Legal News

Judge Jed Rakoff: ?This Court Will Not Be Party to This Sham?

By Ashby Jones

It’s not an everyday occurrence that a federal judge rejects a proposed co-lead plaintiff in a securities fraud class action because the plaintiff knew too little about the case. But New York federal judge Jed Rakoff made such a move yesterday, rejecting the Steamship Trade Association Longshoremen’s Pension Fund from serving as the co-lead plaintiff for the Monster Worldwide securities fraud class action. Here’s Rakoff’s opinion, as well as the story from the New York Law Journal.
Judge Rakoff used some strong wording in his opinion, saying he would “not be party to a sham.”

Wrote Rakoff:

To be sure, the requirement is modest: class representative status may be denied only “where the class representatives have so little knowledge of and involvement in the class action that they would be unable or unwilling to protect the interests of the class against the possibly competing interests of the attorneys.”

Here, as part of class certification discovery, defendants deposed STA-ILA witness Horace Alston, Co-Chairman of the fund, who testified that he was the person at STA-ILA most knowledgeable about the lawsuit. . . . However, Mr. Alston then testified that he did not know the name of the stock at issue in this case, did not know the name of either individual defendant, did not know whether STA-ILA ever owned Monster stock, did not know if an
amended complaint had been filed, did not know whether he had ever seen any complaint in the action, did not know that defendant McKelvey had moved to dismiss the complaint, and did not know that STA-ILA had moved for pre-discovery summary judgment.

Judge Rakoff slammed the plaintiffs lawyers with Labaton Sucharow, saying they left him with the “distinct impression” they “may not have fulfilled their professional responsibilities in proposing STA-ILA as a class representative.”

Christopher Keller of Labaton Sucharow told the NYLJ, “We have great respect for Judge Rakoff, but we feel his conclusion was a little harsh.” Continued Keller: “The rule requires that the person who is most knowledgeable be produced for deposition, and in this case the client failed to produce someone who was the most knowledgeable. Nothing about this was a sham.”

In any event, the lining was silver for Keller and the Labaton Sucharow gang. Rakoff went ahead and certified the class and selected as lead plaintiff the Middlesex County Retirement System, which he found had a better grasp of the facts.

The plaintiffs claim securities-law violations by Monster, former CEO and Chairman Andrew J. McKelvey and former general counsel and Senior Vice-President Myron Olesnyckyj. They allege shareholders were cheated because the online job search company improperly accounted for backdated stock options.

Full post as published by Law Blog - WSJ.com on July 17, 2008 (boomark / email).