UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
PERRY CIRAULU, Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL PROPERTIES,
INC., NICHOLAS S. SCHORSCH, DAVID S.
KAY, BRIAN BLOCK, AND LISA MCALISTER,
Defendants.
Electronically Filed
Civil Action No. 1:14-cv-08659-AKH
Judge Alvin K. Hellerstein
BERNARD PRIEVER, Individually and on Behalf
of All Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL PROPERTIES,
INC., BRIAN BLOCK, AND LISA MCALISTER,
Defendants.
Electronically Filed
Civil Action No. 1:14-cv-08668-AKH
Judge Alvin K. Hellerstein
STUART RUBINSTEIN, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL PROPERTIES,
INC., NICHOLAS S. SCHORSCH, BRIAN
BLOCK, AND LISA MCALISTER,
Defendants.
Electronically Filed
Civil Action No. 1:14-cv-08669-AKH
Judge Alvin K. Hellerstein
MEMORANDUM OF LAW IN SUPPORT OF THE STATE TEACHERS RETIREMENT
SYSTEM OF OHIO AND THE OHIO PUBLIC EMPLOYEES RETIRE MENT
SYSTEM’S MOTION FOR CONSOLIDATION OF RELATED ACTION S,
APPOINTMENT AS LEAD PLAINTIFF AND APPROVAL OF CO-LE AD COUNSEL
KEVIN PATTON, Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL PROPERTIES,
INC., NICHOLAS S. SCHORSCH, BRIAN
BLOCK, AND LISA MCALISTER,
Defendants.
Electronically Filed
Civil Action 1:14-cv-08671-AKH
Judge Alvin K. Hellerstein
BERNEY HARRIS, Individually and on Behalf of
All Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL PROPERTIES,
INC., NICHOLAS S. SCHORSCH, DAVID S.
KAY, BRIAN BLOCK, AND LISA MCALISTER,
Defendants.
Electronically Filed
Civil Action No. 1:14-cv-08740-AKH
Judge Alvin K. Hellerstein
SIMON ABADI, Individually and on Behalf of All
Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL PROPERTIES,
INC., NICHOLAS S. SCHORSCH, DAVID S.
KAY, PETER M. BUDKO, BRIAN S. BLOCK,
LISA E. BEESON, WILLIAM M. KAHANE,
EDWARD M. WEIL, JR., LESLIE D.
MICHELSON, EDWARD G. RENDELL, AND
SCOTT J. BOWMAN,
Defendants.
Electronically Filed
Civil Action No. 1:14-cv-09006-AKH
Judge Alvin K. Hellerstein
THE CITY OF TAMPA GENERAL
EMPLOYEES RETIREMENT FUND, Individually
and on Behalf of All Others Similarly Situated,
Plaintiff,
vs.
AMERICAN REALTY CAPITAL
PROPERTIES, INC., NICHOLAS S.
SCHORSCH, DAVID S. KAY, BRIAN
BLOCK, PETER M. BUDKO, EDWARD M.
WEIL, JR., BRIAN D. JONES, WILLIAM M.
KAHANE, EDWARD G. RENDELL,
WALTER P. LOMAX, JR., LESLIE D.
MICHELSON, SCOTT J. BOWMAN,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INC., CITIGROUP GLOBAL
MARKETS INC., BARCLAYS CAPITAL
INC., J.P. MORGAN SECURITIES LLC,
CAPITAL ONE SECURITIES INC., CREDIT
SUISSE SECURITIES (USA) LLC,
DEUTSCHE BANK SECURITIES INC.,
WELLS FARGO SECURITIES, LLC,
ROBERT W. BAIRD & CO. INC.,
LADENBURG THALMANN & CO. INC.,
BMO CAPITAL MARKETS CORP., JMP
SECURITIES LLC, JANNEY
MONTGOMERY SCOTT LLC, MIZUHO
SECURITIES USA INC., PNC CAPITAL
MARKETS LLC, PIPER JAFFRAY & CO.,
AND RBS SECURITIES INC.,
Defendants.
Electronically Filed
Civil Action No. 1:14-cv-10134
Judge Alvin K. Hellerstein
i
TABLE OF CONTENTS
PRELIMINARY STATEMENT ............................................................................................ 1
STATEMENT OF FACTS ................................................................................................... 3
ARGUMENT ............................................................................................................................. 5
I. THE RELATED ACTIONS SHOULD BE CONSOLIDATED ........................................ 5
A. The Court Should Resolve the Consolidation Issue as
a Prerequisite to the Determination of Lead Plaintiff ............................................. 5
B. The Related Actions Should Be Consolidated ........................................................ 5
II. THE COURT SHOULD APPOINT THE OHIO FUNDS AS LEAD PLAINTIFF .......... 7
A. The Procedure Required By The PSLRA ........................................................ 7
B. The Ohio Funds Are The Most Adequate Plaintiffs ............................................... 8
1. The Ohio Funds Have Satisfied the PSLRA’s
Procedural Requirements ..................................................................... 9
(a) The Ohio Funds Are Willing To Serve As Class Representatives ...... 9
2. The Ohio Funds Are Institutional Investors With The Largest Financial
Interest In The Relief Sought By The Class ........................................ 9
3. The Ohio Funds Are Sophisticated and Experienced Institutional
Investors That Congress Envisioned To Serve As Lead Pl intiff............. 10
4. The Ohio Funds Meet The Requirements Of Fed. R. Civ. P. 23 .............. 12
(a) The Ohio Funds’ Claims Are Typical of Those of the Class ............ 12
(b) The Ohio Funds Will Fairly and Adequately Protect
the Interests of the Class ............................................................. 14
III. THE COURT SHOULD APPROVE THE OHIO FUNDS’ CHOICE OF COUNSEL ... 15
CONCLUSION ................................................................................................................... 18
ii
TABLE OF AUTHORITIES
Cases Page
City of Monroe Emps. Ret. Sys. v. Hartford Fin. Servs. Grp., Inc.,
269 F.R.D. 291 (S.D.N.Y. 2010) ................................................................................... 10
Ellenburg v. JA Solar Holdings Co., Ltd.,
262 F.R.D. 262 (S.D.N.Y. 2009) ..................................................................................... 5
Faig v. Bioscrip, Inc.,
No. 13 Civ. 06922(AJN), 2013 WL 6705045 (S.D.N.Y. Dec. 19, 2013) ................................... 6
Foley v. Transocean Ltd.,
272 F.R.D. 126 (S.D.N.Y. 2011) ................................................................................... 12
Glauser v. EVCI Career Colls. Holding Corp.,
236 F.R.D. 184 (S.D.N.Y. 2006) ..................................................................................... 7
Greebel v. FTP Software, Inc.,
939 F. Supp. 57 (D. Mass. 1996) .................................................................................. 11
In re Baan Co. Sec. Litig.,
186 F.R.D. 214 (D.D.C. 1999) ....................................................................................... 11
In re Gentiva Sec. Litig.,
281 F.R.D. 108 (E.D.N.Y. 2012) ........................................................................................... 1
In re NASDAQ Mkt.-Makers Antitrust Litig.,
172 F.R.D. 119 (S.D.N.Y. 1997) ................................................................................... 13
