merger with Merrill.

Wachtell, Lipton, Rosen & Katz, representing BofA, immediately objected to lifting the stay…

With this latest ruling and the fact that the protective order may have been flawed, the sharks are smelling blood.  It’s looking more likely than ever that Bernstein Litowitz, Kaplan Fox, and Barroway Topaz will get their way.

Berkshire’s offer of $100 a share was a 31% premium to the previous day’s closing price and only a little below the railroad’s all-time high of $113 a share in May 2008. But according to the suits drafted within hours of the deal’s announcement, management could–and should–have gotten more.

Securities-litigation reform laws were supposed to end the race to the courthouse, an unseemly practice designed to win control over litigation by being the first to file. But when a takeover is announced, it’s business as usual. With a speed that stretches the bounds of credulity, lawyers file suits soon after a takeover is announced in hopes of settling the case for a generous fee…

Takeover-related litigation is a specialized niche of the larger securities class-action bar, but like other shareholder actions it is largely financed by settlements. In the case of takeovers, lawyers sue hoping the ultimate purchase price is increased. If it happens they can petition the judge for a percentage of the increase, claiming it is due to their litigation.

“If the price gets modified upward, there is no doubt the lawyers will ask for a fee based on it,” said Michael Perino, a securities litigation expert at the St. John’s University School of Law. Since most of these suits can be settled for less than the cost of discovery, the court-overseen process of going through corporate records in search of evidence, companies settle them rather than litigate…

The suit was brought by the Employees Retirement System of New Orleans, a frequent plaintiff in securities cases.  Jerry Davis, the fund’s chairman, explained that the suit was brought “to determine whether the Buffett offer is the best available deal, or whether other offers have been properly analyzed.”

Without any evidence or other indication that some party breached a fiduciary obligation to the shareholders by approving the deal, these suits are attempting to use civil discovery rules to investigate whether some purely theoretical breach may have taken place.  I admit that I skipped a few days in law school, but I had no idea that particular power resided in the judiciary.

Thanks for your patience as I try to get everything sorted out. KXYDKGTSCN29

As we have recently reported, the SEC has announced its intentions to take a significantly more aggressive regulatory posture with regard to the confluence of campaign contributions and public investing. Just last week, the House Financial Services Committee saw to it that the SEC has the tools for the job when it voted to double the SEC’s budget and awarded the Commission significantly greater regulatory powers.

The Municipal Securities Rulemaking Board (“MSRB”) has also gotten into the act by recently announcing plans to file a rule change with the SEC to revise Rule G-37 to prohibit dealers from engaging in municipal securities business with issuers for two years if they make certain contributions to the political campaigns of officials of issuers. The proposed revision to Rule G-37 would require municipal securities dealers, their muni professionals, and political action committees to disclose the political contributions they make to bond ballot election campaigns.

It will be interesting to see how the class action industrial complex responds.  If private securities suits ride the coattails of these federal enforcement actions, the plaintiffs firms may be inviting additional scrutiny on their own political fundraising activities.

But whose favor do the lawyers need to curry in order to attain this vaunted status; the lead plaintiff’s or the court’s? This was the question before the 9th Circuit Court of Appeals in the NVIDIA securities fraud litigation. (The underlying lawsuit alleges that NVIDIA improperly failed to disclose material defects in its manufacturing processes thereby inflating the company’s stock price which subsequently deflated once the information became public.)

The court’s discretion to select plaintiffs to represent the class is circumscribed by the PSLRA which states that the adequacy of a lead plaintiff should be determined by whether or not the individual or group “(a) has either filed the complaint or made a motion in response to the published notice; (b) in the determination of the court, has the largest financial interest in the relief sought by the class; and (c) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I).

In the NVIDIA case District Court Judge James Ware applied these factors, selecting two lead plaintiffs: the New Jersey Carpenters Pension and Annuity Fund and Mr. Roberto Cohen. But Judge Ware also selected Milberg LLP and Girard Gibbs LLP to serve as lead plaintiffs representing the class despite Roberto Cohen’s selection of Kahn Gauthier Swick, LCC to serve as his counsel. Mr Cohen appealed the order claiming the Court overstepped it’s authority by substituting its own judgment for that of the lead plaintiff.

