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The number of securities class action fraud cases against corporations in New Jersey tripled to record heights last year and the targets included some of the state’s largest drug and energy companies. Plaintiffs filed 15 cases, compared with five the year before, according to a report issued last Wednesday by the Stanford Law School Securities Class Action Clearinghouse, which monitors filings around the country. (See chart: Securities Fraud Class Actions in the District of New Jersey.) It’s also the largest number of New Jersey cases in a single year since 1997, the beginning of the clearinghouse database. The number would have been higher, but the report does not include class action cases that allege fraud in the underwriting of initial public offerings. Nor does it include cases in which the defendants are securities analysts and investment banks. Around the country, securities fraud class actions listed by the clearinghouse rose from 171 filings in 2001 to 224 in 2002, which means New Jersey’s share rose from 3 percent to 6 percent. The 15 New Jersey filings also represented 68 percent of the 22 such cases in the 3rd U.S. Circuit Court of Appeals. Allyn Lite, whose firm, Lite, DePalma, Greenberg & Rivas in Newark, was among the plaintiffs’ counsel in six of the New Jersey cases, says the increased filings in the state are merely a reflection of New Jersey’s status as home to a substantial number of large corporations. He says class actions are up around the country, in part, because of a growing quickness among corporations to restate earnings potential and their belated candor about why they are doing it. That’s borne out in the survey. The clearinghouse said 85 percent of filings in all states charged defendants with affirmative fraud or failure to disclose material information. Lite is a former clerk of the federal district court in New Jersey. His 13-lawyer firm developed a niche working as local counsel with lead plaintiffs’ firms, including such national giants as New York’s Milberg Weiss Bershad Hynes & Lerach. Lite says 50 percent of his firm’s work is in class action cases, including some in other states. Only two other New Jersey firms appear on the clearinghouse list for 2002. At Chatham’s Epstein, Fitzsimmons, Brown, Ringle, Gioia & Jacobs, partner Andrew Jacobs is local counsel to a New York firm in a case alleging that Knight Trading Group Inc. of Jersey City made misleading statements that artificially inflated the value of the company’s stock. Roseland’s Lowenstein Sandler represents plaintiffs alleging stock fraud at Caprius Inc., a Fort Lee medical equipment and supplies company. Lawrence Rolnick, the partner who heads Lowenstein Sandler’s securities litigation department but is not counsel in the Caprius case, says his firm also represents institutional investors in cases that do not appear on the clearinghouse list. Rolnick says it’s not surprising that few New Jersey firms show up on the list of plaintiffs’ attorneys, one reason being tradition. Historically, large-firm New Jersey practice was rooted in defense work for the large number of insurance companies that used to make the state their headquarters. In addition, few firms in New Jersey have large securities departments. On the defense side, New Jersey lawyers appear as local counsel representing defendants, but the lead defense attorneys come from large national firms that are on the preferred counsel lists of insurance companies, particularly AIG, that write the bulk of directors-and-officers policies, he says. Rolnick says filings in New Jersey may be on the rise because the state is rich in industries that are prone to such suits: pharmaceuticals, energy and telecommunications. Profits at drug companies are often driven by a handful of products, maybe a single drug. So when problems develop over claims for those drugs, the stock can plummet sharply, inviting class action suits, he says. “You aren’t going to see that happen with a company like 3M,” whose profits are generated by sales of a vast number of products. “You’re not going to have a problem with sandpaper.” Among the suits on the 2002 list, one accuses Johnson & Johnson of failing to disclose problems with its drug EPREX and another alleges that Bristol-Myers Squibb Co. made false statements about the progress of its drug, Erbitux. On the other hand, suits against Schering-Plough Corp. and Merck & Co. alleged financial fraud. Finally, 2003 may be another big year for filings. The clearinghouse says three cases were filed in January and February, and if the pace continues, the year’s total will be 18.

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