In re Orion Sec. Litig.,
No. 08 Civ. 1328(RJS), 2008 WL 2811358 (S.D.N.Y. July 8, 2008) ....................................... 6
In re Razorfish, Inc. Sec. Litig.,
143 F. Supp. 2d 304 (S.D.N.Y. 2001).............................................................................. 2, 11
Johnson v. Celotex Corp.,
899 F.2d 1281 (2d Cir. 1990)....................................................................................... 5, 7
Kaplan v. Gelfond,
240 F.R.D. 88 (S.D.N.Y. 2007) ....................................................................................... 5
Lipetz v. Wachovia Corp.,
No. 08 Civ. 6171 (RJS), 2008 WL 4615895 (S.D.N.Y. Oct. 10, 2008) ................................... 14
Mitchell v. Complete Mgmt., Inc.,
No. 99 CIV. 1454(DAB), 1999 WL 728678 (S.D.N.Y. Sept. 17, 1999) .................................... 6
Plumbers, Pipefitters & MES Local Union No. 392 Pensio Fund v. Fairfax Fin. Holdings Ltd.,
No. 11 Civ. 5097(JFK), 2011 WL 4831209 (S.D.N.Y. Oct. 12, 2011) .................................... 13
Richman v. Goldman Sachs Grp., Inc.,
274 F.R.D. 473 (S.D.N.Y. 2011) ............................................................................... 5, 10
Robidoux v. Celani,
987 F.2d 931 (2d Cir. 1993)........................................................................................... 12
iii
Schulman v. Lumenis, Ltd.,
No. 02 Civ. 1989(DAB), 2003 WL 21415287 (S.D.N.Y. June 18, 2003) .......................... 10, 12
Weltz v. Lee,
199 F.R.D. 129 (S.D.N.Y. 2001) ................................................................................... 12
Xianglin Shi v. Sina Corp.,
No. 05 Civ. 2154(NRB), 2005 WL 1561438 (S.D.N.Y. July 1, 2005)..................................... 14
Statutes, Rules and Regulations:
15 U.S.C. § 77z-1(a)(1)........................................................................................................ 7
15 U.S.C. § 77z-1(a)(3)(A)(i)(II) ........................................................................................... 8
15 U.S.C. § 77z-1(a)(3)(B) ............................................................................................ 7, 11
15 U.S.C. § 77z-1(a)(3)(B)(i) ............................................................................................... 8
15 U.S.C. § 77z-1(a)(3)(B)(ii) .......................................................................................... 5, 7
15 U.S.C. § 77z-1(a)(3)(B)(iii)(I) ...................................................................................... 8, 9
15 U.S.C. § 77z-1(a)(3)(B)(iii)(II) ......................................................................................... 8
15 U.S.C. § 77z-1(a)(3)(B)(iii)(II)(aa) ................................................................................. 15
15 U.S.C. § 77z-1(a)(3)(B)(v).................................................................................................. 15
15 U.S.C. § 77z-1(a)(3)(B) .................................................................................................. 1
15 U.S.C. § 78u-4(a)(1) ....................................................................................................... 7
15 U.S.C. § 78u-4(a)(3)(A)(i) ............................................................................................... 7
15 U.S.C. § 78u-4(a)(3)(A)(ii)(II).......................................................................................... 8
15 U.S.C. § 78u-4(a)(3)(B) ........................................................................................ 1, 9, 11
15 U.S.C. § 78u-4(a)(3)(B)(i) ............................................................................................... 8
15 U.S.C. § 78u-4(a)(3)(B)(ii) .......................................................................................... 5, 7
15 U.S.C. § 78u-4(a)(3)(B)(iii)(I) ...................................................................................... 8, 9
15 U.S.C. § 78u-4(a)(3)(B)(iii)(II) ......................................................................................... 8
15 U.S.C. § 78u-4(a)(3)(B)(iii)(II)(aa) ................................................................................ 15
15 U.S.C. § 78u-4(a)(3)(B)(v) ................................................................................................. 15
15 U.S.C. § 78u-4(a)(3)(A)(i)(II) ........................................................................................... 8
Sections 21D(a)(1) ............................................................................................................... 7
Section 21D(a)(3)(B) ............................................................................................................. 1, 9
Fed. R. Civ. P. 23 ........................................................................................................ passim
Fed. R. Civ. P. 42(a) ........................................................................................................ 5, 7
iv
Other Authorities
Elliott J. Weiss & John S. Beckerman, Let The Money Do The Monitoring: How Institutional
Investors Can Reduce Agency Costs In Securities Class Actions,
104 Yale L.J. 2053 (1995) ....................................................................................... 11, 12
H.R. CONF. REP. NO. 104-369 (1995),
reprinted in 1995 U.S.C.C.A.N. 730, 733 ...................................................................... 10
S. REP. NO. 104-98 (1995),
reprinted in 1995 U.S.C.C.A.N. 679, 690 ................................................................ 11, 12
1
The State Teachers Retirement System of Ohio and the O io Public Employees
Retirement System (collectively, the “Ohio Funds”) respectfully submit this memorandum of law
in support of their motion for: (a) consolidation f the related captioned actions (the “Actions”);
(b) appointment as lead plaintiff, pursuant to Section 27(a)(3)(B) of the Securities Act of 1933
(the “Securities Act”), 15 U.S.C. § 77z-1(a)(3)(B), and Section 21D(a)(3)(B) of the Securities
Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78u-4(a)(3)(B), as amended by the
Private Securities Litigation Reform Act of 1995 (the “PSLRA”); and (c) approval of their
selection of Bernstein Liebhard LLP (“Bernstein Liebhard”) and Berman DeValerio as co-lead
counsel for the class.