The Court of Appeals, relying on In re Cavanaugh, 306 F.3d 726 (9th Cir. 2002), agreed with Mr. Cohen and remanded the issue back to the lower court.

…more on the decision after the jump

Click the quoted text for the full decision:

When a statute speaks with clarity to an issue, courts must apply the clear meaning of the statute. Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 476 (1992). We have already explained that the PSLRA’s provisions on selection of lead plaintiff and lead counsel, although containing many requirements, are “neither overly complex nor ambiguous.” Cavanaugh, 306 F.3d at 729. Here we address only the PSLRA’s mandate that “[t]he most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.” 15 U.S.C. § 78u-4(a)(3)(B)(v). This provision clearly identifies the most adequate plaintiff as the actor that “select[s] and retain[s]” class counsel. Although this power is subject to court approval and is therefore not absolute, it plainly belongs to the lead plaintiff. See id.; see also In re Cendant Corp. Litig., 264 F.3d 201, 273, 277 (3d Cir. 2001) (holding that the PSLRA is clear that “the power to ‘select and retain’ lead counsel belongs… to the lead plaintiff, and the court’s role is confined to deciding whether to ‘approve’ that choice” and that should the court disagree with the lead plaintiff’s choice “it should clearly state why… and should direct the lead plaintiff to undertake an acceptable selection process”). 2 The statute expressly provides that lead plaintiff has the power to select lead counsel, suggesting that the identity of the party selecting lead counsel was of substantial importance to Congress. See 15 U.S.C. § 78u-4(a)(3); In re BankAmerica Corp. Secs. Litig., 350 F.3d 747, 751 (8th Cir. 2003); Cendant, 264 F.3d at 273. Nor does the statute, framed in mandatory language, designate any other actor as authorized to select lead counsel or suggest that the district court may appropriate this authority. It would be difficult for the statute to be more clear that it is the lead plaintiff who selects lead counsel, not the district court.

I’m generally in favor of providing clients with wide discretion in their selection of counsel.  However, when one class member and his attorney are to act as fiduciaries for the whole (otherwise unrepresented) class, the issues are somewhat different.  Thus, the fact that the 9th Circuit’s interpretation of the PSLRA’s selection of counsel provision appears to be quite sensible, is for me an indication that the law is in need of reform.

It is essential that courts have a way to determine not only that the lead plaintiff has selected competent counsel, but to determine the existence of any potential improprieties in the lead plaintiff’s relationship with the selected law firm. Part of the process should also be to ensure the lead plaintiff understands enough about the litigation process to oversee the firm’s representation of the class and to take all reasonable steps to ensure the class is not over-billed for what are essentially commoditized legal services (like document review).

Class action firms routinely pay to play to get themselves retained by public pension funds who happily sign off on an 800% markup on attorney fees for grunt-work performed by temporary employees. The PSLRA ought be modified to prevent such widespread abuse.

By my count there have been at least eight or nine and arguably as many as eleven (or more) new securities class action lawsuits filed against ETFs since August. (See my note below about the difficulty in counting these cases.) Though these lawsuits are separate and are separately filed on behalf of separate investors against separate ETFs, the allegations of these suits are quite similar – indeed, in many cases, virtually identical.

Two recent cases filed against ProShares Ultra Short Dow 30 Fund (refer here) and Direxion Shares Daily Financial Bear 3X Fund (refer here) illustrate the nature of this category of securities suits. The lawsuits overall, like these two, generally are filed against some variation of the funds themselves, the funds’ investment advisors or managers as well as the funds’ distributors, and the funds’ individual trustees. The ETFs themselves allegedly were designed to provide some multiple of the return (or of the inverse of the return) of some benchmark index or measure…

Whether these cases will ultimately succeed or fail of course remains to be seen, but the plaintiffs’ firms’ actions clearly suggest that they think they are on to something.

