More About Foreign Claimants, Foreign Companies: In earlier posts (here and here), I discussed issues arising as a result of foreign litigants suing foreign domiciled companies in securities class action lawsuits in U.S. courts. These issues were involved in a recent opinion in a case pending in the Southern District of New York. In a January 8, 2008 ruling (here), U.S. District Court Judge Denny Chin appointed Luxembourg-based investment company Axxion S.A. Luxembourg as lead plaintiff in the consolidated securities lawsuit pending against GPC Biotech AG, a biotechnology company based in Munich, Germany.
One final observation about the GPC Biotech case is that it embodies a number of important 2007 litigation trends. First, as noted above, a significant factor in the 2007 uptick in securities lawsuit filings is the increased incidence of lawsuits in the Southern District of New York against foreign-domiciled companies, of which the GPC Biotech lawsuit is one example. Second, GPC Biotech is in the 2834 SIC Code (Pharmaceutical Preparations), which as I noted here was one of the SIC Code categories with the greatest number of 2007 filings.
In many ways, the GPC Biotech lawsuit is emblematic of a number of important trends that emerged in 2007, in particular because the case does not in any way relate to the subprime meltdown. As I have noted before, even though the subprime litigation wave was clearly an important 2007 development in connection with securities litigation, it was only one of several important factors at work during the year.
Tracking Subprime Lawsuits: In discussing (here) the 2007 year-end securities lawsuits analysis of NERA Economic Consulting, I noted that NERA’s count of 2007 subprime-related securities lawsuits filings and my own count (here) diverged. I have now had the opportunity to confer and compare notes with NERA, as a result of which I was able to identify the differences between our tallies. Based on these discussions, I have added three additional subprime-related securities class action lawsuits to my running tally: BankAtlantic Bancorp (here), First Home Builders of Florida (here), and Merrill Lynch/First Republic (here).
As a result of these additions, my current tally of subprime-related securities lawsuits (including lawsuits against the credit rating agencies and subprime-related lawsuits against residential construction companies) now stands at 37.
Very special thank to NERA, and especially to Svetlana Starykh, for the willingness to confer and to share information.
Accounting Discipline: According to a January 9, 2008 CFO.com article (here), the International Helsinki Federation of Human Rights must shut down as a result of its finance manager’s six-year embezzlement of $1.8 million. The finance manager apparently embezzled the funds to “support his mistress.”
The Federation’s mission had been “to protect and strengthen civil society groups that monitor and report on human rights issues from a non-partisan perspective.” Unfortunately, the Federation’s funds were put to some decidedly different uses. According to the news reports, “the mistress reportedly gambled away up to $7,000 a week at poker and told the finance executive she needed $44,000 to open a hair salon. She also spent some of the money for breast augmentation and a nose job.”
The finance manager told the court that he would not have agreed to finance the woman’s operations had he known about them ahead of time. (The news reports do not reveal what he thought about them afterwards, though.)
Apparently the finance manager regarded these transfers of cash as a loan transaction; he told the court that the woman had promised him she would pay him back from a large inheritance she expected.
The finance manager, age 43, has been sentenced to three years in jail; the woman, age 31, was sentenced to two years.
All of which is just a reminder of the importance of internal accounting controls for entitles of all sizes and types. It is perhaps an idle thought, but I do wonder how much financial fraud has its origins in some kind of marital infidelity or sexual indiscretion. Admittedly, it would be a difficult thing to try to underwrite…
Last Chance: The early registration discount for the 2008 PLUS D & O Symposium expires January 11, 2008 at 5:00 p.m. CST. The registration materials and schedule can be found here. As I have previously noted, I will be co-chairing this year’s Symposium with Chris Duca from Navigators Pro. We are proud of the program we have put together. The speakers include former SEC Chairman William Donaldson, who will be the keynote speaker, and the panelists include, among many luminaries, SEC Enforcement Division Director Linda Chatman Thomsen.