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With huge corporate scandals making headlines almost daily, this could become a boom time for plaintiffs’ securities class action firms. But so far it isn’t. The plaintiffs’ firms have filed fewer suits in 2002 than during the same period last year. They are facing economic and legal obstacles to recovering damages from the widely publicized corporate scandals. And, while they have added some new attorneys to their staffs, this is largely the result of a long-term growth in class action work, not a response to any wrongdoing at Enron, Global Crossing, WorldCom, Arthur Andersen or any of other companies being investigated. Still, some plaintiffs’ attorneys are expecting this soon to become a banner year for their businesses. The plaintiffs’ bar filed 125 shareholder class actions for securities fraud in the first half of 2002, down from 164 in the first half of 2001, according to data from the Securities Class Action Clearinghouse at Stanford University and Cornerstone Research, a litigation consulting firm based in Menlo Park, Calif. But 2001 is not a fair baseline, according to John Gould, vice president of Cornerstone Research. “2001 is a special year,” he said, because that year’s numbers include more than 300 initial public offering allocation cases (suits against underwriters who are alleged to have pumped up stock prices illegally). Those IPO suits were “basically one lawsuit,” said Samuel H. Rudman, a partner at New York’s Milberg Weiss Bershad Hynes & Lerach. They were filed as a “cluster of cases” in order to satisfy the requirements of the Private Securities Litigation Reform Act of 1995 (PSLRA), explained Fred Isquith, a partner in New York’s Wolf Haldenstein Adler Freeman & Herz. Gould said that if you exclude 2001, the number of suits filed so far in 2002 is about standard. From January through June 1998, 111 securities class actions were filed; in 1999, the number was 128; and in 2000, it was 102. Still, with all the recent allegations of corporate wrongdoing, why haven’t the numbers gone up for 2002? Part of the reason is that some firms haven’t yet jumped into the fray. Houston’s Susman Godfrey, for instance, hasn’t filed any suits relating to the ongoing corporate scandals, but “I expect we will be involved in some way,” said name partner Stephen D. Susman. He said his firm’s representation of Enron in its bankruptcy is not the reason his firm has not sued other companies engulfed in scandal. He said his firm is evaluating potential cases. Another major class action firm — San Francisco’s Lieff, Cabraser, Heimann & Bernstein — has filed only in the Enron case. “We don’t normally file on the heels of news reports,” explained Richard M. Heimann, who heads the firm’s securities practice group. “We are actively investigating 12 to 20 potential cases, and we are deciding which cases we want to be involved in and how.” WHO’S THE TARGET? Choosing whom to sue isn’t easy, because it’s not enough to prove that a corporation is liable. “You still have to recover actual dollars for shareholders,” said Isquith. “Some firms had market caps in billions of dollars, but if they go bankrupt, whom are you going to collect from?” Even if a company is found guilty of a billion-dollar fraud, shareholders in a class may recover relatively little because the assets are just not there. Attorneys are searching for deep-pocket defendants, but they are hampered by the law Congress passed in 1995. “The PSLRA makes it difficult to plead to the standards required to go after lawyers and accountants who advised malefactors,” said Heimann. “For instance, it will be very difficult to plead a case against the lawyers who assisted Enron.” Still, one shouldn’t cry too much for these class action firms. Many firms are continuing to hire new attorneys. “It’s a continued steady growth,” said Steven Toll, senior managing partner at Washington D.C.’s Cohen, Milstein, Hausfeld & Toll. He estimated that his firm went from 40 to 45 attorneys in the last year. Susman Godfrey grew from 55 to 65, according to Susman. Milberg Weiss went from 150 to 200 attorneys, according to a spokesperson. Philadelphia’s Berger & Montague added five to six attorneys to expand by approximately 10 percent, according to name partner H. Laddie Montague. Lieff Cabraser and Wolf Haldenstein said they had not grown much in the last year. But many of the firms predict they will have plenty of opportunities to bring new class actions before 2002 ends. “There will be a lot more lawsuits coming up because of the new law that requires senior corporate executives to personally vouch for their corporations’ financial statements,” said Susman. “These executives won’t want to vouch for anything that’s not correct. And they will use this as an opportunity to come clean about questionable financial practices in the past. We are going to have hundreds of restatements of earnings in the next six months. Of course, every time there is a restatement of earnings, there is a lawsuit.” Rudman made a similar prediction: “When more companies restate their earnings later in the year, there will be more lawsuits. There will be many more cases this year than in any other year.”

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