These lawsuits already represent a significant part of the total number of securities class action lawsuits this year (depending on how you count, between five and ten percent of the total). If as seems likely at this point new ETF-related cases continue to be filed, the ETF cases will not only represent an even more significant portion of the total number of new securities cases this year, but they could also produce a material increase in the overall number of lawsuits that are filed this year.

The Louisiana State Employees’ Retirement System is among the most litigious in the nation. John Kennedy, the state treasurer who helps decide when Louisiana’s major pension funds should bring a law suit, has received tens of thousands of dollars in political donations from Bernstein Litowitz, which has offices in New York, New Orleans and San Diego and was the country’s top-grossing securities class-action firm in 2008. The law firm has represented Louisiana’s public pension funds at least 13 times since 2004, and its partners donated nearly $30,000 to Mr. Kennedy’s two most recent campaigns, even though he ran unopposed both times.

In Mississippi, the state attorney general determines when the public employees retirement fund should bring a securities class action and which outside firms will represent the fund. Would you be shocked to learn that AG Jim Hood has frequently chosen law firms that have donated to his campaigns?

Mr. Hood is also partial to Bernstein Litowitz. On February 21, 2006, he chose the firm to represent the Mississippi Public Employees Retirement Fund in a securities class action against Delphi Corporation—just days after receiving $25,000 in donations from Bernstein Litowitz attorneys. The suit was eventually settled, and the lawyers on the case received $40.5 million in fees. Mr. Hood’s campaign would appear to deserve a raise.

I may be jumping the gun a bit but I’d give 20 to 1 odds that the central theme of Coffey’s campaign will be something along the lines of:  ”A tough fighter (and former Navy Captain) who has spent his career fighting corporate greed and corruption on behalf of the little guy.”  It sounds pretty good and some of it’s actually true!  Unfortunately the rest is a crock of shit.

I don’t question the propriety of punishing corporate malfeasance, but Sean Coffey is no Robin Hood. Unlike most attorneys in private practice, Mr. Coffey finds a defendant to sue before he finds a plaintiff to represent. And who are these plaintiffs willing to surrender outrageous fees to subsidize Mr. Coffey’s lifestyle?

You, the taxpayers, of course.  In a nutshell, Mr. Coffey’s law practice works like this:

1. Identify the officials making decisions for major public pension funds.
2. Hire former insiders (like, e.g. Carl McCall) to lobby current officials for business.
3. Become a major donor, fundraiser, and bundler for such politicians/trustee(s).
4. Identify an SEC action alleging that a company’s conduct violated securities laws.
5. Locate a pension fund with a sizable equity investment in the defendant company.
6. Paraphrase the SEC’s complaint and file a private suit on behalf of that fund.
7. Settle the case for a billion dollars (or on a rare occasion, take it to trial).
8. Take home $200,000,000.00 for all your hard work
9. Run for Attorney General on the platform that you only took 20% of $1 billion.

I don’t begrudge the man his personal largess; only the way he earned it.  There are a lot of talented litigators in the world and Mr. Coffey didn’t make his fortune because he’s just that much better than the rest. He made his money by paying to play with influence peddlers in state governments who turn a blind eye to his outrageous fees.  The plaintiff’s bar would argue that such eight or nine figure fees are typical in these cases (which may well be true) and the judges sign off on them as the accepted current state of play in the securities class action industry.

Contingency fee arrangements agreed to in advance by individual clients and their attorneys are not the ethical equivalent of such fee arrangements between fund trustees on one side and law firms financing the fund trustees’ political careers on the other. Sean Coffey made his millions by ripping off pensioners and taxpayers and calling it “investor protection.”  I’m calling him out on it because he’s now decided he should be New York’s chief law enforcement officer.

If Mr. Coffey was really more interested in protecting investors than lining his own pockets with their money, why did he go to work for Bernstein instead of the SEC in the first place?  Or better, why not bring the same kinds of securities suits, but instead of getting “super” wealthy off cash-strapped state pension system clients, just extract enough from the settlements to be “kind of” wealthy?  I don’t know his answer but I’m sure it too would be rich.

