- So welcome and good morning.
I'm Trevor Morrison, I'm the dean
of the law school here at NYU
and delighted to welcome you all
to today's symposium.
The Annual Survey of
American Law each year
welcomes academics and practitioners
to the law school for a day of discussion
devoted to an important and timely topic
in a pressing area of the law.
And this year, the symposium will explore
the future of securities class actions,
and this will include
consideration of the relationship
between securities class actions
and the enforcement role of the SEC,
the future of securities class actions
after Halliburton II and other
important and timely topics.
We're really benefited by a
terrific array of speakers
on each of the panels today
from leading academics
to leading government officials,
including former leaders of the SEC,
the chief of the SEC Enforcement Division
and a former SEC commissioner,
as well as leaders in the bar,
and that includes today's keynote speaker,
we're really grateful
that Carter Phillips,
partner and chair of
the executive committee
at Sidley Austin, will do us the honor
of delivering our keynote
address later in the day.
He'll be formerly introduced later on,
but let me just say, on
behalf of the law school,
how grateful we are that
Carter will be joining us,
and indeed that all of today's speakers
have made time to address these topics
as part of our symposium.
I also wanna thank Michael
Roberts, NYU class of 2016
and the Annual Survey Symposium editor,
and Christina Liu, the Annual
Survey's editor in chief
for the teriffic work that
both of them have done
in making this event possible.
And this is a big week
for the Annual Survey.
Just a couple of days ago was
the annual dedication ceremony
where the upcoming volume was
dedicated to Judge Weinstein
and we had a terrific event
then featuring Christina,
and it's good to be able
to introduce her again this morning.
So without further ado, Christina Liu.
(audience applauding)
- Hi, everyone, and good morning.
Welcome to the New York
Anniversary Annual Survey
of American Law's 2015 Symposium,
the futures of securities class actions
after Halliburton II.
I'm Christina Liu, the editor
in chief of the journal.
And on behalf of the journal,
thank you to all of our distinguished
scholars and guests,
panelists, and moderators.
Professors Choi, Arlen, and Miller
are treasures to our law school,
and we very much appreciate
the participation.
We have a wonderful line
up of speakers today,
and this year's topic,
as Dean Morrison said,
is securities class actions
in the US Supreme Court case
Halliburton Company
versus Erica P. John Fund.
This symposium will explore the ways
that Halliburton II changed
the securities class action landscape.
The debate over the role of the SEC
and potential legislative action
on both the state and federal levels.
Our panelists will
present their perspectives
on what Halliburton II means
for securities class actions,
whether the SEC should assert
or be granted greater authority,
and whether Congress will respond
to recent securities law jurisprudence.
There are three panels today
and they're all in your program
but let me just briefly go over them.
The first one will be, which we have now,
the status of the
fraud-on-the-market theory
in securities class actions.
The second one is the future
of securities class actions,
should the SEC's authority
under Dodd-Frank's planned class actions.
And the last one is the effects
of Halliburton II on
plaintiffs, shareholders,
and a potential legislative response.
Please note that at the end of each panel,
we have reserved 10 minutes for questions.
Following panels one and two,
we will break for lunch at 12:40,
and we will re-convene at 1:50
for our keynote speaker, Carter Phillips.
So before we begin with the
subsequent part of the program,
I'd like to give out a few thank yous.
First, we'd like to thank Dean Morrison,
our vice deans, the
symposium funding committee,
because all of them support
student-organized events.
We'd also like to thank
Paul O'Grady, Tracy Nolfor,
and the entire office of Student Affairs
who work very hard to help
plan and execute the events
that make NYU Law a special place.
Third, the Annual Survey
Symposium Committee,
many of them are in
the audience right now,
and our symposium faculty
advisor and moderator,
Professor Stephen Choi, who
has been a tremendous help
in planning this event
with our symposium editor.
And lastly, we'd like to
thank Michael Roberts,
our symposium editor.
For the past eight months,
Michael has dedicated his time
and energy to proposing, planning,
and organizing this wonderful symposium.
He has worked tirelessly
with this committee
to prepare every detail of today's event,
and we wanted to thank him
for his impressive work.
And with that, I'd like
to introduce panel one,
the status of the
fraud-on-the-market theory
in securities class actions.
So I'm gonna give a really
brief overview of this panel
and we'll go down all the speaker bios
and we'll get started.
So, on this panel, because
private class action
securities lawsuits have significantly
impacted the legal profession
in the potential repercussions
of Halliburton II,
both plaintiff, shareholder
attorneys and defense lawyers
have reaped substantial financial gains
in an extremely lucrative practice area.
This panel will introduce the
fraud-on-the-market theory,
judicial decision making,
and the aftermath of the
Halliburton II decision.
They'll also discuss
the court's 2013 ruling
in Amgen versus Connecticut
Retirement Plans,
wherefore the nine current justices,
specifically Justice
Alito, expressed concerns
that the fraud-on-the-market theory,
that there was evidence that
the fraud-on-the-market theory
may rest on a faulty economic premise.
So our moderator for this panel
is Professor Stephen Choi.
He is the Murray and Kathleen Bring
Professor of Law here at NYU Law,
and he received his undergraduate degree
from Harvard College and graduated first
in his class from Harvard Law School,
where he was a legal methods instructor
and supervising editor of
the Harvard Law Review.
He worked as an associate
at McKinsey in New York
and then received his PhD in economics,
taught as an assistant professor
at the University of Chicago Law School,
and then taught at Boalt
as the Roger J. Traynor Professor of Law.
He joined us at NYU Law in 2005.
His research interests
focus on the theoretical
and empirical analysis of
corporations in capital markets.
He has published in a
number of law reviews
and has presented papers
at numerous conferences and symposia.
He's also received the Fay Diploma,
the Sears Prize, and the
Irving Oberman Memorial Award,
and has also held John M. Olin,
Jacob K. Javits, and
Fulbright Fellowships.
Our first panelist here
is John C. Coffee Jr.
He is the Adolf A. Berle
Professor of Law at Columbia Law
and also the director of its
Center on Corporate Governance.
He holds a bachelor's
degree from Amherst College,
an LLB degree from Yale Law School,
and an LLM in tax from
our very own NYU Law.
After graduation, he served
as the Reginald Heber Smith Fellow,
worked as a corporate lawyer for Cravath,
and taught as a professor
at Georgetown Law
and then at Columbia Law.
He's been repeatedly listed
by the National Law Journal
as among its 100 most
influential lawyers in America.
He served as a reporter to the ALI
for its corporate governance project
and as a member of the
SEC's Advisory Committee
on the capital formation
and regulatory processes.
He's written and edited several case books
on corporations and securities regulation
and according to a recent
survey of law review citations,
he is the most cited law
professor in law reviews
over the last 10 years in the combined
corporate, commercial,
and business law fields.
Next, we have George T. Conway III.
He's a partner at Wachtell,
and he graduated from Harvard College
with a bachelor's in biochemical sciences
and received his law
degree from Yale Law School
where he was an editor
on the Yale Law Journal.
He clerked for Judge Ralph K. Winter Jr.
on the Second Circuit and is now a partner
in the litigation department at Wachtell.
He has broad litigation experience
in the areas of securities,
M and A, contract,
and antitrust litigation
at the trial and appellate,
and the federal and state levels.
He recently briefed and argued the case
for a respondence in Morrison
versus National Australia Bank,
in which the US Supreme Court held
that Section 10b of the
Securities Exchange Act
does not apply extra-territorially
to claims of so-called
foreign-cubed plaintiffs.
Foreign investors who purchase securities
of foreign issuers on foreign exchanges.
He also represented the chief
judge of the state of New York
and the New York Unified Court System
in historic constitutional litigation
over the state's failure to
adjust judicial salaries.
He helped prosecute one
of the most prominent
defamation cases in recent memory,
in Philip Morris versus
American Broadcasting Company.
And next we have Robert Fumerton.
He's a partner in the
Litigation Department
at Skadden, Arps.
He received his undergraduate
degree from Yale
and his law degree from Columbia.
At Skadden, he represents a broad spectrum
of US and international clients
in a wide variety of complex corporate,
commercial, and securities litigations.
He serves on the firm's
Hiring and Summer Associate Committees,
and was named as the 2014 Rising Star
by the New York Law Journal.
As an example of one of his cases,
he in 2011 won a complete
dismissal of repo conspiracy
and fraud claims for Christie's
in the highly publicized litigation
brought by billionaire William Koch
over the authenticity of wine
that once belonged to Thomas Jefferson.
He has also published several articles,
including one which
advocated a novel application
of the PSLRA's bounce-back provision.
Next, we have Adam C. Pritchard.
He's the Frances and George
Skestos Professor of Law
at the University of Michigan Law School.
He received his undergraduate
and law degrees from UVA
and an MPP from the Harris
School of Public Policy
at the University of Chicago.
While at Virginia, he was an Olin Fellow
in law and economics and an
articles development editor
of the Virginia Law Review.
After graduation, he clerked
for Judge Harvie Wilkinson
III on the Fourth Circuit,
and was a Bristow Fellow in the Office
of Solicitor General at
the Justice Department.
He was senior council on the SEC office
where he wrote appellate briefs
and studied the effect of reforms
on securities fraud litigation.
He received the SEC's Law and Policy Award
for his work in United
States versus O'Hagan,
in which the court upheld
the misappropriation
theory of insider trading.
He now teaches corporate
and securities law
at the University of Michigan,
and he is co-author of the case book
on securities regulation
with Professor Choi.
His research focuses on
securities class actions,
SEC enforcement, and the
history of securities law
in the US Supreme Court.
And last but not least,
we have Robert Giuffra.
He's a partner in the Litigation Group
and a number of the management committee
at Sullivan and Cromwell.
He received his undergraduate degree
from Princeton University
and his law degree from Yale.
He also clerked for Judge Ralph K. Winter
on the Second Circuit,
and he clerked for Chief
Justice William Rehnquist
on the US Supreme Court.
He was named Litigator of the
Year by the American Lawyer,
has been named Litigator
of the Week three times,
and was profiled as one of the top 10
most highly regarded litigators
by the International Who's Who Legal.
