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A Pennsylvania federal judge has given a New York money management firm — which lost $10 million of its client’s money but none of its own — lead plaintiff status in a securities fraud class action. Cramer Rosenthal McLynn, a group of White Plains investment pros with more than $3 billion under management, caters to wealthy families seeking to increase their capital worth. The reverse happened when Pennsylvania-based Rent-Way Inc. restated its financial picture last year, causing the company’s stock to drop from a high of more than $23 per share to less than $5. Plaintiff’s lawyers say investors lost hundreds of millions of dollars. Angered and worried about its reputation with its clients, Cramer Rosenthal hired San Francisco’s Gold Bennett Cera & Sidener to bring a case against the company and its executives. Earlier this month, U.S. District Court Judge Sean McLaughlin granted Gold Bennett’s motion for lead plaintiff status. “We have never contended that our client has any risk on the underlying investment,” said Gold Bennett partner Solomon Cera. “They do not.” But, Cera said, “on the books of Rent-Way, they were an investor,” because the stock was held in Cramer Rosenthal’s name. To win the coveted appointment, Cramer Rosenthal bested the Florida State Board of Administration, represented by Philadelphia’s Barrack, Rodos & Bacine. “In this case … we find that Cramer’s financial interest is so aligned with its client’s financial interest that the two are synonymous,” McLaughlin wrote. The judge also ruled that Cramer Rosenthal not only had the largest losses — $10.1 million to $6 million for FSBA — but could fulfill the role of lead plaintiff in a class action for the purposes of res judicata. “That was critical,” Cera said. “Otherwise you would be litigating a case that might not end it.” Rent-Way, which rents home entertainment equipment, computers and furniture, announced Oct. 30 that it had launched an investigation into accounting irregularities, suspended its corporate controller and relieved its president and chief operating officer of his duties pending the outcome of the investigation. The results of the investigation have not been announced. Cera, whose small firm litigates in an arena stocked with giants, called the ruling important. “In my view, it eliminates a lot of the political pandering that went in to building the relationship between firms and institutional investors,” he said. “Particularly with these pension funds.” Those public pension funds Cera refers to have become the coveted clients since the Private Securities Litigation Reform Act of 1995 went into effect, favoring larger institutional clients who can control the litigation as lead plaintiffs. Many are administered by elected officials. Not everyone agreed with McLaughlin’s logic. “Just thinking out loud here,” said Wilson Sonsini Goodrich & Rosati partner Leo Cunningham, “but if [Cramer Rosenthal] had invested my money for me, I might have a claim against them, and their interest is in no way similar to their clients.” Cera said the issue was never raised in court. “They were misled just like Joe Blow on Main Street.”

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