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ROZENBOOM v. VAN DER MOOLEN HOLDING

April 14, 2004.

EUGENE ROZENBOOM, individually and on behalf of all others similarly situated, Plaintiff -against- VAN DER MOOLEN HOLDING, N.V., FRIEDRICH M.J. BOTTCHER, FRANK F. DORJEE, JAMES P. CLEAVER, and CASPER F. RONDLETAP, Defendants


The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge

OPINION

Linda Greene ("Greene") and Elizabeth Rick ("Rick") have each moved under the Private Securities Litigation and Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(a)(3), for appointment as lead plaintiff and the appointment of lead counsel in this securities fraud class action. Thereafter, Greene and Rick agreed to jointly represent the class as co-lead plaintiffs, with their respective counsel as co-lead counsel. For the reasons set forth below, Greene and Rick are appointed co-lead plaintiffs and Goodkind Labaton Rudoff & Sucharow LLP ("GLR&S") and Schiffrin & Barroway, LLP ("Schiffrin & Barroway") are appointed co-lead counsel. Rick's motion to appoint liaison counsel is denied without prejudice to renewal.

 Prior Proceeding's and Background

  The instant action was commenced on October 20, 2003 with the filing of a class action complaint against Van der Moolen Holding N.V. ("Van der Moolen"), a securities trading firm, and several of its officers: Friedrich M.J. Bottcher ("Bottcher"), James P. Cleaver, Jr. ("Cleaver"), Frank F. Dorjee ("Dorjee"), and Casper F. Rondeltap ("Rondeltap"). The complaint alleges that Van der Moolen, through one of its four operational segments known as VDM Specialists, acts as a specialist firm on the New York Stock Exchange ("NYSE"). Specialist firms, according to the complaint, are responsible for maintaining a fair and orderly market in one or more specific securities and must adhere to NYSE rules that require specialist firms to refrain from trading on the specialist firm's own account when enough public investor orders exist to pair up naturally, without undue intervention.

  The complaint alleges that between October 18, 2001 and October 15, 2003, inclusive (the "proposed class period"), Van der Moolen repeatedly violated its duties by engaging in "front-running" and "trading ahead," both activities by which Van der Moolen is alleged to have improperly made trades in its own interest to the disadvantage of public investors. As a result of these activities, Van der Moolen is alleged to have materially overstated and artificially inflated its earnings, net income, and earnings per share in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. This class action is brought on behalf of all persons who purchased American Depository Receipt shares ("ADRs") in Van der Moolen during the proposed class period and who were damaged thereby.*fn1 Van der Moolen ADRS are alleged to have been traded actively on the NYSE throughout the proposed class period.

  Two investors, Greene and Rick, claim to have sustained losses as a result of their investment in Van der Moolen ADRs and have moved for appointment as lead plaintiff and for designation of each investor's choice of lead counsel in the litigation.*fn2 On December 19, 2003, Greene moved to be appointed as lead plaintiff based on alleged losses of approximately $36,980. On that same date, Rick moved for appointment as lead plaintiff, alleging approximate losses of $6,495. Each movant has submitted a certificate pursuant to 15 U.S.C. § 78u-4(a)(2)(A) in support of her motion.

  By a letter dated January 13, 2004, the movants announced their intention to jointly represent the class as co-lead plaintiffs with their respective counsel as co-lead counsel, and submitted a stipulation to that effect. No oral arguments were held, and the case was reassigned to this Court on February 27, 2004.

  I. Appointment of Lead Plaintiff

  In 1995, Congress enacted the Private Securities Litigation Reform Act (the "PSLRA") in order to address perceived abuses in securities fraud class actions. See S. Rep. No. 104-98 (1995), reprinted in 1995 U.S.C.C.A.N. 679; H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730. The PSLRA was intended to prevent "lawyer-driven" litigation, and to ensure that parties with significant financial interests in the litigation "`will participate in the litigation and exercise control over the selection and actions of plaintiffs counsel.'" In re Oxford Health Plans. Inc. Sec. Litig., 182 F.R.D. 42, 43-44 (S.D.N.Y. 1998) (quoting H.R. Conf. Rep. No. 104-369, at 32, reprinted in 1995 U.S.C.C.A.N. at 731); see also In re Initial Public Offering Sec. Litig., 214 F.R.D. 117, 123 (S.D.N.Y. 2002); In re Donnkenny Inc. Sec. Litig., 171 F.R.D. 156, 157-58 (S.D.N.Y. 1997). This goal could best be achieved, according to Congress, by encouraging institutional investors to serve as lead plaintiffs. See Sofran v. LaBranche & Co., Inc., — F. Supp.2d —, 2004 WL 569550, at *4 (S.D.N.Y. Mar. 22, 2004); In re Oxford Health Plans, 182 F.R.D. at 46. Accordingly, the PSLRA amended the Exchange Act*fn3 by, among other things, setting forth a procedure governing `the appointment of a lead plaintiff or plaintiffs in "each action arising under the [Exchange Act] that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure." 15 U.S.C. § 78u-4(a)(1).