He's represented prominent
corporations and individuals
in civil and criminal cases,
at trial and arbitration, and
in government investigations.
He served in all three branches
of the federal government.
In addition to his judicial clerkships,
he was chief council
for the Senate Committee
on Banking, Housing, and Urban Affairs
and was a primary drafter of the PSLRA.
He's also worked in the White House.
And in New York, he's
served on the New York State
Commission on Public Integrity,
and on the New York
State Ethics Commission.
And with that, I'll turn
things over to Professor Choi
who will be moderating this panel.
- Great, thank you.
Do you want me to stand up here, or?
- There you go.
- Okay, all right, well,
thank you very much for
those great introductions.
I feel very honored to be next
to all my very distinguished panelists.
I'm here mainly just to
keep the conversation going,
which is really not necessary
with these panelists.
So maybe my role is
actually to cut off people
to ensure we finish on time.
So let me say a couple things,
and then let's get started.
So we know that public companies disclose
a lot of information
both through SEC filings
as well as through press releases
and conference calls with investors.
Key goal of securities
regulations is accuracy,
how can we make sure this information,
in fact, is accurate, credible, and so on.
A key mechanism in the US to help ensure,
and there's some debate
about this accuracy
of disclosures are
securities class actions.
So in particular, we're focusing
on securities class
action under Rule 10b-5.
Now with class actions,
we know that common
issues should predominate,
and this is really the key
question with Rule 10b-5,
what about reliance?
When we think about reliance, people,
someone may disclose information,
I may listen to it, they may induce me
into a transaction, and some ways
it's sort of inherently an
individualized sort of decision
to do something or be
induced into a transaction,
how does this correspond
with class actions?
We know Basic v. Levinson gives us
a presumption of reliance
and that brings us
to Halliburton II which is
what we'll talk about today.
So I have three kind of hopes
in the discussion today.
I'd like to talk a little
bit about the aftermath
of Halliburton II and maybe predictions
about where we will be going.
I'd like to talk a
little bit about policy,
does this all make sense given that goal
of ensuring accurate disclosure?
And lastly, nuts and bolts,
what is Halliburton doing,
what is price impact,
how do I show it, and
what's happening out there?
So why don't we get started?
I will sort of ask some questions,
but again, our panelists will probably
take control over this discussion.
I'll ask both sort of broad questions
and maybe more focused questions,
but why don't we start with a broad one,
and panelists will just sort of jump in
with their own views on this.
So my first question is, given
that we have Halliburton II,
what's been happening in
the immediate aftermath,
after Halliburton II in the courts,
and what sort of are the predictions
about where courts will be going
with Halliburton II and this
whole price impact concept?
So, anyone wanna jump in?
- I guess I can start.
Before I say anything, I just
want to put out a disclaimer
that everything I'm saying is
against my economic interests
and my law firm's economic interests.
(audience laughing)
I think that Halliburton II
has been sort of a ho-hum decision.
It could've been a
game-changer, it is not.
And in fact, what Halliburton II probably
will result in is more money for lawyers
and more money for economic consultants.
I've been involved in a number
of post-Halliburton II cases,
and the net effect has
been more money for lawyers
and more money for economic consultants.
I think the difficulty of
Halliburton is this notion
that you can basically get a consultant,
you can do a study, an event study,
and really have a judge
and maybe their clerks
sort of make some sense out
of what's in that event study,
and you end up essentially
with a battle of experts
and it's essentially just
another sort of point
where in these cases,
which you all settle,
except for maybe 10 in history.
It's just another point of leverage
for the defendant or the plaintiff
in terms of that settlement dance.
- Let's go this way.
- Yeah,
why don't we just keep on going that way?
- So, I think Halliburton
is fairly characterized
as a decision born out of ignorance,
which is to say Chief Justice
Roberts was pretty candid
at the oral argument that
all this economics stuff
was too hard for him, which I
do not fault him for at all,
but then to send it to district courts
on the assumption that it
will be easier for them
strikes me as misguided
and my prediction was
that nothing would happen
other than large bills
for lawyers and economists,
and I think that has been born out so far.
So it is a very ho-hum decision
but it is gonna maximize billable hours.
- Yeah, I mean the decision's really,
(clears throat) excuse
me, more significant
for what it didn't do than
what it actually did do.
It had the potential to reverse
the Supreme Court's decision on Basic,
reverse the fraud-on-the-market
presumption,
which would have essentially
ended securities class actions.
It also could have affirmed
what the Fifth Circuit did,
which was the Fifth Circuit
held that you couldn't challenge
price impact at all at
class certification.
So Supreme Court has
been kind of taking away
weapons for defendants
of class certification,
Halliburton I held that
you couldn't challenge
loss causation in class certification.
The Amgen case, you couldn't challenge
materiality of loss causation.
The reasoning was that
both of those elements
go to the entire class
initially don't bear
on Rule 23b3's predominance requirement.
And then so now Halliburton
has this essentially limited
tactic to go after price impact.
From a strategic standpoint,
I think the only benefit
of challenging a class
certification obviously
it's before the class is certified,
before the pressures that Bob mentioned,
to settle, are really exerted on you.
And you also get an appellate right.
So district court judges are immune
from appellate review in securities cases
because as Bob said,
they never go to trial.
The only time you get to
appeal is if you have a right
and 23f gives you that right.
The problem is circuit
courts are low to accept 23f
certifications and more often than that,
when you challenge price impact
at the class search stage,
you're just gonna do
damage to your ability
to do the same thing at summary judgment
and it hurts your leverage
going forward in the case.
- I think ho-hum is a nice
word to describe Halliburton.
I think, in terms of its
impact, to use that word,
it's not gonna have much of an impact.
I don't even know what we're doing here.
(audience laughing)
- George, we can talk about Morrison.
That was an important case.
- The fact of the matter,
as Bob points out,
it's just, you're, it's
not gonna have an impact.
It's not gonna have an
impact because the cases
that don't have price impact
are the cases that are gonna sell,
were gonna sell for a
little small amounts anyway.
And most cases that
plaintiff's lawyers do bring,
there is price impact because
they wanna make money.
They make money if the
damages and the settlements
and the judgements are high.
And so they're looking to bring
the cases, the bigger cases,
cases that don't really
have a lot of price impact,
and it's gonna be, we'll
talk about this more,
it's gonna be difficult for defendants
with the burden to show
lack of price impact
given the way event studies operate,
which the Supreme Court
was very much oversold on,
thanks to your brief.
(audience laughing)
- It's not my fault.
- It's not gonna have
much of an impact at all.
In terms of the economic ignorance,
I think that's right, I
think they did display
economic ignorance in the
first Halliburton case
where they said that, where they punt it
on the question of whether
the Fifth Circuit was right,
that loss causation should be required as,
proof of loss causation had to be acquired
for class certification.
The fact of the matter is, loss causation
is the flip side of price
impact, which they (mumbles).
And one other point about Halliburton
is it actually, the
result, the price impact
only makes absolutely no
sense in light of Amgen.
You cannot, I don't know anybody
on this panel understand the paragraph,
the two paragraphs in Halliburton II,
where Chief Justice Robertson
distinguishes Amgen.
I've read it 18 times,
I don't understand it.
He goes in, he says,
he talks about what the plaintiffs argue.
The plaintiffs argue that price impact
is no different than materiality.
If there's no price impact,
the whole class go away.
Therefore, it doesn't go to whether or not
there are common versus,
common issues predominant.
And he says, EPJ Fund argues
that much of the foregoing
to be said a price impact as well.
Fair enough, he agrees.
And then he goes on and
makes some distinctions
that don't make any sense at all.
So it's just a bizarre
decision in that sense.
In terms of the economic,
to go back to the
economic ignorance point,
that's the reason why
the court should've taken
the invitation to not
get into this altogether.
Because they created this 10b-5
rite of action out of nowhere, nowhere.
And they would never, we,
it's accepted law today,
which you don't make up rites of action.
Only congressmen do that.
And then they gradually
define the elements
in a piecemeal way, most,
actually mostly by lower courts,
and no one ever looked at
the whole thing as a whole
and the whole thing doesn't
actually makes sense,
it doesn't hold together.
Now, you may agree, you may think
that it's better than nothing,
which I think a lot of even the critics
of the 10b-5 rite of
action would say, right?
You, this man has said
more about how 10b-5
class actions don't make
any sense than anyone,
and it may be better than nothing,
but it makes no sense
because the courts never understood it,
they looked at everything
piecemeal, case by case,
no one ever understood the whole thing
when they designed the various elements,
and they're not institutionally
capable of managing.
And so you're right.
And so what we have is
conduct continued model,
gonna have more of the same,
lawyers and economists, and--
- Especially economists.
- Especially economists
are gonna make a lot of money,
and shareholders not so much.
- Before, our proceeding
panelists have told you
that this topic is boring and dull,
I have learned, they're quite correct,
but I have learned--
(everyone laughing)
- He can make anything interesting.
- I have learned not to tell students that
'cause they immediately fall asleep
and start tweeting each other.
(everyone laughing)
So let me tell you that in
defense of Justice Roberts,
I think what he really
desired in this case
is the Supreme Court is
not a peer review board
analyzing social science studies,
it is a court of law
generally following precedent.
He has good reason for saying that
'cause if he overturned
Basic versus Levinson,
it's quite possible that his successors
will start overturning all his decisions,
and he doesn't want his
decisions overturned,
so I think he's quite committed
to holding to precedent.
Now, I think there are
things that will happen
at class certification motions,
I think there are good strategic reasons
for plaintiffs, excuse me, for defendants
to raise class certification
issues and to challenge it.
You can win, not on price impact,
but on whether or not
the market is efficient,
we'll get to that properly later.
That's quite contestable and the criteria
in a case called Cameron versus Bloomberg,
just economically primitive,
but seven out of 12
circuits follow the rule,
so you can win on that.
I think, I just spent yesterday looking
at all the recent district court decisions
following Halliburton II
and I have not found one
(Robert laughs)
that gave a victory
to the defendants.
There are a number--
- My case settled, actually.
