CO System too Late to be Class Member in Securities Suit

August 21, 2008 ( - The 7th U.S. Circuit Court of Appeals has ruled that the Colorado Public Employees Retirement System (CoPERA) moved too late to intervene as a plaintiff in a securities class action suit for the purpose of appealing a three-and-a-half-year-old order granting summary judgment against the original representatives of the class.

In his opinion, Circuit Judge Wayne R. Anderson said that as a securities holder claiming to have such a large stake in the suit, CoPERA “certainly either knew—and if it did not know it was negligent in failing to learn—back in 2004 that summary judgment had been entered dismissing the early purchaser claims on the merits and therefore with prejudice.” Anderson contended that “Large pension funds have securities lawyers on retainer, and their lawyers would have known about and monitored the progress of the class action whether or not the fund’s trustees did.”

According to the opinion, if CoPERA was unaware of the class action litigation previously it had to have learned of the suit when it received formal notice of a settlement agreement in January 2007; however, the system still waited almost a year to file an appeal.

The CoPERA claim stems from a federal suit brought in 2000 by three plaintiffs on behalf of themselves and all other stockholders who two years earlier had acquired stock in Bank One when Bank One was created by the merger of Old Banc One and First Chicago NBD Corp. The suit charged that the prospectus for the merger transaction contained misrepresentations.

The plaintiffs consisted of “early purchasers” who acquired the stock before the prospectus was issued and “late purchasers” who acquired the stock after it was issued. In April 2004, a district judge, before certifying any class, granted summary judgment in favor of Bank One on the ground that early purchasers could not have been harmed by misrepresentations in the prospectus, but had benefited, because by exaggerating the value of Old Banc One stock the misrepresentations had given the early purchasers more Bank One stock than they would have gotten.

The appellate court noted that CoPERA had an early-purchaser claim that it said was worth $6 million, but it made no effort to become a party to the lawsuit in either 2000 or in 2004 when the early purchasers’ claim was dismissed.

In January 2007 the district judge formally notified the late purchasers of the class action suit that was moving forward and in September the parties asked the district judge to approve a $28 million settlement. The settlement was approved in December 2007, terminating the suit.

“It is possible that a large, sophisticated investor with a $6 million claim would not know that it was a member of a class in a class action suit, but it is exceedingly unlikely,” Anderson said. “The statute of limitations for the kind of securities claims involved in this case is only one year, 15 U.S.C. § 77m, so someone having such a claim would have to ascertain promptly whether he was a member of a class since if he were not he would have to file his own suit post haste to avoid being time-barred.”

The opinion in Larson v. JPMorgan Chase & Co. is  here .