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IN RE ESPEED

July 13, 2005.

In Re ESPEED, INC. SECURITIES LITIGATION.


The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

  Two movants seek to be named lead plaintiff in a class action litigation involving alleged securities fraud by eSpeed, Inc. ("eSpeed"). Movants are (1) the "Adib Group," composed of Shabbir Adib, his family and Mike Weber; and (2) The Greater Pennsylvania Carpenters Pension Fund (the "Pension Fund"). Pursuant to the Private Securities Litigation Reform Act ("PSLRA"), the Adib Group is hereby appointed as the presumptive lead plaintiff.*fn1

  II. BACKGROUND

  Plaintiffs are investors who purchased eSpeed stock during the class period, from August 12, 2003 to July 1, 2004. The first-filed complaint alleges that plaintiffs sustained losses as a result of false and misleading statements made by eSpeed about the company's profitability and future stock prospects during this period. eSpeed publicly asserted that the company's business plan was proceeding successfully, but, in fact, profitability was decreasing, competitors were eating into market share and eSpeed's initiative to tailor pricing to individual clients was proving to be a failure. On July 1, 2004, eSpeed disclosed its true financial condition and, as a result, eSpeed shares dropped more than $6 per share over a two day period, causing substantial losses to numerous investors.*fn2

  III. LEGAL STANDARD

  In determining which plaintiff to appoint as lead plaintiff, the PSLRA sets forth a required procedure.*fn3 The lead plaintiff should be the plaintiff "most capable of adequately representing the interests of class members."*fn4 The PSLRA requires that the "most adequate plaintiff" be determined by a two-step competitive process.*fn5

  The first step establishes as presumptive lead plaintiff the "person or group of persons" who meet(s) the following three criteria: (1) the candidate must have "filed the complaint or made a motion in response to a notice;"*fn6 (2) the candidate must have "the largest financial interest in the relief sought by the class,"*fn7 and (3) the candidate must "otherwise satisf[y] the requirements of Rule 23 of the Federal Rules of Civil Procedure."*fn8

  Once the presumptive lead plaintiff has been designated, the court conducts a second inquiry in which members of the class have the opportunity to rebut the chosen lead plaintiff's presumptive status. In order to rebut the designation, class members must prove either that the presumptive lead 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."*fn9 If the presumptive lead plaintiff is disqualified on these grounds, the candidate's position is forfeited and the court returns to the first phase to determine a new presumptive lead plaintiff. The process repeats itself until a candidate succeeds in both the first and second phases of inquiry.

  IV. DISCUSSION A. Shabbir Adib's Standing

  The Adib Group is composed of five individual investors: Mike Weber, Shabbir Adib ("Adib"), Ruby Adib (Adib's wife), Hatim Adib (Adib's father), and Murtuza Tofafarosh (Adib's cousin).*fn10 Plaintiffs Adib and Weber request to be named lead plaintiffs — Weber on behalf of himself and Adib on behalf of his family as "akin to an investment advisor."*fn11 While it is dubious that being "akin to" an investment advisor should allow an individual to sue on behalf of a collection of investors, I do not reach this issue because even were Adib a bona fide investment advisor, he would not have standing to sue on behalf of his family. In order for an investment advisor to attain standing on behalf of investors the transactions in question must have been executed as if by a single person.*fn12 Moreover, the advisor must be the attorney in fact for his clients, and he must be granted both unrestricted decision-making authority and the specific right to recover on behalf of his clients.*fn13 Adib has not adequately established that he meets these conditions.

  However, while Adib lacks standing to sue on behalf of his family as an investment advisor, such standing is not necessary in order for the Adib Group to be named lead plaintiff. The group is not required to suggest individual members as lead plaintiffs; rather, the group itself, governed by the individuals within it, may be named the lead plaintiff.*fn14

  B. The Validity of the Adib Group

  The lead plaintiff determination does not depend on the court's judgment of which party would be best lead plaintiff for the class, but rather which candidate fulfils the requirements of the Act.*fn15 The PSLRA does not, unfortunately, define what constitutes an appropriate candidate. The Act states that the court must "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" but the Act ...


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