- Everything settles, we understand.
But there are a number that
have denied such a motion.
What you can win on, and
which defendants do contest
more vigorously than price impact
is whether or not the market is efficient,
what the length of the class period is.
If you can shorten the class period,
you can kick out half the damages,
and that is worth fighting about.
And always Daubert motions.
We hear Daubert motions everywhere,
but if you can attack and compromise
and discredit the plaintiff's expert,
that's gonna come up to
haunt the defendants later on
'cause ultimately, they
have the burden of proof
on showing loss causation and
their dirty little secret is,
loss causation is the same
issue with price impact
with the burden of proof reversed.
You discredit their expert witness,
they're gonna have to settle the case,
so there are reasons to
litigate this intensely,
but you just aren't
gonna win on price impact
unless on the date of
corrective disclosure,
the market price went up.
And if it went up, there
aren't any damages anyway,
why are these plaintiffs suing?
So on that note, I'll tell
you that we should move on
and find other ways to discuss
what's interesting in Halliburton.
It's not going to have an
impact changing the status quo.
- But let me, to keep the discussion going
and save you some work, Steve,
I wanna ask a follow-up question.
The plaintiff's lawyers like to say
that there's all this
language in Halliburton
that minimizes their burden
when it comes to showing efficiency.
And so do you think that's gonna have
an impact on the Cameron effect,
how courts do that.
- Now we're talking
about proving loss causation?
- No, no, I'm talking about efficiency.
On efficiency, they like to say,
they like to point at
some of this language
in the opinion that says,
oh, they efficiency is not a big deal,
we're just talking about really,
really general efficiency,
not really strong efficiency--
- I have the view--
- That's the plaintiff's
lawyer's pitch I'd like to--
- I have the view, a
very simple principle,
what's sauce for the goose
should be sauce for the gander.
When we get to loss causation,
which is the same issue,
plaintiffs are going
to have to come forward
with an event study meeting a 95% level
of statistical confidence
showing that there was
real losses caused by this misstatement.
I think at the price impact stage,
it should be the reverse of that.
It should be reciprocal.
The plaintiffs, the
defendants are going to have
to show an event study that
there was no price impact,
and it's gonna have to meet
the same level of confidence,
and that's almost impossible to do.
So I think it should be
even-steven in that regard.
- Although it's not
clear from the decision
that defendants bear the burden
of proving lack of price impact.
They certainly bear the
burden of coming forth
with evidence to sever the link,
but what the Halliburton argue on remand
was that Federal Rule of Evidence 301,
which applies to all presumptions, right,
means that the party who gets
the benefit of the presumption
is the opposing party
comes forth with evidence.
The ultimate burden of persuasion rests
with the plaintiff in this instance.
- You may be right as to that,
but most of the district court
that have subsequently decided this issue
have not said that.
They said the burden
on showing price impact
is going to be on the defendant.
- The lack of--
- Or the lack of price impact.
- Yeah, the one issue that actually,
that George raises, which
is an interesting one,
and I think it reflects
the Supreme Court's
lack of understanding of the
way the markets actually work,
it used to be, back in say, 1988,
when Basic versus Levinson
was, I guess, inactive,
we won't even call the decision,
most stocks were traded on,
say, the New York Stock Exchange.
That's not true anymore.
And I had case very recently
where it involved a Canadian company.
Some of the shares were traded in Canada,
some were traded in New York,
but even the shares in New York,
only 20% of them were traded
on the New York Stock Exchange
and the rest were traded on
these things called dark pools.
And so one issue that
you could see litigated
is the efficiency of dark
pools and it's obviously a way
to shrink down the size of a class.
- All right, let me ask a
follow-up question to this.
And Jack, you sort of
brought this topic up
about the connection
between loss causation,
price impact, and we can
even think materiality.
So Amgen is about materiality,
Halliburton I is about loss causation,
Halliburton II is about generally
this whole fraud-on-the-market
and price impact.
If I were trying to show materiality
in an expert report, I would take a look
at the price drop upon
revelation of the truth,
and I look at this and try to figure out
confounding information and pull that away
and show, look, there's this
statistically significant drop
upon revelation of the truth
at a 95% confidence level.
If I were doing loss causation,
I would do pretty much
exactly the same thing.
I'd find the price drop, I'd
find confounding factors,
and try to tease that out
to find out what portion
of that price drop is due
to the alleged misstatement.
With price impact, I think I'd probably do
exactly the same thing as well.
I would take a look at the price
drop on confounding factors
and take a look at what
portion of that price drop
is due to the alleged misstatement.
Now, so a couple questions,
there is the possibility with price impact
to look at the initial inflation.
Is there some initial inflation?
Only it's difficult because lots of things
are disclosed at the same time.
But is that something you see?
And the other deeper question is,
if all three use the same thing,
materiality, loss
causation, and price impact
looking at the price drop,
is there any chance of confusion
between these doctrines
in the district courts?
And have you seen anything
in the district courts
about how they deal with
evidence of a price drop
and do they say, well,
this is materiality,
oh, this is loss causation,
or this is price impact?
And how they sort of interacted,
given that these are
really very similar tests,
they're being used to
figure out these concepts?
- Well, I think one of the problems
is that they are so interrelated.
Where it becomes an
issue in the real world
is when you have the so-called disclosure
of the information that was concealed
with a whole bunch of other information,
'cause most companies don't
make one announcement on a day.
So if you have a situation
where a company announces one thing,
which people say, well,
that's the information
that was improperly concealed,
and then four other bad things,
and all of them cause the price
of the company's stock to go down,
the plaintiff does have some burden
of trying to show that really the fraud
was what caused X percentage
of the stock drop.
- And this relates to how the
Supreme Court was oversold
by Professor Pritchard
on what event studies do.
I mean, what an event
study is good at doing
is figuring out whether or not
on any given day there were
excess abnormal returns.
They regress the movement
of the stock price
against the movement of the general market
and the movement of industry in X,
and then they get the coefficients,
and then they figure out, well, you know,
how much is beyond the range
of sort of the normal random movement?
And I think mostly, when
I hire defense experts
to replicate a plaintiff's event study,
they're usually pretty good at it.
It's not really, generally,
two good economists
doing an event study fairly are gonna get
pretty much the same results,
they're gonna identify the same days,
except for days that may
be around the margin.
As which days there was abnormal returns.
That's not the thing, that's not where all
the money rides on
these, on event studies.
Where the money rides is on explaining
why there wasn't a movement on
a given day or why there was.
Why there wasn't a movement?
Yes, there was some fraudulent
statement made that day,
but there was some other confounding
information that counteracted that,
that's why you don't see that movement.
On the other hand, if
there was a significant,
statistically significant
movement on a given day,
somebody's gonna say,
the defense is gonna say,
it wasn't because of the
thing that the plaintiffs
are saying that was disclosed that day,
because that was already disclosed.
Which is really a
truth-on-the-market argument,
which is materiality.
And the plaintiffs are gonna say,
no, no, no, it was this other thing.
And whoever has the burden of proof
is gonna lose, as John points out.
And take an example,
what happened in Amgen.
Amgen, it went up to the
Supreme Court on materiality.
Materiality, they said that
none of these statements
that were allegedly false were material
because they were alleged by
the plaintiff were material
because the truth was
already known to the market,
and they submitted a lawyer's affidavit
attaching all the news clippings
and annals reports and what
not that indicated that,
according to the defendants,
that the information
was previously disclosed
and that therefore the statements
relied on by the plaintiffs
could not have had,
were not material, truth-on-the-market.
Well, they lose, case goes
back on reconsideration
for the court to deal
with, the district court
to deal with class certification,
now they're gonna make an
argument with an event study,
where the economists are looking
at exactly the same
things that were attached
to the lawyer's affidavit
the same time, same thing.
Eexcept you're paying the
economists as well as the lawyer.
- But that's--
- Students,
what you should learn from all of this--
- Get it.
- Take a seminar
on event studies.
Stop taking those ineffable courses
on international human rights.
Take what really matters,
how do you do event studies,
'cause you're gonna see it
over and over and over again
if you practice in the city--
- And if you're a law clerk.
- It's actually not, and my
thought it was the first time,
I sorta thought, oh my God, event study,
I don't know any of this, I don't know.
It's really not that hard.
Buy "Statistics For Dummies."
As far as, you're gonna practice law,
all you need it "Statistics For Dummies,"
and you'll know enough about event studies
to be able to pretend you know something.
(audience laughing)
the Supreme Court did not,
apparently did not have
this in their library.
- And that's why I think district
courts have got it wrong,
for the relatively incoherent
passage from Halliburton
that George read, Justice Roberts,
if it means anything,
it means you can have
an overlapping evidence, right.
So the same evidence that
you would show to defeat
materiality can also be
used to defeat price impact.
And district courts who have interpreted
Halliburton II have declined to hold that.
But truth-on-the-market, for example,
is one of the most common ways
that an economist will say
that the market's efficient,
the market should already
have incorporated this information.
So if you can't show me
new material information,
it can't have a price impact.
And for this doctrine to have
any weight for defendants
in securities class actions,
it's gonna take a district judge,
and more importantly an
appellate court on a 23f appeal
to hold that there's nothing
wrong with an overlap
in evidence between
materiality, loss causation,
and price impact if it gets to the issue
of negating that price impact.
- There's a disconnect between how
economists understand materiality,
which is the consensus of the market
is the equivalent of
a reasonable investor.
And judges do not want to be
bound in making materiality
determinations by the
response of the market.
So there are other things
in materiality under the legal doctrine,
management integrity, conflict minerals,
apparently the source of those
is material for some reason,
even if an economist could not find
any price response to it.
So the concepts are different.
I don't know that they should be,
but they are different,
and the Supreme Court is
making a logical distinction
even though in most cases
the overlap of evidence
means it's not a practical decision.
- But in the run of cases that we see,
I haven't litigated a
case in which materiality
wasn't something that went to the price.
Have you, Bob?
- No.
- No, it's always price.
And yeah, and of course it is.
Because the plaintiffs want things
that move the market so they have fees.
- But the most important thing
in a securities class action
is the motion to dismiss.