PRELIMINARY STATEMENT
Presently pending in this District are seven related s curities class action lawsuits brought
on behalf of all persons or entities who purchased or acquired the securities of American Realty
Capital Properties (“American Realty” or the “Company”) between May 6, 2013 and October 29,
2014 (the “Class Period”), as well as those who acquired American Realty shares pursuant to the
Company’s acquisition of Cole Real Estate Investments, Inc., which was consummated on
February 7, 2014, and those who purchased American Realty shares pursuant to a May 21, 2014
Registration Statement (the “Class”).1 Plaintiffs allege violations of the Securities Act and the
Exchange Act against American Realty and several of its current and former officers
(“Defendants”). American Realty investors, including the Ohio Funds, incurred significant
1 The complaints filed in the captioned actions each llege substantially the same wrongdoing
during different, overlapping periods. The period of May 6, 2013 through October 29, 2014 is
the longest of the class periods alleged. On motions f r lead plaintiff, courts generally utilize the
longest class period when determining the financial interest of the various movants. In re
Gentiva Sec. Litig., 281 F.R.D. 108, 113-14 (E.D.N.Y. 2012) (citing cases).
2
losses following the disclosure that the Company’s true financial condition was not as it was
represented to be during the Class Period.
Under the PSLRA, the presumptive lead plaintiff is the movant or movants that has both
the largest financial interest in the litigation and has made a prima facie showing that it is a
typical and adequate class representative under Fed. R. Civ. P. 23. See In re Razorfish, Inc. Sec.
Litig., 143 F. Supp. 2d 304, 307 (S.D.N.Y. 2001). The Ohio Funds satisfy these requirements.
The Ohio Funds are the “most adequate” plaintiffs within the meaning of the PSLRA.
First, the Ohio Funds lost $7,741,213.39 as a result of the wrongful conduct alleged in the
Actions – a substantial financial interest that will ensure their vigorous prosecution of the Class’s
claims. Second, the Ohio Funds satisfy Rules 23(a)(3) nd (a)(4) of the Federal Rules of Civil
Procedure; their claims are typical of the claims of the Class, and they will fairly and adequately
represent the interests of the Class. In fact, the O io Funds served as lead plaintiff in three cases
where they prosecuted securities class actions to tremendous success: In re Bank of America
Corp. Sec. Litig., No. 09 MDL 2058 (DC) (S.D.N.Y.) (“BOA”) (settlement of $2.43 billion); In
re AIG Sec. Litig., Master File No. 04 Civ. 8141 (S.D.N.Y.) (DAB) (AJP) (“AIG”) (settlement of
over $1 billion); and In Re: Marsh & McLennan Companies, Inc. Securities Litigation, No. 04-
cv-8144 (CM) (S.D.N.Y. 2009) (“Marsh”) ($400 million settlement). Finally, the Ohio Funds
are sophisticated and experienced institutional investors – the kind envisioned by Congress to
serve as lead plaintiff when it enacted the PSLRA.
Accordingly, for the reasons discussed below, the Oio Funds respectfully request that
the Court grant their motion to consolidate the Actions; appoint them as lead plaintiff; and
approve their choice of co-lead counsel.
3
STATEMENT OF FACTS
During the Class Period, Defendants issued materially f se and misleading financial
statements by, among other things, overstating report d adjusted funds from operations
(“AFFO”), a key non-GAAP metric used by investors to measure the performance of the
Company and its operations. Defendants did so by improperly including certain amounts related
to ARCP’s non-controlling interests in the calculation of AFFO, and then by intentionally
covering up their impropriety. In addition, Defendants improperly accounted for various
accruals and expenses that materially affected the Company’s reported earnings per share, a key
GAAP metric used by investors to measure the profitabil y of the Company. As a result of
Defendants’ improper accounting and cover-up, AFFO was overstated and reported net losses for
the three and six months ended June 30, 2014 were understated.
On October 29, 2014, before the market opened, ARCP disclosed the existence of
accounting “errors” and a subsequent cover-up relating to its previously issued 2014 quarterly
financial statements. In this regard, the Company announced that AFFO had been overstated for
the first quarter, noting that the “error was identified but intentionally not corrected,” during the
second quarter, and that other adjusted funds from operations and financial statement errors
“were intentionally made,” resulting in an overstatement of AFFO and an understatement of net
losses for first three and six months of this year. The Company also said that its Audit
Committee had forced the immediate resignations of Defendants Block (the CFO) and McAlister
(the CAO), who were deemed responsible for the accounting “errors” and subsequent cover-up.
