Law Firm Chastised for Monitoring Fund's Portfolio for Free

April 27, 2009 ( - District Judge Jed S. Rakoff of the Southern District of New York passed over an Iron Workers union for lead plaintiff in a securities class action criticizing its counsel for providing free portfolio monitoring services.

According to the New York Law Journal, Rakoff declined to appoint Coughlin Stoia Geller Rudman & Robbins as lead counsel in two companion cases, Iron Workers Local No. 25 Pension v. Credit Based Asset Servicing and Securitization, 08 CV 10841, and Public Employees Retirement System of Mississippi v. Merrill Lynch, 09 CV 1392. Rakoff told Coughlin Stoia’s David Rosenfeld at an April 1 hearing that the agreement his firm had to monitor the union’s portfolio for possible securities fraud was “about as obvious a conflict of interest” as he had ever seen, the Law Journal reports.

Rosenfeld defended the arrangement as common and told the court that the iron workers union was always the decision maker on whether to sue for fraud and was always at liberty to select the counsel of its choice. Nonetheless, Rakoff appointed the Public Employees Retirement System of Mississippi as lead plaintiff and their lawyers, Bernstein Litowitz Berger & Grossman, as lead counsel.

The news report said the judge reserved the right to appoint the firms co-lead counsel if circumstances warrant it, including if new cases are added to the litigation.

The lawsuits claim the pension funds were sold bundled mortgages without being told some of the loans were bad (see Pension Program Sues over Mortgage Security Offering ).