In an opinion of interest to both plaintiff and defense counsel, the 2nd U.S. Circuit Court of Appeals recently ruled that plaintiffs suing under the Securities Act of 1933 and the Securities Exchange Act of 1934 may co-exist within the same plaintiff class even if the allegations of misrepresentation underlying the ’33 act and ’34 act claims differ.[FOOTNOTE 1] The 2nd Circuit’s decision will likely have the effect of enlarging the size of plaintiff classes in securities class actions as well as increasing the number of claims that defendants will be subject to in class action suits. It bears close consideration by counsel involved in class actions in which both ’33 act and ’34 act claims may be asserted.

In In re Flag Telecom Holdings, Ltd. Securities Litigation (pdf), the 2nd Circuit affirmed the certification of a single class of plaintiffs that included some plaintiffs bringing ’33 Act claims and others bringing ’34 Act claims .[FOOTNOTE 2] The plaintiff class in Flag included investors who purchased the common stock of Flag Telecom Holdings Ltd between March 6, 2000 and Feb. 13, 2002, and investors who purchased FTH stock during the IPO and between Feb. 11, 2000 and May 10, 2000.[FOOTNOTE 3] The Flag plaintiffs alleged various misrepresentations by FTH related to its IPO and subsequent public statements regarding its financial health. Specifically, the plaintiff class alleged that the defendants — FTH’s former directors, officers and Citigroup Global Markets Inc., the lead underwriter for the IPO — induced investors to purchase FTH securities pursuant to a registration statement and prospectus containing materially false and misleading information regarding the pre-sale of certain fiber optic cable capacity in violation of §§11, 12(a)(2) and 15 of the ’33 act, and that defendants made materially false and misleading statements regarding FTH’s financial condition, causing FTH securities to trade at artificially inflated prices in violation of §§10(b) and 20(a) of the ’34 act and Rule 10b-5 promulgated thereunder.[FOOTNOTE 4]

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