This Forbes article addresses a trend noted in these earlier posts — public pension funds becoming the lead plaintiffs in securities fraud litigation. And the public policy implications are not pretty:

And so it goes in the cozy confines of the class action racket. Plaintiff lawyers give handily to the politicians who hire them. They hire ex-insiders to woo pension funds, fete clients at cushy conferences and pay referral fees to powerbrokers who hook them up with new pension plaintiffs. None of this is illegal per se; nor does it violate existing rules of legal ethics. But even some lawyers have problems with it.
“This is corruption on a grand scale,” says class action lawyer Howard Sirota of New York, who says payola by his rivals may force him out of the game. Contributing cash to the officials who oversee your business “is illegal in municipal finance. The American Bar Association [discourages] it. A grand jury is investigating it (see Forbes, Feb. 16). And absolutely nothing happens,” Sirota says.
Last year plaintiff shareholders won $3 billion in class actions against the companies they had invested in, says Institutional Shareholder Services. (Let’s ignore, for now, that often they drain money from companies in which they still hold a stake; see box on this page.) The take was distributed in small chunks to thousands upon thousands of recipients. But $800 million of it will go to a small circle of very lucky people: securities plaintiff lawyers.
The plaintiff lawyers had help in amassing their $800 million take-from pension fund trustees who are oblivious, defense attorneys who won’t challenge the fees because it might prompt the other side to push for an even bigger settlement and insurers who are happy to charge higher premiums to cover the rising costs of litigation.

How did this happen? As usual, the law of unintended consequences of regulatory “reform” had a lot to do with it:

The Republican-controlled Congress hoped to smash this lawsuit cabal when it passed the Private Securities Litigation Reform Act in 1995.
The reform law hands control to big institutional investors. Nicknamed the “Anti-Milberg Weiss Act,” it requires that lead plaintiff status must go to the investor who suffered the greatest loss. Big investors, Congress hoped, would shun frivolous suits and push to cut legal fees.
But the act has morphed into an industrial-strength shakedown. Trial lawyers reached out to new partners: the boards of public and union pension funds. They often include union veterans unabashed about suing corporations. These boards, rather than cutting back on lawsuits and pressing lawyers for lower fees, have jumped into bed with them.

And the results of the reform legislation? Take note:

All told, public and union pension funds were lead plaintiffs in 28% of investor class actions last year; in 1996 they led just 3% of cases, says PricewaterhouseCoopers. Yet they have done nothing to improve shareholder recoveries or reduce significantly the lawyers’ cut.”We have a system where the courts consistently allow law firms to file cases on behalf of figureheads,” complains University of Arizona law professor Elliott Weiss. Translation: The lawyers still run the show. It is a pointed criticism, for Weiss did the research on class action settlements that helped shape the reform act.

Read the entire article. Hat tip to the 10b-5 Daily for the link to this article.

Inasmuch as its labor negotiations with the pilots’ union are not going well, the Washington Post reports that US Airways Group Inc. confirmed yesterday that it has retained the restructuring advisors Seabury Group and the Washington, D.C.-based law firm of Arnold & Porter LLP to provide restructuring advice for its upcoming chapter 22 filing (US Air filed its first chapter 11 case two years ago; thus, its second case is dubbed a chapter “22” in legal circles).
With few exceptions, the management of U.S. airlines has a desultory record in creating value for shareholders. Given that poor track record, you would think that management and creditors in these companies could at least reorganize the companies in a manner that gives the reorganized company a competitive advantage after coming out of chapter 11. However, as these chapter 22 and 33 reorganizations of airlines reflect, the parties involved in these airline reorganizations often cannot even reorganize the airline companies effectively.
Makes one wonder when some Bankruptcy Judge, in exasperation with it all, will decide that Professor Ribstein’s solution, at least in the most intractable cases, is the correct one?

New York-based bond trading firm Cantor Fitzgerald Securities, which lost two-thirds of its workers in the World Trade Center attack of September 11, 2001, has sued Saudi Arabia and dozens of other defendants — including numerous banks and Islamic charities — in U.S. District Court in New York for a mere $7 billion for allegedly supporting al Qaeda before the attack through financing, safe houses, weapons and money laundering.
Saudi Arabia is the birthplace of al Qaeda leader Osama bin Laden and 15 of the 19 Sept. 11 hijackers.
The lawsuit involves many of the same defendants, transactions, events and questions of law as an earlier $300 billion lawsuit that various insurance companies have brought against Saudi Arabia, terrorist groups, companies and other countries supporting terrorism. That lawsuit is still pending.
The Cantor Fitzgerald lawsuit takes dead aim at Saudi Arabia, saying the kingdom “knew and intended that these Saudi-based charity and relief organization defendants would provide financial and material support and substantial assistance to al Qaeda.” The lawsuit alleges that Saudi Arabia engaged in a pattern of racketeering as it participated directly and indirectly in al Qaeda’s work through funding and controllings its “alter-ego” charities and relief organizations. In addition, Cantor Fitzgerald alleges that Saudi Arabia materially supported al Qaeda by helping to raise money for it, by intentionally employing al Qaeda operatives, by laundering its money and by providing al Qaeda with safe houses, false documents and ways to obtain weapons and military equipment.
Interestingly, the U.S. federal government has generally opposed this type of lawsuit on the grounds that it interferes with the government’s exclusive power to conduct foreign policy. No word yet on the government’s stance toward the Cantor Fitzgerald lawsuit.

Ian Ayres of Yale Law School and Katherine K. Baker of the Illinois Institute of Technology have posted this rather interesting article on SSRN, which is described in the following abstract:

This article attempts to make progress on both the problems of sexually transmitted disease and acquaintance rape by proposing a new crime of reckless sexual conduct. A defendant would be guilty of reckless sexual conduct if, in a first sexual encounter with another particular person, the defendant had sexual intercourse without using a condom. Consent to unprotected intercourse would be an affirmative defense, to be established by the defendant with a preponderance of the evidence. As an empirical matter, first-encounter unprotected sex greatly increases the epidemiological force of sexually transmitted disease and a substantial proportion of acquaintance rape occurs in unprotected first encounters.
The new law, by increasing condom use and the quality of communication in first sexual encounters, can reduce the spread of sexually transmitted disease and decrease the incidence of acquaintance rape.

Tom Mayo has the story and the analysis in this unusual peer-review case.

Don Hawbaker, a fine Dallas area litigator who runs the Construction Law Blog, had an interesting adventure in court the other day after which he asks the question: Should I report this guy to the local grievance committee?

In this recent decision in a duty to defend case, the Fifth Circuit Court of Appeals upheld the trial court’s admission of an attorney’s expert testimony on the reasonableness of attorney’s fees despite the fact that the witness had failed to provide the opposition with a report regarding his anticipated testimony.
Interesting decision, but I recommend highly that you simply have the lawyer/expert prepare a report, which need not be lengthy. Hat tip to Blog 702 for the link to this decision.

New York based Shearman & Sterling LLP has published this well done and informative survey of corporate governance practices at the 100 largest publicly-owned U.S. companies. Hat tip to the always attentive Professor Bainbridge for the link to the survey.

The Texas 14th Court of Appeals finally lowered Robert Durst’s bail to $450,000 from the absurd $3 billion amount that Galveston State District Judge Susan Criss had set earlier this year. Here are earlier posts on the Durst murder case.

Bill James would enjoy this method in evaluating potential candidates for the U.S. Supreme Court.
Hat tip to Craig Newmark for the link.