Conference Focuses on Litigation Trends

by Rodney Tonkovic
Associate Writer-Analyst
CCH Federal Securities Law Reporter

The Practising Law Institute recently hosted its annual Securities Litigation and Enforcement Institute in San Francisco, California. Several of the panelists described the current litigation environment as a "brave new world" brought on by the global financial crisis. Co-Chair Jerome F. Birn, Jr. of Wilson Sonsini Goodrich & Rosati in Palo Alto noted that it had been "an extraordinary year" and pointed to the "new genre" of market-meltdown cases.

Jonathan C. Dickey of Gibson, Dunn & Crutcher in New York discussed subprime litigation, stating that definitive guidance on the direction of the cases would not be available for "a year or two." He noted that asset management firms have become the largest group of defendants and that "the diversity and sheer heft of the cases has become enormous." Blair A. Nicholas of Bernstein Litowitz Berger & Grossman in San Diego then described the increasing involvement of foreign institutional investors and European courts in investor litigation.

During a morning session discussing current developments in litigation, panelists discussed the re-emergence of the core operations doctrine. However, Co-Chair David Siegel of Irell & Manella in Los Angeles cautioned that "what judge and what panel you draw in the 9th Circuit is a better predictor" of how the inference will be applied than precedent.

While discussing trends in pleading standards, Mr. Dickey expressed hope that the Supreme Court will clarify what will trigger inquiry notice with respect to the distinction between the Securities Act and the Exchange Act when it rules on the Vioxx shareholder litigation. Mr. Dickey also said, in reference to trends in loss causation, that "a lot of the action in loss causation is outside of the 9th Circuit" and noted the 5th Circuit's narrow view of securities class action pleading with the caveat that few circuits agree. Mr. Dickey believes that the best strategy to follow is to work closely with experts and "front-end load" on loss causation.

Sherrie R. Savett of the Philadelphia firm of Berger & Montague described how rating agencies are, for the first time, exposed to liability. She explained that the agencies had previously been protected under the 1st Amendment as issuing opinions, but that changed when subprime issuers began paying for ratings.

In the afternoon session discussing the involvement of and how to deal with the government, Marc J. Fagel, Regional Director of the SEC's San Francisco office and Doug Sprague, Chief of the White Collar Crime Section of the Northern District of California's U.S. Attorney's Office both noted the recent rise in the number of Ponzi schemes. Both Mr. Fagel and Mr. Sprague described changes made in order to speed up the investigative process and reduce bureaucratic roadblocks. Mr. Fagel forecast an increase in the number of subprime and market crisis-related cases in the next year, while Mr. Sprague expects to focus on corporate and securities fraud.

Mr. Fagel also discussed the role of the SEC in investigating insider trading and said that referrals from exchanges are "constantly going up." He noted concerns with respect to misappropriation by friends and family members as well as the need to look closely at the role of gatekeepers.

Co-Chair David Siegel of Irell & Manella in Los Angeles concluded the program by pointing out that the government currently has a "controlling" role and that it is “increasingly a player in its own right.” Government intervention is now routine and, Mr. Siegel predicted, in the form of investigations by the Commission and the initiation of more criminal actions, will increase.


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