At the same time, both Block and McAlister forfeited xpected salary, options and incentive
payments: Block forfeited approximately $35 million and McAlister forfeited approximately
$247,600. Because of its investigation, the Audit Committee said that the Company’s financial
statements for 2013 and the first two quarters of 2014 “should no longer be relied upon.”
4
Defendant McAlister subsequently filed suit against Defendants Schorsch and Kay in
New York State court, alleging that her October 2014 termination was in retaliation for her
statements that changes in accounting practices during the Class Period were improper and an
attempt to hide the Company’s faltering financial performance. Critically, McAlister said she
voiced her concerns during the first quarter of 2014, well before the October 2014 announcement
and her termination.2 McAlister’s allegations against Schorsch and Kay and the facts that
support them strongly support Plaintiffs’ allegations that Defendants acted with scienter when
making the misleading statements and omissions.
Defendants’ false and misleading statements caused the price of American Realty’s stock
to be artificially inflated. In response to the October 29 disclosure, the price of the Company’s
stock declined substantially, falling as much as $4.53, or over 36%, on extremely heavy volume,
to as low as $7.85 per share. By the closing bell,the price of American Realty stock fell $2.38
per share, or approximately 19%, to close at $10.00 per share. During the Class Period, the price
of ARCP’s stock traded as high as $14.96 per share.
Notably, days after the October 29 announcement, the SEC opened an investigation into
the Company’s accounting practices and the FBI, along with the U.S. Attorney for the Southern
District of New York, opened a criminal investigation into the accounting fraud and subsequent
cover-up.
2 Schorsch resigned from the Company on December 12, 2014. Kay quit three days later, along
with Chief Operating Officer Lisa Beeson, according to the Company.
5
ARGUMENT
I. THE RELATED ACTIONS SHOULD BE CONSOLIDATED
A. The Court Should Resolve the Consolidation Issue
as a Prerequisite to the Determination of Lead Plaintiff
The PSLRA provides that prior to ruling on any motion for lead plaintiff the Court must
first determine whether to consolidate any pending actions. 15 U.S.C. § 77z-1(a)(3)(B)(ii), 15
U.S.C. § 78u-4(a)(3)(B)(ii) (“[i]f more than one action on behalf of a class asserting substantially
the same claim or claims arising under this [sub-] chapter has been filed,” the court shall not
make the determination of the most adequate plaintiff until “after the decision on the motion to
consolidate is rendered.”); see also Richman v. Goldman Sachs Grp., Inc., 274 F.R.D. 473, 475
(S.D.N.Y. 2011) (consolidating actions with “nearly identical allegations” prior to addressing
lead plaintiff appointment). Once the Court makes that ruling, it is required to “appoint the most
adequate plaintiff as lead plaintiff for the consolidated actions.” 15 U.S.C. § 77z-1(a)(3)(B)(ii),
15 U.S.C. § 78u-4(a)(3)(B)(ii).
B. The Related Actions Should Be Consolidated
Under Rule 42(a) of the Federal Rules of Civil Procedure, consolidation of related actions
is appropriate when the actions involve common question of law or fact. See Fed. R. Civ. P.
42(a); Ellenburg v. JA Solar Holdings Co., Ltd., 262 F.R.D. 262, 264 (S.D.N.Y. 2009) (citation
omitted). The Court has “broad discretion to determine whether consolidation is appropriate”
under Rule 42(a). Id. (citing Johnson v. Celotex Corp., 899 F.2d 1281, 1284 (2d Cir. 1990)).
Consolidation is particularly appropriate in securities class action litigation because the
unification of cases expedites proceedings, reduces duplication, and minimizes the expenditure
of time and money by all concerned. See, e.g., Kaplan v. Gelfond, 240 F.R.D. 88, 92 (S.D.N.Y.
2007) (consolidating securities class actions with common allegations noting “the well
6
recognized principle that the consolidation of stockholders’ suits often benefits both the courts
and the parties by expediting pretrial proceedings, avoiding duplication of discovery, and
minimizing costs”) (citation omitted); Mitchell v. Complete Mgmt., Inc., No. 99 CIV.
1454(DAB), 1999 WL 728678, at *1 (S.D.N.Y. Sept. 17, 1999). “[S]light differences in the
facts alleged and legal issues raised do not preclud consolidation.” In re Orion Sec. Litig., No.
08 Civ. 1328 (RJS), 2008 WL 2811358, at *3 (S.D.N.Y. July 8, 2008). See also Faig v.
Bioscrip, Inc., No. 13 Civ. 06922(AJN), 2013 WL 6705045, at *1 (S.D.N.Y. Dec. 19, 2013)
(ordering consolidation, noting that “[d]ifferences in causes of action, defendants, or the class
period do not render consolidation inappropriate if the cases present sufficiently common
questions of fact and law”) (internal quotations and citations omitted).
There are at least six related securities fraud class actions filed against Defendants on
behalf of investors who purchased or acquired American Realty securities during the Class
Period:
Case Caption Docket Number Date Filed
Perry Ciraulu v. American Realty
Capital Properties, Inc., et al.
1:14-cv-08659-AKH October 30, 2014
Bernard Priever v. American Realty
Capital Properties, Inc., et al.
1:14-cv-08668-AKH October 30, 2014
Stuart Rubinstein v. American
Realty Capital Properties, Inc., et al.
1:14-cv-08669-AKH October 30, 2014
Kevin Patton v. American Realty
Capital Properties, Inc., et al.
