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special to the national law journal The legal world was abuzz last week about news of the mammoth securities fraud settlement between Wall Street and government regulators. Opinions varied on what the deal means for litigation, but everyone agreed on one piece of advice: Start reading those e-mails. The settlement, announced on April 28, was expected for several months and is the result of a joint investigation by New York Attorney General Eliot Spitzer, the Securities and Exchange Commission, the National Association of Securities Dealers (NASD), the New York Stock Exchange (NYSE) and state regulators. It requires that banks erect a wall between their investment and research divisions and includes $1.4 billion in penalties that will be paid by 10 Wall Street firms and two individual analysts, Jack Grubman, formerly of Salomon Smith Barney Inc., and Henry Blodget, formerly of Merrill Lynch & Co. Investors can get restitution through a $387.5 million fund set up by the investment banks. An SEC-recommended, court-appointed administrator will oversee the fund. For the legal industry, now comes the juicy part-reading the vast trove of documents made public in the settlement that paint a picture of Wall Street’s seedy underbelly in vivid detail. Many of the documents are in-house e-mails that include names of specific employees disparaging various stocks privately while singing their praises to an unwitting public. No new accusations While many lawyers welcome the settlement because it provides a central repository for valuable evidence, a few believe the deal will prompt another wave of securities litigation. Nowhere in the settlement do any banks or analysts admit to actual malfeasance; nowhere does the SEC make any new accusations against Wall Street that plaintiffs’ lawyers haven’t alleged already. “The mere allegations here are no greater than ours,” said Melvyn Weiss, senior partner at Milberg Weiss Bershad Hynes & Lerach of New York. Weiss would know. His firm is neck-deep in litigation against 55 investment banks, as part of the more than 300 complaints pending before Judge Shira Scheindlin of the Southern District of New York. Scheindlin is hearing the complaints, consolidated into one class action. Weiss said he expects to seek damages in “the multiple billions.” But Weiss and others do say the settlement will essentially be a road map for current litigation, so plaintiffs’ lawyers can verify that they haven’t overlooked any useful items during discovery. “This will give them a checklist to see that they have everything,” said Deborah Meshalum, formerly a litigator at the SEC and now a partner at Piper Rudnick’s Washington office. Another possibility is that more analysts will be named personally in various complaints. So far only Blodget and Grubman have attracted attention, but that is likely to change as more and more details are disclosed about which analyst said what to whom. “There’s a very real risk of that,” Meshalum said. The real boon will probably come to lawyers pursuing arbitration cases against Wall Street firms in front of the NYSE or the NASD. Lawyers in those cases have much less leeway during discovery, and may well never have found the e-mails that have now been made public. “This just made it really easy for us,” said Lawrence L. Klayman, a partner at New York’s Klayman & Toskes, which specializes in arbitration cases. His firm has filed more than 200 arbitration complaints against various banks and brokerages, Klayman said, seeking an average of about $900,000 in damages. Klayman expects to see more arbitration cases generally, since investors likely stand a better chance to recoup losses that way than through class actions or individual suits. Even if Wall Street firms set aside billions more for private litigation, he said, the sheer number of wronged investors likely will mean pennies on the dollar for whatever damages might come from a court.

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