As I noted here back in December, the Florida State Board of Administration recently conducted and completed a lengthy and unusually transparent RFP process through which it picked five law firms to represent the state’s pension funds in future securities class actions.

The process appeared quite thorough, and included six FSBA evaluators, including the general counsel and deputy general counsel, ranking all of the submissions and recording all of their rankings on this scorecard. The top 12 ranked firms were then narrowed down to a go-to list of five firms.

Yesterday, however, the St. Petersburg Times ran an interesting article questioning the extent of the due diligence performed in the FSBA's process. The article criticizes the FSBA on several specific points, including:

  • The number 1 ranked law firm, Bernstein Liebhard LLP, later bowed out of consideration after an anonymous letter accused one of the law firm's principals of failing to disclose personal tax problems and other wrongs. The principal denied the accusation, but then reportedly wrote the FSBA to say that "he had 'failed to recall' that the New York District Attorney's Office had asked for his personal tax returns and that they had been 'turned over to tax authorities for civil resolution.'"

  • In its application, the number 2 ranked law firm, Pomerantz Haudek Grossman & Gross of New York, referred "in glowing terms" at least a half-dozen times to its work in the U.S. Supreme Court case of Stoneridge Investment Partners vs. Scientific-Atlanta. In Stoneridge, however, the Court rejected the concept of "scheme liability," and found that investors cannot sue aiders and abettors, creating a "towering obstacle in the path of shareholders looking for someone to sue when a stock purchase turns sour," according to the New York Times.  Shaheen Rushd, the Pomerantz partner interviewed by the FSBA, explained that "we didn't say it (Stoneridge) was an unheralded success, but people say scheme liability is dead and it is not. It's definitely narrowed (by the ruling) and it's not what we want it to be, but it's not dead."


Are these examples indicative of a weak due diligence process? I would say no. The transparent-by-design nature of the process helped flesh out the tax issue, and the Stoneridge issue is a matter of interpretation that does not really reflect a major gaffe by the FSBA. Anyone disagree?