1:14-cv-08671-AKH October 30, 2014
Berney Harris v. American Realty
Capital Properties, Inc., et al.
1:14-cv-08740-AKH October 31, 2014
Simon Abadi v. American Realty
Capital Properties, Inc., et al.
1:14-cv-09006-AKH November 12, 2014
City of Tampa v. American Realty
Capital Properties, Inc., et al.
1:14-cv-10134 December 29, 2014
The foregoing actions are well-suited for consolidation. The complaints filed in each the
action are substantially similar as they allege similar violations of law and arise from a common
7
nucleus of facts and circumstances; namely, the making of materially false and misleading
statements concerning, among other things, American Realty’s results of operations and financial
condition. See, e.g., Johnson v. Celotex Corp., 899 F.2d 1281, 1285 (2d Cir. 1990); Glauser v.
EVCI Career Colls. Holding Corp., 236 F.R.D. 184, 186 (S.D.N.Y. 2006) (“[T]his Court has
recognized that consolidation is particularly appropriate in the context of securities class actions
if the complaints are based on the same public statements and reports.”) (internal quotations and
citations omitted). Moreover, each complaint alleges similar and overlapping class periods and
is brought against nearly identical defendants. Further, consolidation will avoid duplicative
discovery, motion practice, and other proceedings that will result if the Actions are not
consolidated. Therefore, Defendants will not be prejudiced by consolidation.
Accordingly, the Court should consolidate the Actions, and any other subsequently-filed
related actions pursuant to 15 U.S.C. § 77z-1(a)(3)(B)(ii), 15 U.S.C. § 78u-4(a)(3)(B)(ii) and
Federal Rule of Civil Procedure 42(a).
II. THE COURT SHOULD APPOINT THE OHIO FUNDS AS LEAD PLA INTIFF
A. The Procedure Required By The PSLRA
The PSLRA establishes a straightforward, sequential procedure for selecting a lead
plaintiff in “each private action arising under [Securities Act and Exchange Act] that is brought
as a plaintiff class action pursuant to the Federal Rules of Civil Procedure.” Sections 27(a)(1)
and (a)(3)(B), 15 U.S.C. §§ 77z-1(a)(1) and (a)(3)(B); Sections 21D(a)(1) and (a)(3)(B), 15
U.S.C. §§ 78u-4(a)(1) and (a)(3)(B).
First, the plaintiff who files the initial action must publish notice to the class within 20
days after filing the action, informing class members of their right to file a motion for
appointment of lead plaintiff. 15 U.S.C. § 77z-1(a)(3)(B)(ii); 15 U.S.C. § 78u-4(a)(3)(A)(i).
Second, the Court is to consider within 90 days all motions made by any person or group of
8
persons who are members of the proposed class to be appointed lead plaintiff that are filed within
60 days after publication of that notice. 15 U.S.C. §§ 77z-1(a)(3)(A)(i)(II) and (a)(3)(B)(i); 15
U.S.C. §§ 78u-4(a)(3)(A)(i)(II) and (a)(3)(B)(i). Finally, in considering any motion to serve as
the lead plaintiff, the Court is required to appoint the “most adequate plaintiff.” 15 U.S.C. §§
77z-1(a)(3)(B)(i); 15 U.S.C. § 78u-4(a)(3)(B)(i). In adjudicating the lead plaintiff motion, the
Court should adopt the presumption that the most “adequate plaintiff” is the person or group of
persons that:
i) has either filed the complaint or made a motion in response to a notice
under subparagraph (A)(i);
ii) in the determination of the court, has the largest financial interest in the
relief sought by the class; and
iii) otherwise satisfies the requirements of Rule 23 of the Federal Rules of
Civil Procedure.
15 U.S.C. § 77z-1(a)(3)(B)(iii)(I); 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I). The presumption may be
rebutted only upon proof by a class member that the presumptively most adequate plaintiff “will
not fairly and adequately protect the interests of the class” or “is subject to unique defenses that
render such plaintiff incapable of adequately representing the class.” 15 U.S.C. § 77z-
1(a)(3)(B)(iii)(II); 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II).
As set forth below, the Ohio Funds satisfy the foreg ing criteria.
B. The Ohio Funds Are The Most Adequate Plaintiffs
The Ohio Funds respectfully submit that they are prsumptively the “most adequate
plaintiff” because they have complied with the PSLRA’s procedural requirements, possess the
largest financial interest of any qualified movant, and satisfy Rule 23’s typicality and adequacy
requirements.
9
1. The Ohio Funds Have Satisfied the PSLRA’s Procedural
Requirements
(a) The Ohio Funds Are Willing To Serve As Class
Representatives
On October 30, 2014, counsel in Civil Action No. 1:14-cv-08659-AKH caused a notice
(the “Notice”) to be published pursuant to Section 21D(a)(3)(A)(i), which announced that a
securities class action had been filed against, among others, American Realty, and which advised
putative class members that they had 60 days from the date of the Notice to file a motion to seek
appointment as a lead plaintiff in the action. SeeSeidman Decl. Ex. 1. The Ohio Funds have
reviewed one of the complaints filed in the Actions and have timely filed their motion pursuant
to the Notice. In doing so, the Ohio Funds have attached their certifications attesting to their
willingness to serve as representatives of the Class and provide testimony at deposition and trial,
if necessary. See Seidman Decl. Ex. 2. Accordingly, the Ohio Funds satisfy the procedural
requirements of the PSLRA.
