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To: JDN who wrote (31314)	6/7/1999 9:12:00 PM
From: Karl Drobnic	Read Replies (1) \| Respond to of 31646

JDN: Some stats, etc., on shareholder lawsuits: SAN FRANCISCO (CBS.MW) -- Your stock tanked and you lost a bundle. Then you find out the corporate officers sold their holdings just before the dive. Should you sue? Despite efforts by Congress in 1995 to curb shareholder lawsuits, a company is more likely to be sued now than before the reform effort. Currently, there are 500 federal shareholder actions pending, all filed since the 1995 reforms. These cases are worth an estimated $4 billion in potential settlements (including $1.2 billion in lawyer fees), according to a Stanford University professor who tracks securities cases. Professor Joseph Grundfest says the current average settlement in a securities class action is $10 million, with about 80 percent of the cases settling. Last month, the record-setting $143 million securities settlement by Informix Corp., a Menlo Park, Calif. maker of database software, could raise the ante even higher as lawyers on both sides evaluate what a settlement is worth. Informix (IFMX: news, msgs), its auditors and executives have tentatively agreed to pay $143 million to shareholders between 1995 and 1997 for allegedly lying about revenues and trading on inside information. Look who's watching The magnitude of settlements has caught the attention of the insurance industry, which insures corporate officers and companies against shareholder claims. Reliance National, the third largest insurer of corporate directors and officers, recently held the first live webcast via the Internet to hear from leading securities lawyers about just how dicey things are getting. A second group of corporate officers and insurers, sponsored by the American Bar Association, is getting together in Silicon Valley in June for a similar discussion with securities lawyers. The leading lawyer representing stockholders in many lawsuits against corporations is William Lerach of San Diego's Milberg Weiss Bershad Hynes & Lerach. He warned in the Reliance Webcast that the reason so many cases have been filed is not the fault of lawyers. He pointed out the cases came during a period of tremendous growth in numbers of IPOs, with start-up companies dependent on a single risky product and lucrative stock options granted executives, which creates incentives to keep stock prices up. Tower Snow, an attorney who frequently defends corporations from securities suits said you need to dig deeper to discover why more cases are being filed and more companies sued. He said, "One dynamic that's at work here is that more and more cases are being dismissed." He said that over half of all moves to throw cases out have been granted in whole or in part. Lawyers for shareholders are "hedging their bets" and filing more cases because fewer survive. Finding lawsuit targets Whether you think these suits are a good thing or a bad thing, it pays to understand what the lawyers are looking for when they decide to bring a case. Lerach said stock price action may be first on the list but he also looks at why prices drop. "If a stock drops 25 points in one day on unknown news, that's one thing. If it drops 25 points over five weeks that's something else. We look at the reasons behind the price change to see if there was a clear motive to conceal and if there was insider trading." An unexpected boon to lawyers in the 1995 reform act was the requirement to publicize securities filings. Lerach said this had the effect of prompting corporations to create shareholder departments and Web sites that include shareholder information. The publicity about lawsuits frequently brings out disgruntled employees and competitors that are more than willing to talk to the lawyers about the target company's dirty laundry. Chat rooms Lerach said lawyers for shareholders also monitor Internet chat rooms to learn what's being said about a company and what the company is saying to the public. He warned, "I think companies make a mistake getting into dialogues in chat rooms." Snow said another thing that makes lawyers who file these lawsuits salivate is a company that tries to "spin facts" in public statements. "Companies that predict 200 to 300 percent revenue increases in a quarter, then don't make that goal -- that excites Bill [Lerach.]." Few of the cases ever go all the way to trial. Almost all of them settle. But Snow said several have gone to trial in recent years and resulted in victories for the companies. "Jurors understand that the securities laws are not investor insurance. They understand risk and that investing is a type of gambling. They understand investing in IBM is different than investing in a high-flying Internet company." The bottleneck in the courts right now is the result of too few appellate court decisions to give lawyers an idea of how the 1995 reform law will be interpreted by the courts. This prevents attorneys on either side from knowing what a settlement is really worth and so negotiations stagnate. Once appeals courts around the country begin handing down rulings on the core issues in the cases, then settlements will break the logjam. Pam MacLean writes Legal Options and Taxing Times for CBS MarketWatch.