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Class-Action Securities Suits Limited

Publication Date: 
June 22, 2007
San Jose Mercury News
Scott Duke Harris

Professor Joseph Grundfest is quoted in a San Jose Mercury News article about the Supreme Court decision to make it more difficult for shareholders to sue in securities cases:

Stanford University law Professor Joe Grundfest said the ruling was "not as thorough a thrashing for the plaintiffs as the plaintiffs had feared." Grundfest is the founder of Stanford Securities Class Action Clearinghouse, which maintains an online database regarding the prosecution, defense and settlement of federal class-action securities-fraud litigation.

The database shows the volume of such lawsuits has been tapering in recent years. In 2006, 118 cases were opened, down from 182 in 2005 and 235 in 2004. From 1998 to 2004, no fewer than 209 cases had been filed in a single year. In 2001, fraud allegations surrounding the booming public offering in stock options created a spike of 497 cases.

'Milberg effect'

Theories about the recent decline, Grundfest said, range from improved corporate behavior to "the Milberg effect." That refers to a supposed chill on litigation arising from the federal indictment of Milberg Weiss, a leading securities class-action law firm accused of bribery, obstructing justice, perjury and fraud. Milberg Weiss sued Tellabs.

Grundfest cautioned that while the Supreme Court's ruling resolved the disagreement among circuit courts, it also introduces some new ambiguity: "We moved from an argument over statutory ambiguity, to an argument of a judicial ambiguity."

The opinion, Grundfest said, "contains language that plaintiffs will use to try to keep weak cases in play."

Grundfest, like Feldman, used a baseball metaphor to make his point:

"While I think it would be a misreading of the opinion, there is language in there that plaintiffs will use as the legal equivalent of the old baseball rule that 'a tie goes to the runner.'"