2. The Ohio Funds Are Institutional Investors With The Largest
Financial Interest In The Relief Sought By The Clas
The PSLRA instructs the Court to adopt a rebuttable presumption that the “most adequate
plaintiff” for lead plaintiff purposes is the movant with “the largest financial interest in the relief
sought by the class,” so long as the movant “otherwise satisfies the requirements of Rule 23.” 15
U.S.C. § 77z-1(a)(3)(B)(iii)(I); 15 U.S.C. § 78u-4(a) 3)(B)(iii)(I).
The State Teachers Retirement System of Ohio purchased nd/or acquired 2,033,888
shares, or 1,711,894 net shares, of American Realty stock during the Class Period, expending
$21,796,148 on a net basis and incurring a substantial total loss of $6,778,116 on those
10
transactions.3 The Ohio Public Employees Retirement System purchased 277,525 shares, or
256,041 net shares, of American Realty stock during the Class Period, expending $3,209,908 on
a net basis and incurring a substantial total loss of $963,097 on those transactions. Collectively,
the Ohio Funds incurred a loss of $7,741,213 on their ransaction in American Realty stock.4 See
Seidman Decl. Ex. 3. The Ohio Funds believe that given these losses they are the presumptive
“most adequate plaintiff” and should be appointed the lead plaintiff in the Actions.
3. The Ohio Funds Are Sophisticated and Experienced Institutional
Investors That Congress Envisioned To Serve As Lead Plaintiff
The Ohio Funds are the type of institutional investors envisioned by Congress to serve as
a lead plaintiff. Indeed, the legislative history of the PSLRA demonstrates that Congress
intended to encourage institutional investors, such as the Ohio Funds, to serve as a lead plaintiff
in securities class actions. H.R. CONF. REP. NO. 104-369, at 34 (1995), reprinted in 1995
U.S.C.C.A.N. 730, 733. This congressional preference has been noted repeatedly by the courts
within this District. See, e.g., Richman v. Goldman Sachs Grp., Inc., 274 F.R.D. 473, 477
(S.D.N.Y. 2011) (“Congress has instructed [that securities class actions] should be guided by
institutional investors”); City of Monroe Emps. Ret. Sys. v. Hartford Fin. Servs. Grp., Inc., 269
F.R.D. 291, 294 (S.D.N.Y. 2010) (“[t]he drafters of the PSLRA sought to reduce the influence of
lawyers on class action securities suits by weighting he determination of lead plaintiff in favor
of large institutional investors”); see also Schulman v. Lumenis, Ltd., No. 02 Civ. 1989(DAB),
2003 WL 21415287, at *2 (S.D.N.Y. June 18, 2003).
3 These loss calculations use the book value of the Col Real Estate Investments, Inc. shares that
were exchanged for American Realty shares at the tim of the merger. Using the price of
American Realty shares on February 7, 2014, the closing date of the merger, the State Teachers
Retirement System of Ohio sustained a loss of $8,930,757.
4 The Ohio Funds’ losses are the same whether calculated on a first-in, first-out (“FIFO”) or last-
in, first-out (“LIFO”) basis.
11
Furthermore, Congress believed that “increasing the role of institutional investors in class
actions [would] ultimately benefit shareholders and assist courts by improving the quality of
representation in securities class actions.” In re Baan Co. Sec. Litig., 186 F.R.D. 214, 221
(D.D.C. 1999) (citations omitted). See also S. REP. NO. 104-98, at 11 (1995), reprinted in 1995
U.S.C.C.A.N. 679, 690 (“increasing the role of insttutional investors in class actions will
ultimately benefit the class and assist the courts.”). Congress reasoned that the empowerment of
institutional investors would result in the appointment of lead plaintiffs that can best prosecute
the claims and are best able to negotiate with and oversee counsel. Razorfish, 143 F. Supp. 2d at
309 (stating that Congress intended that “institutional plaintiffs with expertise in the securities
market and real financial interest … would control he litigation ....”); Elliott J. Weiss & John S.
Beckerman, Let The Money Do The Monitoring: How Institutional Investors Can Reduce
Agency Costs In Securities Class Actions, 104 Yale L.J. 2053, 2095 (1995) (“Weiss &
Beckerman”). See also S. REP. NO. 104-98, at 11 n.32 (noting that Weiss & Beckerman
“provided the basis for the ‘most adequate plaintiff’ provision”). For this reason, Congress
deemed institutional investors “presumptively most adequate to serve as lead plaintiffs in
securities class actions.” Greebel v. FTP Software, Inc., 939 F. Supp. 57, 63 (D. Mass. 1996).
Moreover, the Ohio Funds constitute an appropriate group under the PSLRA. 15 U.S.C. §
77z-1(a)(3)(B); 15 U.S.C. § 78u-4(a)(3)(B) (“[T]he court shall adopt a presumption that the most
adequate plaintiff … is the person or group of persons that … has the largest financial interest in
the relief sought by the class.”). Indeed, the legislative history of the PSLRA demonstrates that
Congress specifically intended for institutions to join together to litigate securities class action
cases. The law review article cited in the legislative history “as provid[ing] the basis for the
‘most adequate plaintiff’ provision” states that Congress used the “group of persons” language
12
because “if several institutions were interested in becoming involved, they could either compete
to become lead plaintiff or agree to work together.” S. Rep. No. 104-98, n. 32 6-12 (1995)
(citing Weiss & Beckerman).
Here, the Ohio Funds are precisely the type of sophi ticated institutional investors that
courts have found appropriate to serve as lead plaintiffs under the PSLRA. Indeed, they have a
proven track record prosecuting securities fraud actions and recovering record amounts for
injured investors, including the successful resoluti n of the BOA, AIG, and Marsh securities class
actions. Therefore, appointing the Ohio Funds as co-lead plaintiffs will accomplish exactly what
the PSLRA was meant to accomplish: putting important securities fraud class actions under the
control of strong, institutional investors with sign ficant financial stakes in the outcome.