Another ethical swamp are the conflicts of interest that continue to surface involving the consultants who advise pension funds about which money managers to hire. The Securities and Exchange Commission, Department of Labor and state attorneys general are all investigating pay-to-play schemes involving these “gatekeepers.” At this point, there is absolutely no disputing that an unscrupulous pension consultant who corrupts the integrity of a fund’s investment process, for personal profit, can cause massive harm–far greater than the kickbacks he receives from the money managers. Yet I am perpetually amazed that most boards, even when confronted with the harm or damage will say, “We like him. He’s a good guy.”

Law firms may or may not advise their pension fund clients on which money managers to hire, but they certainly advise them on which class actions to pursue. Questionable campaign contributions along with contigency fee arrangements that leave the pension fund more or less where it was but earn the lawyers hundreds of millions in fees makes me wonder whether the firms themselves are the “gatekeepers” Siedle describes.

A member of the powerful U.S. Senate banking committee wants to crack down on “pay-to-play” by law firms representing pension funds in mega-buck court cases.

“Pay-to-play by law firms … pose serious potential conflicts of interest that can harm the pension fund retirees who have spent their careers in public service jobs,” said Sen. Bob Bennett of Utah.

The Daily News reported last week that securities law firms gave nearly $1 million to three state controllers in the last 10 years. Class-action cases for the pension fund have yielded $520 million in legal fees.

Bennett asked the Securities and Exchange Commission to expand its investigation of “pay-to-play” involving investment firms to include securities law firms.

It’s nice to see this issue finally getting some attention.

On Friday Mr. Lowe reported on a fascinating conversation he had with Mr. Gregory P. Joseph, an attorney who helped draft the rule.  Mr. Joseph believes the bank’s lawyers’ misunderstanding of the rule may have the unintended consequence of extending the waiver to related lawsuits and investigations.

It turns out the bank’s first mistake is simple: They referred repeatedly to a “waiver” in their court order, and rule 502 does not deal with “waivers,” Joseph says. It gives corporations the ability to disclose privileged documents in a limited way under the terms of a court order, not a waiver. It may seem like a semantic distinction, and it is, but Joseph says its implications could be huge. Put simply, any privileged document the bank discloses to the SEC is now fair game for plaintiffs lawyers in those 58 cases we mentioned earlier, Joseph says. BofA’s order protects the bank against the SEC or those plaintiffs lawyers from getting their hands on documents the order doesn’t specifically cover. But what the bank turns over to the SEC is no longer protected, Joseph says. “They’ve waived the privilege” as it relates to documents the bank turns over to the SEC…”in this case and every other case.”

So how broadly does the privilege waiver extend?  Surely it doesn’t mean that Bank of America will hand over confidential emails with its outside counsel to plaintiffs lawyers in related private securities suits without a fight.  Losing that fight, however, is a real possibility.  The AmLaw Daily posted this yesterday:

We called Peter Henning, a professor at Wayne State University Law School and an editor of a widely-read blog on white-collar crime, and asked him about the privilege issue. Henning tells us the BofA waiver could be an interesting test case of two recent additions to the Rules of Evidence for United States Courts. Those new rules act to prevent a waiver in one federal proceeding from spilling over into other proceedings under certain circumstances, Henning says.

The old rule was that if you turn privileged documents over, the privilege is gone,” Henning tells us. “These new rules could offer [the bank] some protection.” Henning says. BofA’s case may become more difficult if they waive privilege in front of Congress, Henning says. State Rep. Edolphus Towns, chair of the House Committee on Oversight and Government Reform, has requested privileged documents form BofA as well, according to our prior reports.

This measure would prevent plaintiffs with legally insufficient claims from extracting settlements based on the threat of the costs and burdens associated with e-discovery. Indeed, when even the most frivolous complaint can require a defendant to expend millions of dollars responding to requests for e-discovery (often exceeding the real amount at issue), tremendous pressure is placed on defendants to immediately settle litigation.

attempt to conceal “faux class actions,” which the study defines as a suit “where the individual damages are so minimal … that as a practical matter the function of the suit as a means of compensating injured victims is all but completely undermined.” In these cases, the argument continues, no one does well but the lawyers.

