Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.


Status message

This is subscriber-only content, you are viewing with temporary unrestricted access. For full access, begin your free, no obligation 5-day trial.

'Epic Failure': After Six Years of Litigation, 'Phantom' Lead Plaintiff Dismissed From Case

Bruce Carton | September 23, 2011

Six years ago, lawyers commenced a securities class action in the SDNY on behalf of all purchasers of shares of Smith Barney Capital Preservation Fund between September 11, 2000 and May 31, 2005. By virtue of allegedly having purchased over 75,000 shares of this security during the class period, a union pension fund named Operating Local 649 Annuity Trust Fund was selected by the court to be lead plaintiff.

The case was litigated vigorously. As summarized by the court in an order yesterday, the last six years have been filled with extensive motion practice, an appeal to the Second Circuit, a remand back to the trial court, more motion practice, and discovery. Yesterday, however, a very frustrated U.S. District Judge William H. Pauley III dismissed Local 649 from the case after lead counsel for the plaintiffs advised the court that the lead plaintiff never actually purchased any of the securities at issue in the case. It turns out that Local 649 actually purchased shares in a different, albeit similarly named, security that was not at issue in the case-- the "Smith Barney Capital Preservation Collective Trust."

BusinessWeek reports that Judge Pauley was not amused and not particularly sympathetic to plaintiffs' counsel's explanation that it had relied on Local 649's certification that the union had bought shares in the Smith Barney Capital Preservation Fund. Counsel stated that in addition, the underlying brokerage statements "mistakenly reflected the mutual fund shares along with their ticker symbol."

Pauley attributed the error to “epic failures” by the lawyers on both sides of the case, saying it was a "seismic" error that had caused the litigation to become "Sisyphean." The judge faulted defense counsel, as well, for "fail[ing] to ask their clients whether Local 649 had invested in any of the Smith Barney funds and, if so, specifically which one. Had Smith Barney simply checked its records, it would have avoided six years of sparring with a phantom opponent.” The court stated that "the epic failures described in this memorandum and order offer a cautionary lesson for securities litigators" and "highlight the need for diligence at all stages of litigation."

As a result of the error, the court must now appoint a new lead plaintiff and lead counsel in the case.