4. The Ohio Funds Meet The Requirements Of Fed. R. Civ. P. 23
Equally important, the Ohio Funds satisfy the adequacy and typicality requirements of
Rule 23 of the Federal Rules of Civil Procedure, which are the provisions of Rule 23 relevant to
the appointment of lead plaintiff under the PSLRA. See Schulman, 2003 WL 21415287, at *2.
See also Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001) (considering only typicality and
adequacy on a motion for designation of lead plaintiff and lead counsel). At this stage of the
litigation, however, only a preliminary showing of typicality and adequacy is required. Foley v.
Transocean Ltd., 272 F.R.D. 126, 131 (S.D.N.Y. 2011).
(a) The Ohio Funds’ Claims Are Typical of Those of the Class
The Ohio Funds’ claims are typical of the Class in that they: (i) suffered the same, or
substantially the same, injuries as the absent Class members; (ii) suffered the same injuries as a
result of the same, or substantially the same, course of conduct by the named defendants; and
(iii) base their claims on the same, or substantially the same, legal theories as the Class.
Robidoux v. Celani, 987 F.2d 931, 936-37 (2d Cir. 1993). See also Seidman Decl. Ex. 1. Like
13
all Class members, the Ohio Funds: (1) purchased and/or acquired American Realty common
stock during the Class Period; (2) at prices allegedly artificially inflated by the named
defendants’ materially false and misleading statements and/or omissions; and (3) were damaged
thereby. See Plumbers, Pipefitters & MES Local Union No. 392 Pensio Fund v. Fairfax Fin.
Holdings Ltd., No. 11 Civ. 5097(JFK), 2011 WL 4831209, at *2 (S.D.N.Y. Oct. 12, 2011)
(finding typicality requirement “easily met” when proposed lead plaintiff “asserted that it
purchased [the company’s] securities during the class period and was injured by false and
misleading representations made by defendants”).
Moreover, Rule 23 does not require that the named plaintiffs be identically situated with
all class members. It is enough if they share a comm n issue of law or fact. See In re NASDAQ
Mkt.-Makers Antitrust Litig., 172 F.R.D. 119, 127 (S.D.N.Y. 1997). A finding of c mmonality
frequently supports a finding of typicality.
Here, the questions of law and fact common to the members of the Class and which may
affect individual Class members include whether:
• Defendants violated the federal securities laws;
• statements made by Defendants to the investing public contained material
misrepresentations and/or omissions concerning, inter alia, American Realty’s
business, operations and financial reporting; and
• the members of the Class sustained damages and, if so, what is the proper
measure of damages.
These questions apply equally to the Ohio Funds as to all members of the Class. Because the
Ohio Funds’ claims are based on the same, or substantially the same, legal theories and “arise
from the same course of conduct that gives rise to the claims of other Class members,” the
typicality requirement is satisfied. See NASDAQ Mkt.-Makers, 172 F.R.D. at 126.
14
(b) The Ohio Funds Will Fairly and Adequately Protect the
Interests of the Class
The Ohio Funds also satisfy the adequacy requirement of Rule 23 of the Federal Rules of
Civil Procedure. Under Rule 23(a)(4), the representative party must “fairly and adequately
protect the interests of the Class.” Fed. R. Civ. P. 23(a)(4). In order for the Class’s interests to be
fairly and adequately represented, “(1) there should be no conflict between the proposed lead
plaintiff and the members of the class, (2) the selct d counsel should be qualified, experienced,
and able to conduct the litigation, and (3) the lead plaintiff should have a sufficient interest in the
outcome to insure vigorous advocacy.” Xianglin Shi v. Sina Corp., No. 05 Civ. 2154(NRB),
2005 WL 1561438, at *3 (S.D.N.Y. July 1, 2005) (citation omitted). The Ohio Funds satisfy the
foregoing elements.
The Ohio Funds’ interests are perfectly aligned with those of the other Class members
and are not antagonistic in any way. Indeed, the Oio Funds and members of the Class have the
same interest: to maximize the recovery from Defendants. Because of their substantial financial
stake in the litigation, Class members can be assured that the Ohio Funds have the incentive to
vigorously represent their interests. See Lipetz v. Wachovia Corp., No. 08 Civ. 6171 (RJS), 2008
WL 4615895, at *3 (S.D.N.Y. Oct. 10, 2008) (noting that an institutional investor’s “substantial
financial stake in the litigation” suggests that “as lead plaintiff, [the institutional investor] would
prosecute the claim vigorously”). Moreover, there a no facts to suggest any actual or potential
conflict of interest or other antagonism between the Ohio Funds and other Class members.
Further, the Ohio Funds are highly qualified to fulfill the duties and responsibilities
required to serve as lead plaintiff. As noted, theOhio Funds secured three outstanding
settlements in BOA, AIG, and Marsh for $2.43 billion, over $1 billion, and $400 million,
respectively, in securities class actions in courts in this District. As they did in those litigations,
15
the Ohio Funds will diligently lead the litigation, including supervising lead counsel and
directing litigation strategy and any settlement discussions to obtain the maximum recovery
achievable for the Class.
Finally, the Ohio Funds have demonstrated their adequacy through their selection of
Bernstein Liebhard and Berman DeValerio as co-lead counsel for the Class. As discussed more
fully below, these firms are highly qualified and exp rienced in the area of securities class action
litigation and have repeatedly demonstrated their ability to prosecute complex securities class
action lawsuits.