The most important thing
on a motion to dismiss
is whether the defendants
acted with scienter
in making the alleged false statement.
And in every single motion
to dismiss that we all draft,
that's the first point
and that's where the battle was fought.
- Now, let's say at the fact then,
looking across all circuits
and averaging them all out,
about 40%, depending on
the circuits it varies,
but about 40% of cases do get dismissed.
- It's ctually higher now, it's 60.
- Which circuit are you talking about?
- The latest Cornerstone
numbers were that it's close
to 60% of cases were being dismissed
on motions in the securities cases.
- Well, then it's gone way up.
My point was that we have an awful
lot of cases that are gonna settle.
These cases survive on settlement
and a case that survives
a motion to dismiss
has a very, very large
probability of being settled.
- No question.
- Because it's gonna be
very expensive to take it all the way--
- But the really interesting,
the really interesting question
that comes out Halliburton
and it's sort of, no one every does this,
would be if a company had the guts
to go to trial and lose,
and you'd have a situation
where the jury would say,
well, the damages were the
following amount per share.
And then you would have a claims process
at the end of the case--
- That's what's happening--
- That's right, in Fendi,
it was gonna happen in the household cases
in Chicago.
- Billion dollar judgement.
- And what would happen is,
you can have a claims process
where the defense could literally litigate
plaintiff by plaintiff,
whether people actually
relied upon the statements
that allegedly were false,
'cause it's a presumption,
and you have the ability to
overcome the presumption.
And so, no one ever does
it because no company--
- But then--
- No one wants to take
the chance of getting multi
billion dollar judgment.
- If the verdict came in, and I think
it was January or February--
- But it was about two billion, I recall.
- Yeah, well, I think the plaintiff said
that it was gonna be about nine
billion and it was cut back
because Morrison probably took one or two.
The claims process is still
going on five years later.
Now, you follow it?
Yeah, still going on.
- Let me make another point--
- Nobody said any time.
- But that's where Basic--
- Bob.
- And Halliburton could actually matter.
- But your premise is if the defendants
had the guts to go to trial.
You're skipping one
factor, which is the judge.
The judge may see, in a
class certification motion,
that he's gotta decide at
this point in the case,
for the plaintiffs and certify the class
'cause defendants haven't met
the burden of disproving price impact.
But we also see that's a
very messy body of evidence
and it's quite possible that later on,
plaintiffs won't be able to establish
loss causation at summary judgment.
That judge is gonna want
this case to settle.
And a judge who wants a case to settle
can bring great pressure
to bear on both sides.
- Absolutely.
- And I think they do.
I think they see messy--
- I had a judge very
recently, I won't name him.
- Or her.
- Or her.
To protect the innocent,
him, her, or whatever,
and the judge dismissed, refused the,
grant dismissal and set a trial date,
like four months out.
And the judge barely wrote an opinion.
And it was an opinion that was written
and found fact against my client.
The plaintiffs thought they
were gonna lose the motion.
And he just wanted to get rid of it.
And that's what happened, we settled it.
- Similar experience with a
judge which shall go nameless,
before she had seen a single piece
of evidence in her courtroom, she said,
not only should these cases
settle, they must settle,
and I will do every thing in my power
to see to it that they settle.
Which, you know--
- Very easy to do.
You just set a trial date four months out
and say, no extensions.
- And there's not appellate review
unless you take it all the way through.
Or you may name us the judge,
which is the same thing as the ultimate--
- Good luck with that.
(audience laughing)
- So, let me pursue this a little bit.
So you guys have convinced me
that the Halliburton II is sort of ho-hum.
On the other hand, you guys have told me
that expert cost would be going up,
lots of costs are higher,
and settlements might be affected by this.
So I guess that's the question.
If Halliburton II is ho-hum,
but it has an effect in settlements,
is that important or
does it have this effect?
So I could see effects for two reasons.
One if there are a lot of
costs that could be avoided,
assuming there are
significant additional costs.
The other one is the judge point,
that if judges don't wanna deal with this,
well, they put greater
pressure for settlement
prior to the class cert's date.
So have you seen a change in settlement,
both the incentive to
settle, as well as amounts,
given the same fact--
- I had an experience
very recently where we filed
a stack of papers that high
with all kinds of expert reports in it,
we challenged market efficiency
because we made the argument
that allowed the shares were
traded through dark pools,
and the plaintiff had not shown
that the dark pools were efficient.
We had a situation where there
were multiple disclosures
on the same day, including
the alleged disclosure
of the truth about the so-called fraud,
and the case settled within a mat,
oh and I also made a motion
which I advise people to do now,
for an evidentiary hearing,
in which these economists would testify.
And I think that's a good thing
because how could a judge possibly
get to the bottom of a stack of papers
that are two feet high
without having an opportunity
to speak to the judge,
and the case settled.
Now, I actually saw the judge thereafter,
and the judge said, "You know,
I had the stack of papers
"in my chambers that was this high
"and I really hope you all
were gonna settle the case."
The plaintiff's lawyer obviously
wanted no part of an evidentiary hearing
in which the experts would all testify.
The problem is from a societal standpoint,
you have to ask yourself the question,
does this system make any sense?
Which is ultimately, I think,
the question that needs to be asked.
- Well, I gotta, just to give
another example of a case
that shows that I think that,
I think personally, my
opinion is that Halliburton
doesn't matter even when it matters.
I'll describe this case that I have.
It's going on right now, I'm not gonna,
I'll change the names and the
facts to protect the innocent,
but basically what happened,
one Thursday last year,
my client announced the conclusion,
the settlement of a
government investigation.
And the only sanction was
a few million dollars,
an amount that was clearly
immaterial to this client.
And there's no question
that it was immaterial.
The stock moved a little that
day, it went down a little,
but if you do an event study,
it shows it's not
statistically significant.
It moved even less the next day,
clearly not statistically significant.
It's so bad that the plaintiffs relied,
and it's Thursday and Friday,
they relied on the following Monday
where the stock did drop
in a statistically significant fashion,
but the thing, the
disclosure of the settlement,
the government settlement
was so highly publicized,
there is no way that you can argue
with this New York Stock
Exchange traded stock
that that was due to the
announcement five days earlier.
And in fact, there was some other news,
confounding news over the weekend.
This is a case, and there was no other,
the announcement came in,
there were no other confounding
disclosures on the day.
So this is the perfect case.
If it doesn't get
dismissed, which I think,
and I hope it will, for the defendant,
for us to come in and say,
here's our event study,
this, don't certify this
class, we should win that.
But I don't think it's gonna make,
and if it comes to that, we will.
But I don't think it's gonna make
any difference in the settlement value,
because that case is weak anyway.
And the plaintiffs know it.
They know they're not
gonna get that much money
out of that case, even if the
motion to dismiss is denied.
Because there just isn't any,
there aren't gonna be damages at the end.
They could go to trial and get nothing.
So they're gonna take what they can get.
And I don't, I just
don't see the fact that I
can make a motion, I can
oppose class certification,
as really affecting the needle.
- Let me introduce a
concept, amidst this welter
of detail and anecdotes
that we're getting into.
- Sorry.
- No, it's interesting.
But it is rational, it is logical,
for defendants to spend $2 or $2 million
to cause the plaintiffs
to spend one million,
because there's a huge asymmetry
in terms of the financial resources.
On the defendant's side,
there's D and O insurance,
and there's a deep, deep pocket there.
If by putting in this event study--
- The plaintiffs are entrepreneurs.
- Let me just finish this little point.
Even if you don't expect
you're going to win
at class certification on
challenging price impact,
you are raising the cost to plaintiffs
who are litigating the
case often on a shoestring.
There may be four or five big plaintiff's
law firms that have deep resources,
the rest of them are
litigating on a shoestring,
and forcing them to spend money
is going to change the
settlement negotiations
and possibly change the settlement
that you can get away with.
So that's one reason.
The other strategic reason
that you may wanna make
this kind of class certification motion
is you got a preview of what's gonna be
the plaintiff's event
study at loss causation,
and you get the first shot at being able
to discredit the
plaintiff's expert witness.
If you can damage the
plaintiff's expert witness
or at least see ways that
you can discredit him,
you have a great advantage
at summary judgment,
and again, these cases tend to settle
when the summary judgment motion
is being briefed and presented.
So that I think there
are strategic reasons
because of cost asymmetries
that plaintiffs,
excuse me, defendants, do gain something
from bringing this class
certification motions,
that they don't really
think they're gonna win.
- I'll go back to my anecdote.
I have a big case out in California
where we didn't make the
price impact argument
because we thought it was too easy,
we'd lose credibility before the judge.
Now, we did oppose class
certification on other grounds.
We found some basis to that, and I,
but the plaintiffs did
their event study anyway
because, to purportedly,
to show market efficiency.
And they did have to hire
an economist to do that.
So I don't know if I agree.
- But look, the problem
with this whole area of law
is that it's entirely judge-made.
The problem is that the
presumption in Basic,
which people forget,
Basic versus Levinson,
four to two decision,
which people often forget.
Now, let's suppose the Supreme Court
had knocked out the Basic presumption.
And I think Justice Thomas
has it right when he makes
the point that whether
Basic was right or wrong
was really the court's decision
to fix or error to fix.
Congress presumably could have come up
with a construct that made some sense.
And I thought about it.
When we did the Private
Securities Litigation Reform Act,
there's a safe--
- Bob wrote it.
- There's a safe harbor for,
it's near and dear to my heart, George.
There's a safe harbor for
forward-looking statements.
That safe harbor was heavily negotiated
with the SEC, plaintiff's
law firms, industry,
and it has a whole series
of carve outs in it,
so for example, the safe
harbor doesn't apply
to statements in financial statements.
And it's a very clear sort of legal regime
laid out in the statute.
What you have hear is
something where the courts
essentially just punt it
to a bunch of economists.
And so the problem with
this entire area is,
it's judge-made law with
a judge-made presumption
where now we have a sort of economics
being injected into it,
and the point that all think gets lost
is that when Congress enacted the 34 Act,
it actually did have a
private rite of action in it,
Section 18a, which
basically allows for claims
based on false statements in
filed documents with the SEC.
