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Stanford professor Joseph Grundfest, a hero of the securities class action defense bar but sometimes considered a villain by plaintiffs’ attorneys, is a top candidate to be the next chairman of the Securities and Exchange Commission. Colleagues in Silicon Valley who work closely with Grundfest confirmed Wednesday that he is in the running and considering a transition back to government, where he was an SEC commissioner from 1985 to 1990. “Nobody ever comments on that,” Grundfest said Wednesday. Before being appointed to the SEC by President Ronald Reagan, Grundfest was a senior economist with the president’s Council of Economic Advisers. In 1992 he was named a fellow at the Hoover Institute, and has been named one of the country’s 100 most influential lawyers by The National Law Journal. Grundfest administers the Securities Class Action Clearinghouse Web site at Stanford Law School, where he teaches. He has also testified extensively before Congress and has written several papers on 1995′s Private Securities Litigation Reform Act, which he helped create. Colleagues and even some plaintiffs’ attorneys praised Grundfest. “He’d come in with a very strong understanding of the practical impact of SEC regulations,” said Venture Law Group’s Craig Johnson, who tapped Grundfest to serve on the board of Garage.com. “He has a balanced viewpoint,” said Wilson Sonsini Goodrich & Rosati’s Bruce Vanyo, who worked with Grundfest on the PSLRA. “At a minimum he’s familiar with the issues in the valley.” Even Milberg, Weiss, Bershad, Hynes & Lerach partner Reed Kathrein offered praise. “I consider him a friend,” said Kathrein. “We have our differences but I think that he ultimately has the American economy and the good of the country in mind.” Another plaintiffs’ attorney had a different outlook on the proposition. “The skies have just darkened,” the attorney said. “Oh, my god.” Grundfest, who has been critical of aspects of securities litigation, has not made many friends in the plaintiffs bar. Kathrein said the PSLRA, which has been interpreted by the 9th U.S. Circuit Court of Appeals in ways that make it harder to sue companies for securities fraud, has encouraged company executives to be bolder with stockholder money. Kathrein said it has led to more abuses. “It’s encouraged [companies] because they have all these technical defenses. Joe was a proponent of that.” Grundfest is only one of several candidates to succeed Arthur Levitt as SEC chair. Levitt, who gave a policy speech at Stanford less than a month ago, became a somewhat controversial figure during his tenure as critics panned him as an overzealous regulator. Other candidates publicly mentioned are California Rep. Christopher Cox, R-Newport Beach, and James Doty, a partner in the Washington, D.C., office of Baker Botts. Cox, a Harvard Law School graduate and former partner at Latham & Watkins, has a background in the law and solid conservative credentials. Doty’s case is more intriguing. The Rhodes scholar was general counsel to the SEC from 1990 to 1992 and his firm, Baker Botts, was co-founded by James Baker, the former secretary of state who was the point man for President George W. Bush during the Florida election recounts. At a Federalist Society-sponsored speech Tuesday night, where Grundfest was introduced as a “rock star,” he called for a market-based approach to federal securities cases, opening up the job of lead counsel to the lowest bidder. “The court has a fiduciary obligation to absent members of the class to insure that the class gets the best representation for the best price,” Grundfest said, advocating an “auction” for lead counsel. The controversial process was essentially invented by a friend of Grundfest, U.S. District Judge Vaughn Walker. In it, lawyers and law firms must bid against each other for the right to represent class members in potentially valuable cases, with the lowest qualified bidder winning. “Markets work,” Grundfest said. “Markets for the right to represent a class will also work. “Competition,” he continued, citing his own statistics, “will give you a price … which is roughly half of what the going rate is.” The process has been used in only a handful of cases over the last decade, including the recent price-fixing case against auction houses Sotheby’s Holdings Inc. and Christie’s International. The lowest bidder was the firm led by David Boies, of Napster and Microsoft fame, which won lead counsel status and quickly settled the case for $512 million, pocketing $27 million in fees.

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