  First, the plaintiff who files the initial action must, within 20 days of filing the action; publish a notice to the class informing class members of their right to file a motion for appointment as lead plaintiff. 15 U.S.C. § 78u-4 (a)(3)(A)(i). Plaintiff in this action caused a detailed notice to be published on October 20, 2003 on PR Newswire, which is deemed to satisfy the notice requirement. See Sofran, 2004 WL 569550, at *2 (approving a notice published on PR Newswire).

  Within 60 days after publication of the required notice, any member or members of the proposed class may apply to the Court to be appointed as lead plaintiff (s). 15 U.S.C. § 78u-4 (a)(3)(A) — (i). Both Greene and Rick so moved on December 19, 2003, the last of the applicable 60 days; therefore, their motions are timely. The PSLRA next provides that within 90 days after publication of the notice, the Court shall consider any motion made by a class member and shall appoint as lead plaintiffs the member or members of that class that the Court determines to be most capable of adequately representing the interests of the class members. 15 U.S.C. § 78u-4 (3)(B)(i). In determining the "most adequate plaintiff," the PSLRA provides that:
[T]he court shall adopt a presumption that the most adequate plaintiff in any private action arising under this chapter is the person or group of persons that —
(aa) has either filed the complaint or made a motion in response to a notice . . .;
(bb) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(cc) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.
15 U.S.C. § 78u-4(a)(3)(B) (ill); see also Weinberg v. Atlas Air Worldwide Holdings. Inc., 216 F.R.D. 248, 252 (S.D.N.Y. 2003); Albert Fadem Trust v. Citigroup Inc., 239 F. Supp.2d 344, 347 (S.D.N.Y. 2002).

  Once the court "`identifies the plaintiff with the largest stake in the litigation, further inquiry must focus on that plaintiff alone and be limited to determining whether he satisfies the other statutory requirements.'" Sofran, 2004 WL 569550, at *2 (quoting In re Cavanaugh, 306 F.3d 726, 732 (9th Cir. 2002) (The district court's belief that "another plaintiff may be `more typical' or `more adequate' is of no consequence. So long as the plaintiff with the largest losses satisfies the typicality and adequacy requirements, he is entitled to lead plaintiff status, even if the district court is convinced that some other plaintiff would do a better job. ")); see also In re Cendant Corp. Litig., 264 F.3d 201, 262 (3d Cir. 2001) ("Once the court has identified the movant with `the largest financial interest in the relief sought by the class,' it should then turn to the question whether that movant `otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure'. . . ."); Schulman v. Lumenis, Nos. 02 Civ. 1989 (DAB), et al., 2003 WL 21415287, at *4-6 (S.D.N.Y. June 18, 2003) (commenting that the Second Circuit "has not ruled whether the requirements of the most adequate plaintiff presumption are to be applied serially in order, or whether each requirement is applied to the motion or complaint despite its inability to satisfy all of the presumption's requirements," but applying the requirements in sequence).

  Both Greene and Rick have moved for lead plaintiff appointment in response to the notice published on October 20, 2003, thereby satisfying the first requirement. By announcing their joint candidacy Greene and Rick have bypassed the traditional contest for lead plaintiff appointment and made the pivotal issue in this matter the propriety of their alliance. It has become a common phenomenon to see "`groups' of class members who form to be named as lead plaintiffs jointly, and who seek to aggregate their losses to enhance their chances of winning selection as lead plaintiff (and hence, to enhance their counsel's chances of winning selection as lead counsel)." In re MicroStrategy Inc. Sec. Litig., 110 F. Supp.2d 427, 434 (E.D. Va. 2000). The PSLRA plainly allows at least some variations of this practice, permitting a "group of persons" to be deemed the "most adequate plaintiff" under the Exchange Act. 15 U.S.C. § 78u-4 (a)(3)(B) (iii) (I); see also 15 U.S.C. § 78u-4 (a)(3)(B)(i) (indicating that the court "shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members") (emphasis added); accord In re American Bank Note Holographics, Inc. Sec. Litig., 93 F. Supp.2d 424, 436 (S.D.N.Y. 2000) ("The nomination of a group of investors as co-lead plaintiffs is specifically contemplated by the PSLRA."). Courts are divided, however, as to what sorts of groupings of persons or entities may be appointed lead plaintiff.

  Some courts have denied a motion aggregating unrelated class members on the ground that groups of unrelated class members are more likely to abdicate their responsibility to coordinate the litigation to their attorneys, in contravention of the PSLRA's goal to eliminate lawyer-driven litigation. See, e.g., In re Donnkenny, 171 F.R.D. at 157-58; see also In re Razorfish, Inc. Sec. Litig., 143 F. Supp.2d 304, 309 (S.D.N.Y. 2001). Other courts have concluded that a group consisting of previously unrelated persons may be acceptable as a lead plaintiff candidate so long as the group is relatively small and therefore presumptively cohesive. See, e.g., Weltz v. Lee, 199 F.R.D. 129, 133 (S.D.N.Y. 2001); In re Oxford Health Plans, 182 F.R.D. at 46. Still other courts have simply required a group seeking appointment as lead plaintiff to "explain and justify its composition and structure to the court's satisfaction." In re Network Assocs., Inc. Sec. Litiq., 76 F. Supp.2d ...


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