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In a decision laced with criticism of the “lawyer-driven” nature of securities class action litigation, U.S. District Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York has rejected a motion by five law firms to name a group of investors as the lead plaintiff in In Re: Razorfish Inc. Securities Litigation, 00 Civ. 9474 (JSR). The ruling came in a consolidation of 13 securities fraud lawsuits against Razorfish Inc., a Web design and consulting company. The firms involved were New York’s Milberg Weiss Bershad Hynes & Lerach, and Bernstein Liebhard & Lifshitz; Bala Cynwyd, Penn.-based Schiffrin & Barroway; Connecticut-based Scott & Scott; and Washington, D.C.’s Cohen, Milstein, Hausfeld & Toll. They had moved to have a collection of investors they called the “Azimut Group” installed as lead plaintiff in the class action. They also asked that three of the firms, Milberg Weiss, Schiffrin & Barroway and Bernstein Liebhard, be appointed lead counsel, with the other two serving on the executive committee. But Judge Rakoff found the constituents in the Azimut Group — one large financial institution, two smaller day-trading companies and an individual investor — to be far too disparate to be an effective lead plaintiff. And he concluded that such an appointment would fly in the face of the overarching objective of the Private Securities Litigation Reform Act of 1995 — namely that the securities class action arena be transformed to promote client-driven, rather than lawyer-driven, behavior. “The ‘Azimut Group’ is simply an artifice cobbled together by cooperating counsel for the obvious purpose of creating a large enough grouping of investors to qualify as ‘lead plaintiff,’ which can then select the equally artificial grouping of counsel as ‘lead counsel’ and its ‘executive committee’,” Rakoff wrote. Instead, Rakoff ruled that one of the Azimut investors, Fahnestock Asset Management, was the entity with the largest financial stake in the litigation among the plaintiffs that are typical of the class (an alleged loss of $2.6 million), and therefore the sort of lead plaintiff Congress envisioned when it drafted the Reform Act. The judge also appointed the two law firms hired by Fahnestock, Schiffrin & Barroway and Milberg Weiss, as lead counsel. COURTS’ ROLE IN REFORM The consolidated litigation has its origins in a lawsuit filed by Milberg Weiss in December 2000 that charged Razorfish and several of its officers with making false and misleading statements that artificially inflated the company’s stock price between February and October of 2000. Judge Rakoff noted drily in a footnote that numerous complaints were filed within days that essentially copied the original Milbank Weiss complaint verbatim. “One can only wonder whether the edicts of Rule 11, Fed R. Civ. P., were followed in the investigation and drafting of these copycat complaints,” he wrote. “[T]he instant case illustrates,” Rakoff wrote, “[that] securities class litigation continues to be lawyer-driven in material aspects and the reforms Congress contemplated in the Reform Act can be achieved, if at all, only with some help from the courts. “Here, as in many other such cases, most of the counsel who filed the original complaints attempted before filing the instant motions to reach a private agreement as to who would be put forth as lead plaintiff and lead counsel and how fees would be divided among all such counsel.”

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