And that provision has
a reliance requirement,
something that was added
to it during the course
of the legislative process.
- It's even worse than that.
The defense and pro-defense amicus briefs
in Halliburton of which I submitted one,
we said that Section 18
was the closest analogy.
Section 18 allows people who
buy in the secondary market
to sue issuers for false statements
in written disclosure documents.
And it has--
- So Congress thought about
this issue and passed the law.
- It has
a reliance requirement,
and you look at the legislative history,
some people said, well, let's not,
they shouldn't make them
prove reliance in Congress,
and the congressman
said, no, that's crazy,
we'll have crazy litigation.
The plaintiffs, on the other hand,
argued that Section 9
was the closest analogy
because Section 9 deals with manipulation,
it doesn't require reliance.
But Section 9 requires privity.
Congress thought about
all this in 1933 and 1934.
And they didn't conceive of Section 10b
having some kind of a, of a Section 10b,
an implied rite of action
where you don't have to have privity
and you don't have to have reliance,
and that's what we have
today with section,
and that's why it's
such a powerful weapon,
and that's why, basically,
it is the largest,
if any provision in the US
code, other than the tax code,
and maybe the antitrust laws,
it is responsible for the
largest transfers of wealth.
And there's no basis
for it in the statute,
and in fact, it confounds the
original intent of Congress,
which actually wanted to have
either privity or reliance.
- See, it all really goes back
to 1966 when Congress basically,
when Rule 23 was put
in effect to allow for,
you have to opt out of class
actions rather than opt in.
And so once you had the
class action device,
if you were to require,
as one would think,
well, let's require reliance, right,
if you had to show reliance
on a class-wide basis,
you couldn't do it, so
therefore you couldn't bring
securities class actions and
what they became by 1988.
So that's how, you know--
- Basic was--
- That's how Basic came about.
- All the prior, all the
Court of Appeal's cases
that came before that, the Blacky,
they all basically said, well,
if we're gonna have class
action, we don't need,
we shouldn't have reliance--
- But the question really should be, well,
why doesn't Congress do this?
- And they were made
in the policy judgment.
- So that's the real issue,
why doesn't Congress do it?
And in fact, and Congress actually could,
like it did for the safe harbor
for forward-looking statements,
lay out a very clear regime,
saying for example, if you're a day trader
or someone who's a computerized trader,
you don't get to bring--
- It's hard to imagine
that Congress ever would've voted
the current regime with the law.
So now the burden is, for
Congress to vote it out of law.
- Which will never happen.
- And, you know, I mean,
I appreciate that John point out
as Chief Justice Roberts is
concerned with story devices,
which applies correctly, it's right,
it applies particularly strongly
with regard to statutory construction
because Congress get
to rewrite the statute
as opposed to constitutional,
and he also wants to say this battle,
bad constitutional decisions.
But the problem is, this was not
a construction of a statute.
This isn't like interpreting
Section 5, x, Roman i, a,
of the Migratory Bird
Protection Act or whatever,
and the question is whether
for it to be migratory,
the bird has to cross one,
or two, or five state lines.
And Congress might pick
four, so you might say two.
I mean, no, this court might
pick four, you might pick two.
Congress can fix it, it
can decide to be three.
This is a situation
where much, much, much,
much more expansive,
much more incredible--
- You have an implied rite of action
in the face of an express
statutory provision--
- You're cleaning
this massive industry that made Bob rich.
- This is not a question of
statutory interpretation.
- You too, George.
- Halliburton has nothing--
- Not so much.
- To do
with statutory interpretation.
It's a question of
institutional competence.
Chief Justice Roberts does
not care what 10b-5 says
or Section 10b says, he is not
equipped to deal with this.
- That's right.
- And therefore, he is--
- So therefore, he's gonna make
all the district judges deal with it.
- Well, no--
- Who are no more competent--
- In his vision, Congress
is going to deal with it
if it is to be dealt with.
I think the construct of
creating this industry
has created interest groups on both sides
that means that nothing will happen.
Because Congress had a
chance to do this in 1995.
The question of dealing with reliance
was raised and nothing happened.
- Defense lawyers are secretly relieved
when they saw the Halliburton.
- No, what happened with the PSLRA
was that was a law that literally
passed on a veto override.
Hasn't happened very many times.
And actually Teddy Kennedy,
John Kerry, Dianne Feinstein,
they were part of the veto override
of President Clinton's bill.
That bill was like the most heavily
negotiated bill in memory.
If you change a word in
it one way or the other,
it wouldn't get the necessary votes.
Now, what's interesting about the process
with respect to this issue was
this was a third rail issue
whereas half the people
wanted to overturn Basic,
and the other half wanted to codify Basic.
And so therefore, you
ended up with nothing.
- Let me follow up on this point.
This interesting point you
made that defense attorneys
were secretly happy about
the Halliburton decision.
And I notice we have a bunch
of defense attorneys here,
we don't have any plaintiff
attorneys on our panel,
so let me channel my internal
plaintiff attorney and say
that class actions,
despite the history here,
which may be sort of a judicial tree
out of this legislative acorn,
that securities class
actions are important.
We need these to enforce
the securities law,
especially with respect
to accurate disclosures.
So my question to everyone
is what is the alternative?
If we could go back and ask Congress,
and if Congress were to do something
or the individual states,
how would you fix the system?
- Well, you've just, from
the gopher ball to me,
I've got a book coming out in two months
that's gonna try to address that question.
(everyone laughing)
It's called "Entrepreneurial Litigation:
"Its Rise, Fall, and Future,"
Harvard University Press, out in June.
I'll get you a discounted copy--
- I love the title.
- Advance sale at the door.
- The title is great.
Entrepreneurial litigation.
- That's what--
- It's what it is.
- No question.
- It's in,
the lawyer hires the client
rather than the client
hires the lawyer, et cetera.
Now, in this world, what
would you have to change?
First problem is something
that's called circularity.
This is shareholders suing shareholders.
The class, it's within the class period,
it's suing all the other shareholders,
and that means we're
getting wealth transfers,
and there's very little possibility
of any kind of compensatory benefit
from shareholders suing shareholders
because whatever recovery there is
is immediately reduced by
both the lawyer's fees--
- Current shareholders going--
- The plaintiff's,
and the lawyer fees for the defendants.
- Lawyers and economists--
- But now, other costs are there, too.
Now, there still could be a justification,
there's a deterrent benefit.
But here is what I think is interesting.
You've all heard the critique,
which Judge Rakoff has
particularly well made,
that public enforcement today
produces only deferred
prosecution agreements
that don't do much, a slap on the wrist,
or a large penalty on the corporation,
which is again, born by its shareholders.
No responsible officer ever get sued
by the SEC or other public authorities.
Very few individuals have
been held accountable.
It's even worse, however,
when you move over to private enforcement.
When you move over to private enforcement,
we find that there is
both D and O insurance
and almost always 99% of the settlement
is paid by the corporate FD,
nothing by the individual officers,
and if they were paying something,
it would come exclusively
out of D and O insurance.
So the world that Rakoff talks about
in terms of public enforcement
is mirrored and aggravated
when we get over to private enforcement.
How could you change that?
I would point you to what Canada does.
Canada puts a ceiling
on the maximum damages
that a defendant could be liable for.
You could still had the suit for symbolic,
retributive purposes, but
you won't get much damages.
I would couple such a ceiling
on the corporate liability with,
this is where the rest of the
panels is gonna be shocked,
with repealing Central Bank of Denver
and restoring aiding
and abetting liability.
There are people who
are culpable out there,
and sometimes they should be sued.
If private enforcer was
gonna do anything meaningful,
the basic Missouri compromise
should be reducing the corporate liability
and bringing back the idea
of individual liability.
I will turn over to a panel of four
who think that's the worse
idea they've ever seen.
- But you also wanna get
rid of insurance, right,
or limit insurance in the enforcement of--
- So one of the--
- The insurance doesn't cover
certain kinds of culpability.
- Culpability, right.
After a judge.
- But then you'd have
a talent drain of those in public.
- Let me just--
- I don't know
that you're gonna be fleeing being a CEO.
I really don't think--
- But I think you're losing
sight of the most important thing.
I don't think anyone who's sitting there
committing securities fraud in a gross way
is thinking, oh, five years from now,
I might be sued in a
securities class action,
oh, I'm not going to
commit securities fraud.
I think the deterrent for people
to commit securities fraud
is putting people behind bars,
and in fact, there have
been situations like that.
Richard Scrushy, HealthSouth.
I was involved in that case,
I saw the guy show up at a deposition
in literally shackles.
Sanjay Kumar, Computer
Associates, in jail for 10 years.
The WorldCom, Bernie Ebbers,
I think he may be there for life.
Bernie Madoff is
definitely there for life.
So if you wanna deter people,
you actually should, you
put them behind bars.
The second thing that is worth noting,
is that in enlightened Europe, okay,
we always think about, that's
the most enlightened place,
they look at us and they think
the securities class action system
is complete and utter nuts.
- Absolutely.
- In Europe, there are no
securities class actions.
- There are some.
- And they have markets
that work, they have
people raising capital.
And in terms of a solution,
the one that probably
makes the most sense,
and this is maybe shocking,
too, for me to say,
would be to give the
SEC more of an ability
and the DOJ to actually go out
in the process of investigating
one of these frauds,
to get the money from the bad actors
and then distributing
it to the shareholders.
- They're not interested in that.
The Ebbers cases, that's the
tail end of the distribution.
- But that's a real fraud, though.
- It is a real fraud.
- And the problem is,
in this whole area, you sorta have
the Ebbers cases and the Sanjay Kumar's,
and people like Bernie Madoff
where there was clear fraud,
most of these cases
were in the middle zone
where you have a real argument,
was there a fraud, wasn't there a fraud,
what was someone's state of mind,
was this really just a bad
business deal gone wrong.
And you don't wanna put people
in jail in that situation,
and that's--
- The SEC's incentive
is not to put, bring
individual enforcement actions,
because they're not gonna
get bigger headlines,
they're not gonna get bigger penalties,
which is what they are
interested in maximizing,
so redeploying is simply
duplicating the problem.
