Posted Sep 23, 2011 12:16 pm CDT
U.S. District Judge William Pauley of Manhattan has chastised lawyers for “a remarkable revelation” after six years of “hard-fought and costly litigation” in a shareholder securities fraud suit: The lead plaintiff didn’t own any of the funds at issue.
In a memorandum and order (PDF) released Thursday, Pauley said the “epic failures” in the case offer a cautionary lesson for securities litigators, report the Wall Street Journal Law Blog, the New York Law Journal, Reuters and Bloomberg News.
The disclosure was “nonchalantly nestled” in a letter filed with the court by lead counsel Bernstein Leibhard, Pauley wrote. The lead plaintiff, a union trust fund, had actually purchased shares from a “remarkably similarly named” fund, the letter said.
“Lead counsel pretended that it was an innocuous development and presented it as a mere administrative matter,” Pauley said. “But of course, its impact is seismic. … Lead counsel should have conducted sufficient due diligence before embarking on this six-year detour and frolic.”
Pauley said lawyers for the defendant, Citigroup’s Smith Barney unit, share responsibility for the “fundamental oversight” since they could have asked their client whether the lead plaintiff had invested in the Smith Barney funds.
Stanley Bernstein of Bernstein Liebhard told the Wall Street Journal Law Blog that the union trust fund had signed a certification that it owned the shares. “We look forward to moving on and getting past this,” he said.
WilmerHale, which represented Smith Barney, discovered the error and notified Bernstein Leibhard, according to the New York Law Journal. The law firm declined to comment when contacted by the publications.