U.S. District Judge Jed Rakoff of the U.S. District Court for the Southern District of New York offered the explanation in a recent order that instead tapped the Public Employees’ Retirement System of Mississippi and its lawyers from Bernstein Litowitz Berger & Grossman to be lead counsel and lead plaintiff in the class action on half of investors who bought certificates from Merrill Lynch backed by pools of subprime mortgages.
Rakoff had rejected Coughlin Stoia Geller Rudman & Robbins of San Diego and its client, the Iron Workers Local 25, over an agreement calling for the firm to notify the pension fund when a litigation opportunity presented itself. Rakoff said about his choice of Bernstein and the Mississippi fund to lead the case that the “choice presented a classic dilemma, in the sense of a choice between two less-than-perfect plaintiffs.”
His opinion contends that Coughlin’s monitoring agreement with the Iron Workers fosters the sort of tactics the Private Securities Litigation Reform Act (PSLRA) was supposed to diminish and asserts that the administrator for the Iron Workers’ fund could probably not oversee the litigation.
“The court, from its own observation of the testimony and demeanor of the fund’s administrator, readily perceived that he was not particularly sophisticated in evaluating securities class actions and, indeed, had only a rough idea of what this lawsuit was all about,” Rakoff wrote in the order. “But who were the ‘sophisticated advisers, financial and legal,’ who would advise him and the fund ‘in determining whether to bring suit’? Why, the very lawyers who would be bringing the suit, Coughlin Stoia.”
The court conceded in the ruling that the Mississippi fund has a similar monitoring agreement with its law firms, but said he had not come across compelling evidence to disqualify the Bernstein Litowitz client.
“It would seem that [the PSLRA’s restrictive] provision might apply with less force when the plaintiff is a state agency,” the judge wrote. “After all, a state regularly brings suit in hundreds of cases — and, as already noted, in this case, where the alternative lead plaintiff, the Iron Workers Fund, seems to have little expertise in handling such cases, the accumulated experience of (the Mississippi fund) in pursuing multiple securities fraud actions seems a benefit more than a detriment.”
The latest Rakoff ruling is available here .
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