- Absolutely right that
securities class actions
don't have much deterrent effect.
Because of the insurance, indemnification,
and because of the fact that the way
that corporate executives look at
is like you can get sued no matter what.
There is nothing we can do about it,
and we have insurance.
- Probably--
- In terms of enforcement,
even though few individual actions,
individual actions are
few and far between,
and some people may say, as Rakoff does,
there should be more,
that does still have a much
of real deterrent effect.
Because nobody wants to be a part
of the SEC investigation.
- But let's make sure
we get the issue joined here.
What I'm saying is if there is a rationale
for private enforcement through
securities class actions,
it has to be through the deterrent benefit
that you could gain by restructuring it.
You do agree that there
is no compensatory value
to pocket shifting wealth--
- Absolutely.
And I would go farther than make a couple
of additional points to
the ones that John made.
Okay, there is the pocket shifting.
The pocket shifting actually
is from smaller shareholders
to larger shareholders
for a couple of reasons.
- It's hedge funds that get the money.
- Exactly.
- Weekend shareholder
never is in the class, period.
- The grandma and grandpa
who sit on their savings
and don't, aren't day traders,
they don't have any
transactions to recover on.
Not only that, they're less
likely to submit the claim form
than is the hedge fund
who has a million shares.
Beyond that, the plans of allocations,
most of these cases
settle, as we all know,
the plans of allocations basically
have no relationship
whatsoever to damages.
- No, they favor the lead plaintiff.
- Absolutely right.
- Shocking.
- Absolutely right.
So it is--
- Notice, there's no plaintiff's
lawyer on this panel.
There is something that could
be said by someone else here,
who's not here.
- But again,
actually, you have to remember,
our economic interest, Bob, and mine,
and my friend from Skadden here,
are all aligned with
the plaintiffs on this.
'Cause we make money off of
this, litigating these cases.
- You've heard consensus only one thing.
- You may all know--
- There's no compensatory
rationale for the current system.
There may or may not be ways
to get a better deterrent benefit
out of the securities class action
if it were reconfigured.
- But John, there are no
securities class actions in Europe
and they have good markets,
by most people's account.
London--
- That's (mumbles) question.
That's a little too generalization
about the European securities markets.
- But I think, the European,
no one would say that
London wasn't a good market.
- London's different.
- But let's say the Supreme
Court had wiped it away,
overruled Basic, sent it back to Congress.
Congress would have in
fact done something,
and they're not real imaginative.
They would have probably copied Canada,
because it was, would be at hand.
They can't say there's
going to be nothing,
because there was something.
It's a good argument that
there should be nothing,
but that's not really
politically relevant.
- It's a funny, look,
I've worked in the courts,
and I've worked in Congress.
And yes, the people on
the courts are way smarter
and more honest, and
it's just a great place.
But there's something kind
of strange about the fact
that you could be sitting
there if you're a law clerk
and then the judge marks up the opinion
and that becomes the law,
as opposed to a process where literally
it's all out in the open,
the SEC can comment on every
single line in the statute,
the plaintiff's lawyers can comment
on every single line in the statute,
the industry groups can comment on it,
academics can comment on it--
- You're looking at the
whole thing as a whole,
as opposed to making piecemeal decisions
the way the courts have made over time
as to well, what's this
element's supposed to be?
Should there be this element?
And not fully appreciating the
monster they created in 1988.
- Absolutely right.
- So let me come back to channeling
my inner plaintiff attorney,
'cause I feel like they are
being underrepresented here.
So to the argument that, well,
there's no deterrence at all,
if that's true, then it's really,
there's no reason for any of this.
But let's assume that
in our current world,
we don't, we observe this
because the counterfactual world,
if there were no plaintiff attorneys,
maybe the amount of
fraud would shoot way up
and it's harder to know
what that would look like
without plaintiff attorney--
- But you know,
I've been practicing law for,
doing this kind of work for 25 years.
I have never worked on a case
where an individual defendant
pay to a securities
class action settlement.
It was always either
the D and O insurance,
and that's the vast majority of cases,
or it's maybe some money from the company,
if it's a really bad situation.
- No, I agree with that.
And I think actually expanding liability
to the individuals would
be a very important
and interesting thing to do.
I guess my question is if we're thinking--
- You're agreeing with me, good heavens.
- I don't disagree with you.
But my question is, I can understand
if compensation really
doesn't work very well.
But what about this argument
that plaintiff attorneys
are doing this public service,
there are these private attorney generals,
and the real thing we
wanna do is pay them.
So the proposal would be,
let's eliminate compensation
and just make sure
there's a bounty for
the plaintiff attorneys.
If you think what they're
doing is a good thing,
let the plaintiff attorneys
get money from the individuals,
let them get them from the company.
So we wanna retain the company payment,
because that payment is
the monetary incentive
to give the incentive
for plaintiff attorneys
to bring these great lawsuits.
Again, if you don't
believe plaintiff attorneys
are doing anything, you
won't agree with me.
But if you think there's some deterrence,
why not justify the system we have
as paying the plaintiff attorneys?
- Because then you end
up punishing the people
who you're supposed to be protecting,
namely the shareholders.
Because the shareholders
eventually pay for it.
- But here's another possibility.
Following up on your suggestion,
you wanna do something with
the plaintiff's attorneys.
One of the things you could do
is have public enforcement
agencies hire them.
We do see the bank regulatory
agencies doing this.
The FDIC does it all the time,
and they get huge
recoveries with the FDIC.
- The FHFA.
- The SEC is not doing enough,
which is what Judge Rakoff's point is,
and I think there's a lot of evidence
for his point of view.
One of the things we could do
is begin to have public
enforcement agencies
hire plaintiff's council
on a contingent fee basis.
Might take some change in the law,
but I think you would see a very different
kind of enforcement--
- Well, actually,
in the FHFA case,
where they recover literally--
- Yeah, they do.
- Billions of dollars.
- The FDIC does it even more.
- Billions of dollars, my understanding
is the fee arrangement was an
hourly-based fee arrangement.
- They have some that are
on a success fees, too.
They try to avoid the word contingent,
but they have success fees.
- I think the answer
to having the money be,
basically having, however you wanna do it,
having the government do it,
is just a duplicative
process that goes on here,
because take the Enron case, for example.
The government investigated
the heck out of Enron.
Then Bill Lerach came in behind that
and essentially piggyback
on the government work
and then did a settlement.
It would make more sense to have a system
where there was public enforcement,
if there's gonna be public investigation.
- I think public enforcers
often are bureaucrats.
We could get the prior profit motive
into this process--
- I don't think
there's anything stopping,
state attorney generals
can hire private council
all the time.
- And they do.
- The banking agencies did.
- And it works.
- They got huge settlements
in some of these cases.
- But we're trying to find of a role
for the plaintiff's attorney
that is more successful,
creative, and socially beneficial,
I think we can create that kind of role.
It's just chapter 10 in the
book I just described to you.
(audience laughing)
- Go to Amazon.com.
- So everyone should buy
this book.
- Not till June.
- Not till June.
So let me continue on with
this policy discussion,
which is very interesting.
And a lot of discussion about the fact
that the way the law here
develops is just piecemeal,
case by case, judges don't really know
what they're doing, developing this stuff.
So we take it back to Congress.
What exactly would we change,
besides we could eliminate
the entire private cause of action.
Would you change other aspects of 10b-5,
damages aspects, anything
along those lines?
- If we did get rid of it all,
I would get rid of it all together.
But if we didn't do that, I would impose
damages cap like the one that
John referred to in Canada.
In Canada, it's a million,
either the greater
of like a million Canadian
dollars or 5% of the market cap.
Yeah, I think restricting the amount
that can be recovered
would make a lot of sense.
At least, it would impose
fewer costs on shareholders.
- You can do an incremental change,
Robert suggest on the opinion
as to place the burden squarely
on plaintiffs to establish
lack of price impact,
or to establish
materiality, loss causation.
Congress could do any one of those things
to tweak the Basic presumption
to make it more difficult
for this class action.
- Congress could, but I think
we're romanticizing Congress.
Yes, they did it once
when they were commanded
by Mr. Giuffra on the
PSLRA, but otherwise--
- Actually, you know
what we did in that law?
One of the best provisions
in the entire law
is the lead plaintiff provision.
The lead plaintiff
provision came into effect,
because I'd gone into Yale Law School,
I'd come to a meeting, and
it was all this discussion
about how are we going to deal
with monitoring plaintiff's lawyers.
I went back to my office and I got
the page proofs of an article written
by Elliot Weiss.
- Elliot Weiss.
- Elliot Wise, I'd gone to Yale,
I thought, oh, I better read this,
and I'm reading this law and
economics analysis which says,
well, let the plaintiff that has
the biggest loss control the case.
Sort of made sense to
me, so we drafted it up,
it was never the subject of
any debate or anything else,
and it was in the law that actually works.
So see academics, this is the best way
other than doing a
really good amicus brief,
that you could actually affect the law.
- But remember--
- Your book--
- Congress doesn't usually act.
We've had Congress trying for 30 years
to adopt the definition
of insider trading,
and I'm not aware if even the committee
that's trying one more time,
and I'm not predicting that
would be very successful.
- That's gonna get potentially
to the Supreme Court, too.
- This statute passed at the one moment
in which we had a complete
political landslide
and it created a momentum for the PSLRA.
I think we have a very polarized Congress,
and I think we're romanticizing things
if we think Congress--
- And that's absolutely right.
It's like--
- No, but I don't disagree.
- Absolutely right.
It just happens, you have
statutes that passed,
very sporadic, you had Dodd-Frank,
which was just, again--
- After a crisis.
- After a crisis,
and the political star just
aligned for a brief instant,
and then they cramped, they
made it a 2,000 page bill
or whatever because it was,
they got everybody's wishlist in there.
(mumbles) statute.
- The one change,
the one change I would
put in the law that was,
that should've been put
in the law and wasn't,
is that these cases really do turn
on who the district judge
is who has the case.
