Business group seeks SEC probe of law firm
By Jonathan Birchall in New York
Published: March 10 2004 18:53 | Last Updated: March 10 2004 18:53
The Securities and Exchange Commission has been asked to investigate the role of law firm Milberg Weiss in a suit brought by an short-selling investment company that was also targeting the company's stock.
The US Chamber of Commerce, which represents private US businesses, said in a statement on Wednesday it had asked for an investigation "into whether the short sellers and Milberg Weiss had engaged in securities fraud".
Milberg Weiss is the most active US law firm in class action securities law suits; the chamber of commerce's lobbying includes efforts to limit liabilities under US tort law.
The move follows a ruling by a federal judge in California in a class action suit brought against Terayon Communications, a provider of broadband cable systems. The original suit claimed that Terayon had misled the market over the prospects for its technology, blaming this for an eventual decline in its stock price in April 2000.
But chief judge Marilyn Hall Patel found that the lead plaintiff in the suit, Cardinal Investment, had been actively short selling the company for several months before the case was brought. It had also taken out put options, undeclared in the class action suit, that expired just after Milberg Weiss announced the launching of the class action law-suit.
Cardinal Investment, based in Dallas, was founded by its president Edward "Rusty" Rose III, an major financial contributor to President George W. Bush and a former managing partner with Mr Bush of the Texas Rangers baseball team.
The judge also sharply criticised the role of Milberg Weiss in preparing the case, saying a number of issues "leave the court to speculate whether counsel for plaintiffs actively participated in or provided advice to plaintiffs regarding their scheme to cause a fall in Terayon's stock price".
The court also ordered Milberg Weiss to provide further information about the extent of its links with Cardinal and its owners, as well as related billings.
Should the firm be found to have breached its obligations to the court it could face either a court fine, or potential displinary action from the bar authority.
Lynn Stout, law professor at the University of Southern California, said attempts to bring a class action suit by a short seller were "not a common occurence", with only a few cases seen.
"By definition they?re not a good representative of the class," she said. "It took a certain amount of brass to do this in the first place."
(Read the full text of the order from chief judge Marilyn Hall Patel) |
