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Lawyers who successfully negotiated a settlement in a securities class action involving mutual funds had their pact approved by a federal judge, but their fee requests were cut in half. On Thursday federal Judge Harold Baer Jr. of the U.S. District Court for the Southern District of New York rejected the fee request of three law firms in a case alleging mismanagement of mutual funds by the Dreyfus Corporation, finding that the lawyers’ efforts did not warrant 30 percent of the gross purchaser settlement amount. Instead of recovering $5.5 million in fees, plus interest, the firms will receive $2.7 million for their work on In re: Dreyfus Aggressive Growth Mutual Fund Litigation, 98 cv 4318. “In my view, 30 percent of a common fund is at the far end of the reasonableness spectrum for securities class actions,” Baer said. “While I am cognizant of the traditional arguments urging high percentage fees in securities class actions … I am not persuaded that meritorious cases would go unlitigated or poorly litigated but for the hope of a 30 percent fee.” The lawsuit alleged misrepresentations in connection with Dreyfus’ Premier Aggressive Growth Fund and its Aggressive Growth Fund between October 1995 and June 1998. The funds, which performed poorly, were managed by Michael Schonberg, who was accused of “front-running” — buying securities for himself before he purchased the same securities for the fund without due regard for the financial fundamentals underlying the securities. After a series of class actions were filed, Baer appointed as co-lead counsel Stull, Stull & Brody; Spector, Roseman & Kodroff; and Shalov, Stone & Bonner. The settlement approved Thursday calls for the defendants to pay $20.5 million plus interest. Judge Baer said that, of the $20.5 million, $18.5 million “would be paid first to administration expenses, attorneys’ fees/expenses and taxes on interest” — with the remainder to be paid to class members on a pro rata basis. The $18.5 million figure includes the $2.7 million in fees approved by the judge. Baer found “the settlement amount, represented to be 24 percent of the trading losses of the class members likely to submit proofs of claims, is an achievement.” On the lawyers’ fee request, Baer said he was joining the growing number of courts in the 2nd Circuit that have adopted the percentage method of calculating fees as opposed to the lodestar method. In the judge’s view, considering the circumstances of the case, the percentage requested was too high, even though the plaintiffs’ lawyers argued there were strong public policy concerns supporting a high percentage recovery. “Frankly, a persuasive argument may be made that prospective class members, having … come to realize that many times the recovery for them is in pennies, may conclude that it’s time to kill the goose and the golden eggs with it,” he said. LITTLE CONTINGENCY RISK In Judge Baer’s view, because all but a few securities class actions settle, there is little contingency risk involved, and there is no shortage of lawyers vying for the role of the lead counsel in these cases. “Moreover, the public policy claim underpinning counsel’s fee request — that plaintiffs’ counsel in securities class actions serve an invaluable sole role — is under sustained attack, particularly since the enactment of the Private Securities Litigation Reform Act,” he said. “In sum, it seems hardly likely that at a time when law schools are minting J.D.’s at an unprecedented rate, quality counsel will forsake worthy securities class actions that do not offer the prospect of a big payday.” Although the lawyers argued that their contingency risk was significant, Baer disagreed, saying that “since plaintiffs had already survived a motion to dismiss and obtained expert testimony on the factual issue of trading losses, loss causation goes to damages, not liability.” When the suit was filed, he said, it was public knowledge that Schonberg was front running, had been placed on leave by Dreyfus, and was the subject of investigations by both state and federal regulators. “The [principal] risk in this case then is not that the plaintiffs won’t recover; rather, that the awarded damages might be less than hoped for,” he said. “In other words, the real risk here was that counsel wouldn’t collect a high premium over and above their time and expenses.” Baer then explained why he chose to reduce the fee request by half. “The determination that 15 percent is a reasonable fee tracks the emerging trend within the circuit of awarding attorneys considerably less than 30 percent of common funds in securities class actions, even where there is a considerable contingency risk,” he said. Howard Longman of Stull, Stull & Brody; Jeffrey L. Kodroff of Spector, Roseman & Kodroff; and Lee Shalov of Shalov, Stone & Bonner represented the plaintiffs. James F. Moyle of Clifford Chance Rogers & Wells represented the Dreyfus Corporation. Laurence Greenwald of Stroock & Stroock & Lavan represented the individual defendants.

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