Some district judges are pro-plaintiff
and some district judges
are pro-defendant.
And when they are dealing
with these motions to dismiss,
which are the key, sort of
linchpin point in these cases,
if you get the wrong district judge,
that can effect the value of the case.
So I would have a
provision that would allow
for the appeal of the denial of a motion
to dismiss in a class action.
- I think that's a great idea,
because again, it's not just
that some judges are pro-plaintiffs,
some judges are pro-defendant,
I think there are a lot of judges
who are unbalanced, don't wanna create
appeal on orders in
which they then reverse.
And that would help, too.
This way they have to,
one way of the other,
they've gotta go.
Right, so they have to actually decide--
- The PSLRA has eliminated a lot
of the real abuses that
existed in the law.
You used to have a
situation where Mel Weiss
and a few other lawyers literally had
five in-house plaintiffs who owned
five shares of stock in every company.
There was a race to the courthouse.
Whoever filed the first complaint,
the complaints would be literally
filed like the next day.
And you had, you could start
the discovery clock from day one,
so companies would settle
because they didn't wanna spend
millions of dollars on discovery.
And with the PSLRA, one, you have
the lead plaintiff provision which puts
at least some adult
supervision on the process.
Two, you have a heightened
pleading standard.
You have this protection for
forward-looking statements.
And you have a discovery stay.
So there are provisions
that make the system
a little bit more sensible.
- There's a coherent
regime lurking in 10b-5.
If the damages measured or fixed,
it should be discouragement.
Section 18 requires actual reliance
to get compensatory damages.
Everywhere else, if you
can't show reliance,
you are limited to discouragement.
If the damages measure
were discouragement,
you would have no reason
to sue the corporation.
The only recovery you
could get is from officers
and directors who actually
engaged in the fraud.
The point of the enterprise
should be deterrence.
All of this stuff about materiality
and price impact and loss causation
serves no social useful
purpose whatsoever.
Every dollar spent on price
impact and loss causation
is a dollar that society is wasting.
The only question that
matters is whether or not
fraud occurred and clearing the decks
with the discouragement measure of damages
of all these other issues
would channel the system
toward that question.
- So on that basis, you're
telling the rest of the panel
they should give back their
salaries for the rest 20 years.
- You're parasites.
(audience laughing)
- And we are honest parasites, though.
We wanna do, we wanna litigate
some other kinds of case,
like your wine case, I wanna
litigate your wine case.
- So, let me keep coming back
to what a plaintiff attorney would say.
I hear proposals capping damages,
proposals to keep thing to discouragement,
but as the plaintiff attorney--
- I wanna restore aiding and abetting.
- Yeah, so you're also channeling
the inner plaintiff attorney.
So what I'm concerned about here is again,
if the plaintiff attorneys
are doing something
which is good for the shareholders
by providing this deterrence,
and again, that we can question
where there is any deterrence,
I wonder all these
efforts to reduce damages
to discouragement, to keep things capped,
won't this sort of reduce the importance
of private enforcement?
- Here's a great
plaintiff's attorney
just walked in the room.
- Yeah, he should've been
on this panel.
- He should've been
on this panel.
- Yes, he should've been
on this panel.
- For fairness,
you should come up here and argue with us.
- Max, get up here right now.
- Perfectly, and we were just talking
about the lack of balance on this panel,
and there you are.
- I think
he's on panel number two.
- We don't wanna steal--
- Yeah, so I'll keep channeling.
And I guess the question I have
is with respect to
smaller public companies.
So larger public companies,
we have great ability to
show efficient market,
but what about the smaller companies?
- You know, it's a very good point,
because the fraud-on-the-market doctrine
essentially immunizes the smaller company
at the bottom tier of NASDAQ and below.
And the classic American scam
is the pump-and-dump scheme.
But the pump-and-dump
scheme is probably beyond
the reach of most class actions
because the market's not efficient.
You can, if individual sued,
I have to say, in a world
of institutional investors,
they don't really need the class action,
they can sue on a consolidated basis.
But the classic American scam
is beyond the reach of the
securities class action,
and that's one of the problems
of the strange arbitrary line
that fraud-on-the-market doctrine creates.
- That's the point.
- So I know, the rest of the panel,
I mean, I guess the observation is,
we have too many class actions
for a large public companies,
too few for the small ones.
It's very hard to show efficient
market for small companies.
They may have more room as a result
to pump and dump and do what they want.
- On the other hand, let me just,
let me make one counterpoint to that,
is smaller companies are
companies whose stock
tends to be more volatile.
And in cases where there
aren't real frauds,
allowing class actions against them
could put them out of business.
And we have to be very careful about that.
They're the ones who might
not be able to afford the insurance.
They might not be able to
afford litigating these things.
We put them out of business.
- That might keep them honest.
- Propositions.
- Might keep them honest,
might make people less interested
in starting up public companies.
- I'm not worried about that.
This country has a lot of
motivation to be an entrepreneur.
- Why not take it away?
- Thoughts on this?
- Are we done?
- So we have a, I think we're approaching
the question and answer sessions.
So I've been asking lots of questions.
Why don't we open this up
and I can continue asking questions,
but why don't we get some
questions from the audience?
Yes?
- [Audience Member] Hi,
there's been a lot of talk
about insurance and how the (mumbles)
kind of used (mumbles) component
of security transactions.
Given that, if unlikely
the Congress will act,
and we already know the
Supreme Court won't act,
is there some way that change could come
through the insurance industry
and insurers becoming more reluctant
to sponsor an insurance,
or, well, they don't--
- It's a very profitable business.
- Is this on the record?
- Yeah.
(audience laughing)
- You're being videotaped, so yes.
- (laughs) All they're gonna do,
they're not gonna, they're
just gonna raise premiums.
And that they're making that judgment,
their economic judgment
based upon loss history
and that's the way they respond to it.
- The problem is--
- They're not gonna stop
writing policies if they can get people
to pay the premium.
- It's also true
that the insurance industry
is not risk-adjusted.
They're charging premiums without regard
to the companies relative
blame worthiness,
relative risk exposure.
They're spreading it broadly
over shareholders of the class.
So it's not working the way insurance
is supposed to work in economic theory.
- And I also don't think D and O insurance
is necessarily a bad thing here.
If you're really gonna tell people
they have to put their
entire personal wealth
at issue every time they
serve on a company's board
or to be an executive of a company,
you're gonna have a huge talent drain
in the executives of public companies.
And that's not what we need.
- Well, I think you are right
when you're talking about
the outside director.
I'm really not worried about
CEOs fleeing the board.
I don't think that's gonna happen.
Compensation is more than sufficient--
- They have no cap on their
liability and no insurance.
The insurance is a scam.
- No, might keep them on.
- The directors are driving
the purchase of the policies
because of a virtually non-existent risk
that they would be held liable.
Because in order to be held liable,
you have to make misstatements
on behalf of the company,
and most directors are not
in a position to do that.
The misstatements are
being made by the officers,
the officers really need that insurance,
and the reason they can
persuade the corporation
to purchase it is because it's
also covering the directors.
- On the next panel, Max
Berger can talk to you
about the WorldCom case and how they took
the life savings of the poor
outside directors there.
It's a very interesting story,
although it's a one of a kind story.
- [Max] I should've gotten warm.
(audience laughing)
- The one important point
to keep in mind is that,
and I think John had an excellent point
when you talk about discouragement.
Discouragement measures of
damages make a lot of sense,
but if you have a really big fraud,
WorldCom, HealthSouth, Enron,
the executives who are
involved in that fraud,
they will end up having
their assets discouraged.
The government will
want it in restitution.
And so that's why ultimately it comes back
to stupidly what happens
if you have a company
that kinda goes poof and blows up,
then new people come in and take it over.
There are people who
will see, sort of see,
can they turn around work.
And then that becomes a
cost of the turnaround,
the settlement of the case.
I've always believed that
if you have bad actors,
you should try to get every
last nickel from them you can,
and when I worked on Computer Associates,
we tried to actually to do that
with respect to Sanjay Kumar.
But the government
actually was negotiating
their own settlement with him
which allowed his wife to
keep a certain amount of money
and then they basically
told us to pounce in.
That was when I represented the company
and we were trying to get back the money
that we had advanced to
him in attorney's fees.
- Other questions, yes?
- [Audience Member] I just
wanted to pull up a little bit
on the issue of the market efficiency,
that Professor Coffee mentioned,
lack of market efficiency
and then Mr. Giuffra,
you mentioned a recent case
involving the black market.
I was just wondering whether,
how much more liable challenging
market efficiency has
come post Halliburton.
Is it a strategy or is it--
- They're still using the
same district court decision,
Cameron versus Bloomberg,
there's five factors,
most of which have no economic
sophistication at all.
This is one of the few issues
that could still go to the Supreme Court,
what is the definition
of market efficiency
for purposes of the
fraud-on-the-market doctrine.
I'm not saying it will, but--
- You did a great job
with that.
(audience laughing)
- I mean, I think it could
become more of an interesting
area with the rise of dark pools
and the decline of organized markets.
- Well, you know, for example,
IPOs don't trade in efficient market,
because the underwriter and
the issuer sets the price.
So that's one of the arbitrary features
of the fraud-on-the-market doctrine.
It can only reach the IPO after
the end of this quiet period
when the analysts get back in the field.
So we have a very arbitrary line
in the fraud-on-the-market doctrine.
- There.
- I have a question about,
you were discussing public agency,
including private insurance
(mumbles) to give (mumbles).
But we know about scandals like (mumbles)
going after conservative rules,
or Department of Justice
not being completely equal
in their (mumbles).
Can we trust government,
especially since our next
presidential campaign (mumbles).
Can we trust them in terms
of enforcing (mumbles),
in terms of how it should enforced
instead of giving a political advantage
in order to give financial (mumbles)
from political candidates, thank you.
- So this is an important question,
let me just continue on with this.
There's a lot of discussion about,
well, let's bring in the SEC,
they'll solve all these problems.
But what about problems within the SEC?
Are there political things
which drive SEC attorneys?
Lifetime concerns?
Can I get a job at an investment bank?
