Opinion
Civil No. 01-CV-0649 K(AJB).
November 2, 2001
ORDER: (i) APPOINTING LEAD PLAINTIFF [28-1, 30-1]; (ii) APPOINTING LEAD COUNSEL [28-2, 30-2]; (iii) CONSOLIDATING RELATED CASES [23, 25, 32].
This is a securities fraud class-action suit brought pursuant to the Securities Exchange Act of 1934, Rule 10-b5 promulgated thereunder, and the Private Securities Litigation Reform Act of 1995 ("Reform Act"). Now before the Court are competing motions for appointment as lead plaintiff and for approval of lead counsel. On one side are proposed lead plaintiffs Walter Ritsert and Gary Beavers ("Ritsert Beavers"), individual investors represented by the firm of Finkelstein Krinsk. On the other side is proposed lead plaintiff Florida State Board of Administration ("FSBA"), an institutional investor of the pension funds of the State of Florida, represented by the firm of Barrack, Rodos Bacine.
I. BACKGROUND
The Background is taken from the Complaint and other papers of the parties and does not constitute findings of fact by this court.
Applied Micro Circuits Corp. ("AMCC") produces switching equipment for voice and data fiber optic networks. AMCC saw soaring sales, and an even higher flying stock price, in the late 1990s, selling to such telecom companies as Nortel, Cisco, Lucent, and JDSU as they quickly built fiber optic networks. Defendants, who include several senior officers of AMCC, had extensive holdings and much of their personal wealth was tied up in their company's stock. In the fall of 2000, AMCC and the public received warnings from their customers that demand was falling rapidly for fiber optic products. By the end of October 2000, the entire telecom industry was in the doldrums, and AMCC's shares were down over 50%.
It is then that the actionable conduct is alleged to have occurred. Essentially, Plaintiffs allege that Defendants intentionally issued false and misleading statements to prop up AMCC's stock price, while simultaneously and secretly unloading their inside shares. Defendants knew that substantial amounts of AMCC's customer contracts were being canceled or delayed, and the company's customers were warning that future prospects were quite poor. Meanwhile, it is alleged that AMCC publicly proclaimed that its sales were continuing to grow and it did not face the same threat to earnings that the rest of the industry faced. Over a two month period, the stock price of AMCC doubled back to its highs, while the insider Defendants sold nearly $100 million of their own holdings. Again, it is claimed that less than one day after the last of these insider sales, AMCC suddenly reversed course in its public pronouncements and the stock rapidly declined by over 50%, causing massive losses to the misled Plaintiffs.
II. DISCUSSION
A. Motion For Appointment of Lead Plaintiff
The essential legal issue in this case is the tension between the Presumptively Most Adequate Plaintiff provision of the Reform Act ( 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb)) which favors FSBA, and the provision presumptively barring a Professional Plaintiff ( 15 U.S.C. § 78u-4(a)(3)(B)(vi)), which favors Ritsert Beavers.
1. Presumptively Most Adequate Plaintiff Provision
In selecting the group of class members who are the most capable of adequately representing the class — i.e., the most adequate plaintiff — the Reform Act directs the court to presume that the plaintiff that has "the largest financial interest in the relief sought" is the most adequate plaintiff. 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb).
Ritsert Beavers collectively have suffered losses of approximately $980,000 as a result of their purchases of AMCC's publicly traded securities during the November 30, 2000 to February 5, 2001 class period. FSBA, on the other hand, has losses in excess of $5.3 million, over five times the loss of Ritsert Beaver. Thus FSBA is the presumptively most adequate plaintiff.
2. Professional Plaintiff Provision
The court's application of the Professional Plaintiff provision is the deciding issue in this case. The Reform Act provides that
Except as the court may otherwise permit, consistent with the purposes of this section, a person may be a lead plaintiff . . . in no more than 5 securities class actions . . . during any 3-year period.15 U.S.C. § 78u-4(a)(3)(B)(vi) (emphasis added). FSBA is subject to this provision, having been appointed lead plaintiff in eleven cases over the past three years. Ritsert Beavers contend that the court should strictly apply this provision to bar the appointment of FSBA; FSBA argues that it is precisely the sort of institutional investor envisioned by the Reform Act, and should be exempted from this professional plaintiff restriction because such exemption would be "consistent with the purposes of this section".
The court agrees with FSBA. FSBA is precisely the sort of lead plaintiff envisioned by the Act. By implementing the Presumptively Most Adequate Plaintiff provision, Congress sought to curtail the influence of plaintiff's lawyers and to "empower investors, so that they, not their lawyers, control private securities litigation," by transferring "primary control of private securities litigation from lawyers to investors." See Senate Rep. No. 104-98, 104th Cong., 1st Sess., 1995 U.S.C.C.A.N. 679, 683, 685. Appointing lead plaintiffs on the basis of financial interest was intended to insure that large institutional plaintiffs with expertise in the securities market would control the litigation, rather than the lawyers. See H.R. Conf. Rep No. 104-369, at 31-35, 1995 U.S.C.C.A.N. 679, 730, 730-34; see also In re Network Associates, Inc. Securities Litigation, 76 F. Supp.2d 1017, 1023 (N.D.Cal. 1999) (quoting In re Donnkenny Inc. Securities Litigation, 171 F.R.D. 156, 157-58 (S.D.N Y 1997)). Appointing FSBA as lead plaintiff would be entirely "consistent with the purposes of this section." FSBA is an experienced institutional investor, managing over $105 billion in assets, with fiduciary obligations to safeguard the interests of its public funds. As such, it is particularly well-situated to control the litigation.