III. THE COURT SHOULD APPROVE THE OHIO FUNDS’ CHOICE OF COUNSEL
The PSLRA vests authority in the lead plaintiff to select and retain lead counsel, subject
to court approval. 15 U.S.C. § 77z-1(a)(3)(B)(v); 15 U.S.C. § 78u-4(a)(3)(B)(v). The Court
should interfere with the lead plaintiff’s selection f counsel only when necessary to “protect the
interests of the class.” 15 U.S.C. § 77z-1(a)(3)(B)(iii)(II)(aa); 15 U.S.C. § 78u-
4(a)(3)(B)(iii)(II)(aa).
Bernstein Liebhard and Berman DeValerio have extensiv experience prosecuting
complex securities class actions, such as this one, a d are well qualified to represent the Class.
See Seidman Decl. Exs. 4 and 5 for the firm resumes of Bernstein Liebhard and Berman
DeValerio. As a result, the Court may be assured that by approving Bernstein Liebhard and
Berman DeValerio as co-lead counsel, the Class is receiving the best legal representation
available.
Bernstein Liebhard has frequently been appointed as le d counsel or co-lead counsel
since the passage of the PSLRA, and has frequently appeared in major actions before this and
other courts throughout the country. The National Law Journal has recognized Bernstein
Liebhard for twelve consecutive years as one of the top plaintiffs’ firms in the country – the only
16
firm to have achieved such sustained recognition. Bernstein Liebhard has also been listed in The
Legal 500, a guide to the best commercial law firms in the United States, for the past eight years,
as well as in Benchmark Plaintiff: The Definitive Guide to America’s Leading Plaintiff Firms &
Attorneys for the past four years. Bernstein Liebhard was also recently selected to the National
Law Journal’s inaugural “America’s Elite Trial Lawyers” list.
Some of Bernstein Liebhard’s outstanding successes include:
• In re Beacon Associates Litigation, No. 09 CIV 0777 (LBS) (AJP) (S.D.N.Y.
2013) (settlement of $219 million);
• In re Fannie Mae Securities Litigation, No. 04-1639 (FJL) (D.D.C. 2013)
(settlement of $153 million);
• In re Tremont Securities Law, State Law and Insurance Litigation, No. 08-CV-
11117 (S.D.N.Y. 2011) (settlement in excess of $100 million);
• In re Marsh & McLennan Cos. Sec. Litig., No. 04-CV-8144 (CM) (S.D.N.Y.
2009) (settlement: $400 million); and
• In re Royal Dutch/Shell Transport Securities Litigaon, No. 04-374 (JAP) (D.N.J.
2008) (U.S.-based settlement with a minimum cash value of $138.3 million;
substantial factor in bringing about a $350 million European settlement);
Further, Bernstein Liebhard partner Stanley Bernstei served as Chairman of the
Executive Committee in In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS)
(S.D.N.Y. 2009), before Judge Shira Scheindlin in this District. The IPO litigation is one of the
biggest securities class actions ever prosecuted. On October 5, 2009, the Court granted final
approval to a $586 million settlement.
Berman DeValerio is one of the country’s premier class action law firms with over 30
years prosecuting securities litigation cases. Since the passage of the PSLRA, Berman
DeValerio has held leadership positions in more than 100 federal securities class actions,
recovering $3.1 billion on behalf of defrauded investors under the PSLRA such as in: I re Bear
Stearns Cos., Inc. Sec., Deriv., & ERISA Litig., Nos. 08-Civ-2793 (RWS), 08 MDL No. 1963
17
(RWS) (S.D.N.Y.) (representing The State of Michigan Retirement Systems and obtaining a
$294.9 million settlement); Carlson v. Xerox Corp, et al., No. 3:00-CV-1621 (AWT) (D. Conn.)
(representing the Louisiana State Employees’ Retirement System and achieving a $750 million
settlement); In re Bristol-Myers Squibb Sec. Litig., No. 02-cv-2251 (LAP) (S.D.N.Y.)
(representing the Louisiana State Employees’ Retirement System and the Fresno County
Employees’ Retirement Association and securing a $300 million settlement); and Wyatt v. El
Paso Corp. et al., No. H-02-2717 (LNH) (S.D. Tex.) (representing Oklahoma Firefighters
Pension and Retirement System and reaching settlements worth $285 million). Two recently
settled cases that are subject to final approval are In e IndyMac MBS Sec. Litig., No. 09-cv-
04583-LAK (S.D.N.Y.) ($346 million settlement), and In re 2008 Fannie Mae Sec. Litig., No.
08-civ-07831-PAC (S.D.N.Y) ($170 million settlement).
18
CONCLUSION
For the foregoing reasons, the Ohio Funds respectfully request that this Court:
(1) consolidate the related Actions, and all subsequently-filed, related actions; (2) appoint the
Ohio Funds as lead plaintiff in the Actions, and all subsequently-filed, related actions; and
(3) approve the Ohio Funds’ selection of Bernstein Liebhard and Berman DeValerio as co-lead
counsel.
Dated: December 29, 2014 Respectfully submitted,
BERNSTEIN LIEBHARD LLP
/s/ Jeffrey M. Haber
_____________________________________
Stanley D. Bernstein
(bernstein@bernlieb.com)
Jeffrey M. Haber
(haber@bernlieb.com)
Joseph R. Seidman, Jr.
(seidman@bernlieb.com)
10 East 40th Street, 22nd Floor
New York, NY 10016
Telephone: (212) 779-1414
Facsimile: (212) 779-3218
BERMAN DEVALERIO
Glen DeValerio
(gdevalerio@bermandevalerio.com)
Leslie Stern
(lstern@bermandevalerio.com)
Jay Eng
(jeng@bermandevalerio.com)
One Liberty Square
Boston, MA 02109
Telephone: (617) 542-8300
Facsimile: (617) 542-1194
Attorneys for the Ohio Funds and Proposed
Co-Lead Counsel for the Class