So if we're gonna put a
lot of stress on the SEC,
either under John Coffee's
proposal or generally,
let's have SEC do more enforcement,
what about this criticism
of the government enforcement attorneys?
- But the problem with, look,
I think I have a lot respect,
the US Attorneys Offices,
and maybe this is
because the people who
are, you should've learned,
you're doing real crime
and you're involved
when you first started
in US Attorneys Offices,
drug crimes and gang
crimes and organized crime.
And then you move up
to white collar crime.
They really can focus on what really
is an important matter and
what's not an important matter.
My criticism of the SEC is
that I think there's not enough
direction and maybe it's
changed in the last few years,
as to trying to figure out
what are the cases that really matter
and what are the cases
that don't really matter.
And they spent a lot of time on the cases
that just don't make a lot of sense.
I'd have to be careful what I say.
It's been reported in the press
that there's a whole big investigation
into hiring practices in
China, as an FCPA matter.
When you actually stop
and think about that,
why does the US government care
about what banks are doing in China
with respect to getting business?
That's not, it's kind of a little bit off
to the beat and path as
opposed to something like,
our people engaged in
accounting statement fraud,
a Madoff-type situation.
- But the China situation was
reported in the newspaper,
so therefore it is--
- Absolutely right.
- In the interest of the SEC.
- Absolutely right.
If it's important, they're
driven by headlines.
And they pursue cases, they miss cases
that they should bring,
Madoff was a great example,
and they bring cases, they get obsessed
with cases that are worthless.
- Actually, maybe the point is,
they tend to be driven by
what's actually presented
to them in the press as opposed
to ferreting out problems
before it becomes a public issue,
like Madoff is a perfect example of that.
- I'd give a slightly
different interpretation.
The SEC, much more than
the Department of Justice,
has to deal with a hostile Congress
and get a budget each year,
and that requires them to constantly show
that they are bringing more cases
and getting more settlements,
and that produces an emphasis
on bringing relatively
small, unimportant cases,
so that they can keep those numbers
constantly rising and justify
a higher budget allocation.
If you look at a chart, a pie
chart of the cases they bring,
about a third of them
are late filing cases,
another 20% or so are cases
involving follow-on actions
where someone else has levied a sanction
and now you're throwing
them out of the industry.
This kind of cases are only explainable
by the bureaucratic need to show
constantly increasing volume,
that's not, I think, the way
the SEC should be allocated.
They should be like the
Department of Justice,
focused on who are the worst criminals,
who are the worst bad guys out there.
I can't say that explains
the SEC allocation of effort.
- When you think about
the DOJ, you actually do
have situations where the DOJ
will investigate something,
there'll be some indictment,
and no one even knew that there
was a crime that was going on.
The SEC, for the most part,
is really basically a copycat agency
in terms of what it looks at.
- So that's a little bit pessimistic then
about diverting more
enforcement to the SEC.
- Well, but plaintiff's lawyers--
- Even if it's, but the point
is even in its randomness--
- Yes, I know which is better, I guess.
- The plaintiff's floor don't bring cases,
plaintiff's lawyers don't bring cases
unless there's some problem that's public.
The issue here is trying to ferret out
the wrong doing before it becomes public.
- But even with the randomness
of SEC investigation and prosecution,
there is a deterrent effect.
Because people, that's the one thing
that I think if you're in the board room,
that you're really afraid of.
You're not really afraid of Max,
because you can pay him
off with insurance dollars.
- Well, I think you're afraid
of reputational cost even more.
You're afraid that the New York Times
even more.
- You're afraid of it,
exactly true, and if you get sued by Max,
it's not gonna get into
the New York Times.
If you get sued by the SEC,
it does get into the New York times.
And things could happen
to you that you could,
you lose your reputation,
you could lose your job.
Even if they don't charge you.
It's much scarier, that's
what they think about.
- Well, they could put
you out of business.
- They can put you out of business,
they can put you out of a job.
- The point that folks don't realize,
there's not many cases where people,
big companies ever fight
government agencies, never happens.
- Let me, isn't this an argument in favor
of Jack's proposal, then?
So if you're saying
that plaintiff attorneys
can't do anything 'cause they just
don't have the tools that government does,
let's give them the tools,
let's give them aiding and abetting.
Let's get rid of insurance
with the individual officers.
Make the officers scared
of the plaintiff attorneys.
Would that address the concern
about the plaintiff attorneys?
- I like the idea about
having the government agencies
hire the plaintiff's attorneys better.
That doesn't, it's got its issues,
but I mean, that's at least
the system one could--
- You'll end up with
another set of problems.
- There's a lot of tough problems.
- Well, the issue will be
how the plaintiff's lawyers
were hired by the government agency.
- How you managed us.
- Other questions?
So let, yes?
- [Student] I would like you folks
to discuss a little bit
the European system.
My understanding is that
the European Commission
is considering adopting
sort of collective redress
of class action system
in this summer of 2015,
that would in some ways
gonna make the US system.
But one sort of interesting
distinction that I identified
is that association to be
able to bring the lawsuits
of privatizations rather
than actual shareholders,
which might solve the circularity
problem that Professor Coffee mentioned.
So pushing back a little bit
on sort of the enthusiasm
about the European system not
having this system currently,
but considering it even
with this sort of a clarity
of retrospect in knowing the
problems that exist in the US,
if you recommend clients (mumbles)
or have some sort of (mumbles)
on your radar as defense attorneys,
can you sort of surveyed
those possible changes
and do you think that
there are improvement
over the US system?
- This is a long chapter in
the book I keep citing, too.
But let me tell you--
- Everyone, buy this book.
- To the extent Europe
is considering anything,
there are a number of European
countries that have opt-in class actions.
And whether or not an opt-in class action
can be re-engineered so that it approaches
the sweeping recoveries in
an opt-out class action,
there are possibilities.
But beyond that, Europe also
doesn't believe in contingent fees.
They think they are
immoral, irresponsible.
That means you have to have a different
kind of litigation funding,
and there are third
party litigation funders,
basically hedge funds, that do fund
some European class litigation.
London actually does have
the securities class action.
The third problem is, all across Europe
and all civil law countries,
there's a loser pays rule.
We don't have a loser pays rule
yet, and till Delaware Act,
I have to put a question mark around that,
but all three of those
have to be addressed
to have an aggregate remedy.
What you do about loser pays,
what you do about funding if
you can't have contingent fees,
and how liberally can you
make the opt-in class action
approach or at least roughly
approach the opt-out--
- The other thing that goes on in Europe,
which is actually a good
thing which I thought about,
is that they have professional judges.
And I often wonder whether the jury system
makes sense in some cases like this
that are very, very complicated.
One of the reasons people
may not go to trial
is because this sort of
a roulette aspect to it.
And in the cases that I've tried,
even in cases involving big companies,
typically what happens is the defendants
are looking for the smartest jurors
and the plaintiffs are
looking for the people
that they think they can
make an emotional appeal to,
and that's big company,
billion dollar cases.
And sort of like, who should win
and who should lose, sort of gets lost.
And anyone who's ever sort
of watched a jury trial,
in a very complicated case
has got to be asking themselves,
can people really understand all of this
and make sense of it?
And it's potentially a problem.
It's different in a criminal
case where even there,
if you've ever listened to
a jury instruction be given,
you go, how are these people
ever gonna understand this?
I can barely understand
it, and I worked on it.
But that's, in Europe, they
have literally professional
career judges who decide a lot of issues,
and that's a completely
different issue than we have
'cause we have a
constitutional right to have--
- Yeah, I like the Seventh Amendment.
I like the securities juries drop.
I like the Seventh--
- But you never tried one.
No one ever tries one.
- I don't wanna mess with
the Seventh Amendment.
- Other questions?
All right, so we're almost at the end.
Let me just ask one last broad question
to tie everything together.
So if we were to look to the future
and I sorta started with this question.
What would you predict?
Where are we gonna go with class actions,
with class cert, any new
developments or changes?
Or are we gonna just stay with
this ho-hum path we're on?
What would you predict?
- I mean, I think it's pretty clear
that what you'll see is
more muddling through.
I think there'll be more
securities class actions.
They're not going away,
they're not, gonna probably be more.
They tend to be driven
by stock market drops,
so in the last year or so,
the stock market's been going like this.
The number of securities
class actions has gone down.
When the market goes down again,
you'll see a lot more
securities class actions.
If the markets really keep going up,
then you have a, if you have
a regime change in the United States,
you could have some legislative
fix that gets tried.
But that's the only way
that would ever happen.
- Someone's gonna try
an arbitration clause
and the Supreme Court is gonna uphold it,
and it's gonna blow the whole thing up.
- That's good.
- Yeah, Halliburton didn't change
a lot here at all since 2008.
You've been able to
challenge price impact.
So I don't think we'll
see a huge difference.
I think as Bob said with the
volatility in the market,
you'll see more traditional
stock price cases.
We don't wanna give Max
too many ideas here.
A lot of cyber security, data security--
- Protecting others.
- Issues
you'll probably see this year
as that becomes a bigger issue.
- Yeah, I agree with the other panel.
I don't think Halliburton
at the end of the day
is gonna be an inflection point
when we look back at it 25 years from now.
I think if class action,
the course of class action litigation
in the securities context is gonna change,
it's gonna be something we don't expect,
or it's something that hasn't been,
hasn't happened yet, or
isn't on the horizon.
Like, I don't know, maybe
this arbitration idea.
- I think the only thing
that will destabilize
the system significantly
would be if some company
following the new Delaware procedure,
adopts a by-law imposing arbitration.
And if the courts uphold that,
that could end securities class actions.
Other that that, I think
continuity is much more likely
than change.
- Absolutely.
- The one thing it is changing,
the plaintiff's bar is consolidating.
We used to be a lot of boutique
small plaintiff's firms,
they're not getting more
and more consolidated
around some large firms.
The PSLRA really helped move that along
and practices like pay-to-play
have also consolidated the players bar.
So that's the only, the major change
that I see going on today.
- All right, great.
Any other questions?
All right, I'd like to thank the panel.
I've learned a lot today.
Thank you very much.
(audience applauding)