Legislative history is particularly helpful when a court exercises its discretion. The Conference Report for the Reform Act is quite explicit that the preference for large institutional investors should not be overridden by the professional plaintiff restriction:
The Conference Report seeks to restrict professional plaintiffs from serving as lead plaintiff by limiting a person from serving in that capacity more than five times in three years. Institutional investors seeking to serve as lead plaintiff may need to exceed this limitation and do not represent the type of professional plaintiff this legislation seeks to restrict. As a result, the Conference Committee grants courts discretion to avoid the unintended consequence of disqualifying institutional investors from serving more than five times in three years. The conference committee does not intend for this provision to operate at cross-purposes with the "most adequate plaintiff" provision.
H.R. Conf. Rep. No. 104-369, at 35 (emphasis added).
Ritsert Beavers have suffered far smaller losses than FSBA, and thus have less at stake. As individuals, they have to take time out from their personal lives to oversee a securities class action that will likely be complex, lengthy, and time-consuming. Their experience in the securities markets, and particularly in securities litigation, appears to be limited, as there were no declarations indicating any securities expertise or securities litigation experience on the part of these two individuals. On the other hand, prosecuting securities litigation is part of what FSBA does to fulfill its fiduciary duties to look after the public money in its care. FSBA has a general counsel and corporate counsel department which can oversee and control the litigation. For such a large institutional investor, 11 appointments as lead plaintiff is quite understandable, and in fact could evince a laudatory zeal to fulfill its fiduciary duties. Such experience will well equip FSBA to oversee this litigation. The court therefore appoints FSBA as lead plaintiff .
3. Other Requirements
The Reform Act sets out two other requirements for the appointment of lead plaintiff: (a) the notice provision; (b) preliminary showing as to Rule 23(a). As there is no credible dispute that both parties satisfy these provisions, the court will only briefly address them. First, both parties have complied with the notice requirements of 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II) by filing the instant motions for appointment as lead plaintiff within 60 days of publication of notice of the pendency of this action.
For the purposes of a motion for appointment as lead plaintiff; a proposed lead plaintiff must make only a preliminary showing that he or she satisfies the requirements of Rule 23(a). See, e.g., Gluck v. Cellstar Corp., 976 F. Supp. 542, 546 (N.D. Tex. 1997). For the limited purpose of analyzing the motions for appointment of lead plaintiff, both FSBA and Ritsert Beavers have met the numerosity, commonality, typicality, and adequacy of representation requirements of Rule 23(a).
First, the numerosity requirement is presumptively met at this stage, prior to discovery. AMCC was a publicly traded and widely held security, and the potential plaintiff class is accordingly quite large.
Second, both groups allege that defendants 1) violated the 1934 Act; 2) omitted and/or misrepresented material facts; and 3) knew or recklessly disregarded that their statements were false, all of which I affected the value of AMCC's stock. Common questions of law and fact therefore exist.
Third, each competing lead plaintiff alleges damages based upon these common questions of law and fact, and each therefore appears to have claims typical of the unnamed putative class members.
Fourth, both FSBA and Ritsert Beaver appear to be able to adequately represent the interests of the class. Neither has interests antagonistic to the class; both have retained capable and experienced law firms.
B. Motion for Approval of Lead Counsel
The Reform Act states that, once the court has designated the most adequate, or lead plaintiff, the lead plaintiff "shall, subject to the approval of the court, select and retain counsel to represent the class." 15 U.S.C. § 78u-4(a)(3)(B)(v). FSBA has selected the firm of Barrack, Rodos Bacine. The court is impressed with the papers filed by the firm so far (as well as by the papers submitted by Finkelstein Krinsk). The court notes that Barrack, Rodos has extensive experience litigating securities class actions, having been appointed lead counsel in over 30 such cases since the Reform Act passed in 1995. The court therefore approves the choice and appoints Barrack, Rodos as lead counsel .
C. Motion to Consolidate All Related Cases
The motion to consolidate all related cases is joined by Defendants. The court hereby orders the following cases consolidated as In re Applied Micro Circuits Corp. Securities Litigation, 01-CV-0649-K (AJB):Naiditch v. AMCC Congregation Givath Shoul v. AMCC Harris v. AMCC Shapiro v. AMCC Kucera v. AMCC Fairland Management Corp. Pension Plan v. AMCC Hsu v. AMCC Scofield v. AMCC Reed v. AMCC Kreegal v. AMCC
01-CV-0649-K (AJB) 01-CV-0675-K (AJB) 01-CV-0678-K (AJB) 01-CV-0743-K (AJB) 01-CV-0772-K (AJB) 01-CV-0798-K (AJB) 01-CV-0799-K (AJB) 01-CV-0804-K (AJB) 01-CV-0808-K (AJB) 01-CV-1034-K (AJB)III. CONCLUSION
For the foregoing reasons, the court APPOINTS AS LEAD PLAINTIFF the Florida State Board of Administration, APPOINTS AS LEAD COUNSEL the law firm of Barracks, Rodos and Bacine, and CONSOLIDATES the aforementioned cases as In re Applied Micro Circuits Corp. Securities Litigation, 01-CV-0649-K (AJB).
IT IS SO ORDERED.