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Since the passage of the federal Private Securities Litigation Reform Act of 1995, nearly every case � out of an average of 190 filings per year � has settled. But an unusual thing is happening lately. Six securities class actions have gone to trial in 2005 out of a total of nine such trials involving alleged misconduct after the law took effect a decade ago, according to figures compiled by Bruce Carton, director of Institutional Shareholders Services. Theories differ over the reasons for this year’s spate of trials. But two factors loom large for lawyers on both sides of the securities-related lawsuits: The dollar size of settlements is growing, which has increased defendants’ willingness to risk a trial. And lawyers have become more sophisticated about honing their cases before mock juries. Last year set a record for the value of cases settled � nearly $5.5 billion in total settlement dollars, with seven settlements above $100 million each, including WorldCom’s $2.6 billion partial settlement, according to Cornerstone Research in Menlo Park. The 2004 record will easily shatter this year. In one 48-hour period over the summer, two announced settlements added up to $4.8 billion. First, Canadian Imperial Bank of Commerce agreed to pay $2.4 billion to settle investor fraud claims arising from Enron Corp. One day later, Time Warner Inc. agreed to pay $2.4 billion to settle a class action over its merger with AOL. Michael Tu, a partner in Orrick, Herrington & Sutcliffe’s securities litigation group in Los Angeles, suggests that trials are increasing because settlement amounts are skyrocketing. “It is causing a shift in the settlement landscape and a shift in the way both sides look at a case,” he says. Tu won a defense verdict this year in the Thane International Inc. securities trial in Southern California. Thane, which develops infomercials and direct marketing products, was accused of misleading investors in its merger prospectus. An entire generation of cases that began after the bursting of the stock market’s technology-fueled bubble has reached the point of maturity, surviving dismissal or summary judgment motions, says Tu. That means lawyers and their clients are now having to make decisions about whether to go to trial. At the same time, regulators such as New York Attorney General Eliot Spitzer have become much more aggressive, which generates a lot of discoverable material that plaintiffs can use in their civil suits, adds Tu. Ron Miller, an economist at NERA Economic Consulting in New York, suspects that the cases with bigger market losses are more likely to go to trial because of the cost-benefit analysis. Trials are expensive and a small case is not worth anyone spending all that time or money in court. “My suspicion is that there have been so few of these trials that a few people have gotten the same idea at the same time � it is time to test the waters,” he says. Stuart Grant, a partner at Grant & Eisenhofer, a plaintiffs’ firm in Wilmington, Del., believes that the WorldCom, Adelphia, Global Crossing and Enron scandals have made judges more inclined to sustain complaints than was the case a decade ago. He also says plaintiffs are benefiting from public opinion that is much more skeptical of corporate America. Michael Young, a partner at New York’s Willkie Farr & Gallagher, says he is heartened to see “greater willingness on the part of the defense bar to try cases.” In 1999, Young became the first defense lawyer to go to trial in the wake of the 1995 securities litigation reform measure. Young represented BDO Seidman, a Chicago accounting firm that was absolved of audit-related wrongdoing after a four-week trial. “At the end of the day, this is the main way to establish credibility as a fighter. With settlement demands increasing, I would expect the willingness to go to trial to increase and not be surprised if the trend continues,” says Young. Nicholas Chimicles, a partner at the plaintiffs’ firm of Chimicles & Tikellis in Haverford, Pa., doesn’t think there is a single cause for the uptick in trials. “Each case has its own characteristics. A trend is not discernible,” he says. In 2002, Chimicles won a $184 million jury verdict for 18,000 investors in In re Real Estate Associates Limited Partnerships, a case tried in California’s central district. “Our demand was much higher than the defendant was willing to pay before trial. That’s why it didn’t settle,” he says. Some plaintiffs’ lawyers are simply not prepared to try a case. Instead, says Chimicles, they will string out the litigation as long as they can in hopes that a judge or mediator will force a settlement. “That’s not the way we approach it,” he says. “We get ready for trial.” Pamela A. MacLean is a reporter with The National Law Journal, which is affiliated with The Recorder.

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