The existence of cy pres in the first place is yet more evidence of the lawyer-driven nature of so many class actions.  This new study conducted by the Searle Center on Law, Regulation, and Economic Growth is yet another brick the wall and helps shed some more light on the class action industry.

Click here to see a video the lead author of the study, Prof. Martin Redish, discussing the cy pres doctrine.

Today’s Daily News coverage of New York State’s pay-to-play problem involving plaintiff’s firms and their pension fund clients is worth another look:

Lawyers representing the state pension fund in class-action suits have raked in $518.7million in fees over the past 10 years, records show.

The hefty payouts, contingent on winning, are the main reason securities law firms have donated big bucks to state controllers over the years, critics contend.

“There is a problem with pay-to-play,” Columbia Law School Prof. John Coffee said. “The plaintiff law firms know that to be considered to be on the list of eligible firms, they have to ante up.”

The Daily News reported Tuesday that state Controller Thomas DiNapoli has received $202,500 from securities law firms since he took office in 2007, including from two he hired in pending cases.

That’s a pittance compared with the $667,260 DiNapoli’s scandal-tainted predecessor, Alan Hevesi, received from such firms, records show. In his 2002 campaign, Hevesi got $110,000 from the firm Milberg Weiss. Three months after taking office, Hevesi picked the firm to represent the fund in a suit against Bayer AG Securities.

Milberg Weiss was fired in 2006 after an unrelated federal indictment was brought against the firm. Hevesi then hired Lowey Dannenberg, whose lawyers had given him more than $50,750 in campaign donations since 2000.

The Bayer case was settled in December for $18.5 million; more than $3 million was set aside for legal fees and expenses.

Hevesi’s predecessor, Carl McCall, took in at least $154,000 from securities law firms.

One case against Cendant Corp. resulted in a $3.2 billion settlement, which meant $262.5 million in lawyers’ fees. The judge later reduced the fees to $55 million.

The firm Bernstein Litowitz represented the state in that case. Firm lawyers have donated more than $112,000 combined to the past three controllers.

Bernstein Litowitz represented the pension fund in a $6 billion WorldCom settlement that resulted in $336 million in lawyers’ fees and a $1.04 billion settlement with McKesson HBOC that yielded $80 million in fees.

Controllers were not the only ones to get donations. Attorney General Andrew Cuomo, who is probing widespread corruption in the pension fund under Hevesi, got $199,000 from securities law firms.

Cuomo is poised to unveil a reform bill that includes restrictions on how much financial investment firms looking for pension fund business can donate. It does not seek similar restrictions on securities law firms.

“It’s the sort of thing you probably wouldn’t look at it because it’s going to cut off funding from people who are your allies,” University of Michigan securities law Prof. Adam Pritchard said.

Cuomo aides say they have no jurisdiction to go after law firms in class-action suits.

“While we agree that pay-to-play should have no place in government … our investigations must be based on evidence and the law – not supposition and theory,” Cuomo spokesman John Milgrim said.

In addition to receiving campaign dollars from plaintiff securities firms, many trustees are able to get high paying jobs from these law firms once their term ends.  For example, take former NY Comptroller Carl McCall mentioned in the Daily News article above.  In September I reported that after leaving office he became a paid lobbyist for Bernstein Litowitz Berger & Grossman.

Plaintiffs in the case, which has been around since 2002, are shareholders across the U.S. and Europe who allege that Vivendi–then known as Vivendi Universal–made false and misleading statements in 2001 and 2002, when Vivendi’s former CEO, Jean-Marie Messier, was transforming the French water company into a media conglomerate through a mad dash of acquisitions. Plaintiffs claim that Vivendi, Messier, and former chief financial officer Guillaume Hannezo concealed a liquidity crisis, whose revelation ultimately caused the stock to drop…

…The case is being watched closely by the plaintiffs bar, which would like to see more foreign investors file securities suits in U.S. courts. “It has the potential to send a very strong message that U.S. courts will not tolerate and will appropriately punish foreign companies who use the U.S. as a basis for engaging in fraudulent activity,” said William Fredericks of Bernstein Litowitz Berger & Grossmann, who is involved in a similar case against Alstom.