Plaintiffs law firm kicked off securities class action for failing to disclose client's investment in short position
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Plaintiffs law firm Robbins Geller Rudman & Dowd has been kicked off a securities class action alleging that investors lost money when a Mexico-based media company concealed a scheme to bribe soccer officials for broadcasting rights.
U.S. District Judge Louis L. Stanton of the Southern District of New York ousted the law firm because it failed to disclose that its pension-fund client had invested in a Canadian fund that earned a profit by shorting shares of the defendant, Grupo Televisa SAB, according to Reuters and Law360.
Stanton said Robbins Geller had described its pension plan client as a typical investor in a brief without revealing that the Canadian fund made more money through its shorted position than the pension fund lost in its Grupo Televisa SAB investment.
The misleading brief had led to Robbins Geller’s appointment as lead counsel in the case, Stanton said. The pension plan client was removed as lead plaintiff last June after the short investment came to light.
Robbins Geller represented the Colleges of Applied Arts and Technology Pension Plan, which invested in Grupo Televisa SAB’s American depositary receipts, as well as Arrowstreet Capital, which shorted the American depositary receipts. The short position earned about $11 million for the pension plan’s share of Arrowstreet Capital, while the investment in the American depositary receipts resulted in an alleged loss of $968,000.
Grupo Televisa SAB has denied paying bribes to officials of the Federation Internationale de Football Association, known as FIFA. The class action contends that Grupo Televisa SAB’s American depositary receipts shares lost value after the bribery scandal came to light.
Robbins Geller had argued that the short position was too remote to the pension plan’s holdings to be material, and Arrowstreet Capital’s gains from the short position only offset other losses. As a result, net profits flowing to the pension plan from Arrowstreet Capital’s short sales came to little or nothing. Stanton rejected the argument.
“Robbins Geller’s decision not to disclose the Arrowstreet trades, and thus to assure the lucrative lead counsel position, was knowing and intentional,” Stanton said. “Robbins Geller’s willingness to submit so misleading a brief, in order to obtain a result for its client which it predictably might not obtain if all relevant facts were addressed, disqualifies it from continuing as counsel in this case.”
Darren Robbins of Robbins Geller told Reuters that Stanton’s interpretation of needed disclosure was “unprecedented,” and the firm will appeal.