Another Rant on Our Legal System

[legion]

Firm Seeks Lead Plaintiff For Suit Vs GM Over Accounting
DETROIT (Dow Jones)--A national class-action law firm is on the hunt for a lead plaintiff in a suit against General Motors Corp. (GM) over alleged misrepresentation of the company's financial performance in recent years.
Leach Coughlin Stoia Geller Rudman & Robbins LLP issued a press release Thursday saying GM issued "numerous positive statements and filed quarterly and annual reports with the Securities and Exchange Commission which described the company's financial performance." The firm, known for taking on corporations that are under SEC scrutiny or have filed for bankruptcy, said GM's statements "were materially false and misleading."

In 2005, Leach Coughlin has built a reputation going after other embattled companies on behalf of disgruntled shareholders. The list includes Guidant Corp. (GDT), Refco Inc. (RFXCQ), WorldCom Inc. and Enron Corp.

Leach Coughlin points to a GM's revelation in November that it overstated income for 2001 by as much as $300 million to $400 million, which is equivalent to about 50% of the profit it reported at the time. The company said it "erroneously" booked credits from suppliers.

GM's admission came after the market close Nov. 9, which had been a rough day for the auto maker's already-sluggish stock. Shares of GM closed that day down $1.23, or nearly 5%, at $24.63, thanks in part to a Fitch rating cut of GM's debt further into junk status.

GM's accounting trouble comes amid an ongoing probe by the SEC into the auto maker's insurance and pension practices.

The law firm has set its class period for between April 18, 2001 and Nov. 19, 2005. Persons wishing to serve as lead plaintiff must move the court no longer than Jan. 20, the firm said in its release.

The suit against GM punctuates yet another difficult day for the company's stock performance. Shares closed at a fresh 23-year low of $18.64 on Thursday, 2.15% lower than Wednesday's close. The value of the company's stock has declined 55% from its 52-week high.

GM faces a litany of challenges that are contributing to the softening of sentiment among investors. The SEC probe and accounting mistakes currently play second fiddle to bigger publicity issues, including the plight of its top parts supplier Delphi Corp. (DPH), which is a former subsidiary of GM that filed for bankruptcy protection in October. GM is also working to sell controlling stake in its profitable General Motors Acceptance Corp. lending arm in order to improve the unit's bond rating and boost margins.

GM probably deserves to be punished, but that is a criminal matter.

As I see it, the process here should be someone has lost money because of GM's accounting "errors", finds a lawyer, and sues. Here, we have a lawyer that sees $$$ in a lawsuit, and goes hunting for someone to represent. How ass-backwards is that?

[widebody911]

Originally posted by legion
Here, we have a lawyer that sees $$$ in a lawsuit, and goes hunting for someone to represent. How ass-backwards is that?

It's actually more common than you think. I actively traded in dot-coms back in the late 90's, and I still get invitations to join class-action shareholder suits from such distinguished firms as Dewey, Cheatham and Howe.

[onewhippedpuppy]

Originally posted by legion
GM probably deserves to be punished, but that is a criminal matter.

As I see it, the process here should be someone has lost money because of GM's accounting "errors", finds a lawyer, and sues. Here, we have a lawyer that sees $$$ in a lawsuit, and goes hunting for someone to represent. How ass-backwards is that?

It's ambulance chasing, on a larger scale, going after the big fish. Our world would be so much better if we shipped 1/2 of the lawyers to some remote island, make it a modern Australia. The court system is just another form of lottery in this country, the worst part is the judges that hand out huge awards in many of these cases. Just look what huge medical malpractice awards have done to our medical costs.

[Rodeo]

If you steal ten million dollars from someone, the victim will hire a lawyer and sue you for all your worth. If you steal a dollar each from ten million people, no problem! Enjoy your newfound wealth!

That's what you guys are saying. The class action system is not perfect by any means, but abolishing it is an invitation for every shady dealer out there to nick you to death. If the the phone company tacks on fifty cents to your bill ever month, what are you going to do to recover your six dollars at the end of the year?

[Superman]

It's a feeding frenzy. Very common.

In America, wherever there is a potential opportunity for someone to make six or seven or eight figures, scruples go out the window and the race is on. Because that's how you guys like it. Capitalism proponents argue that this self-interest thing is what cures all of society's ills. I don't believe that, but lots of folks do. For now.

[jyl]

Sometimes public companies fiddle the books, which makes their financials look better, which encourages investors to buy the stock, which inflates the stock price, which enriches the executives via their stock options and bonuses. When the fiddling is discovered, the stock falls, the shareholders lose their shirts, but the executives keep their gains.

That company has defrauded the shareholders. Company money has been paid to executives who didn't earn it, and the shareholders' investment has lost value.

Enron, WorldCom, and Tyco are obvious examples.

"Shareholders" means you. I suspect almost everyone on this thread has been hurt by corporate accounting fiddles. If you owned equity mutual funds in a IRA or 401k, it is highly likely that one or more of those mutual funds lost money due to just the three companies named above.

Shouldn't there be some way to punish and deter this behaviour?

You may say the SEC should bring the enforcement actions, but the SEC's resources are limited and it can't actually prosecute that many cases.

We have an incredibly large and complex stock market. We don't have incredibly large budget for the SEC (2005 budget was appx $900MM, about the same as the US Marshal Service, the BATF, the Census Bureau, etc - this makes the SEC a relatively small agency by Washington standards.).

The gap is filled by private enforcement, in other words shareholder lawsuits. These are specifically authorized by federal law, for this reason.

I do think some of the private lawsuits are unwarranted, and that the legal hurdles should be set higher. But, overall, private shareholder suits do play an important role in regulating the stock market.

As for the "lawyer-led" aspect of these suits, how else can it be done? Suppose Enron's fraud cost you as an individual $10,000. How many hours of top-notch securities lawyer time can you buy for $10,000? Maybe 20 hours. You're not able to sue. Institutional investors (e.g. mutual funds) don't usually sue, for different reasons (they don't want to highlight the fact that they lost you money).

[Rodeo]

Well said.

[Mulhollanddose]

Originally posted by Superman
It's a feeding frenzy. Very common.

In America, wherever there is a potential opportunity for someone to make six or seven or eight figures, scruples go out the window and the race is on. Because that's how you guys like it. Capitalism proponents argue that this self-interest thing is what cures all of society's ills. I don't believe that, but lots of folks do. For now.

Marx, Stalin, Lenin, Mao, Pol Pot, Ho Chi Minh, Hitler and Saddam agree with you, Supe....The problem is the solution is more corrupt than the problem. Politicians are less accountable than corporate leadership.

[Tobra]

Exactly who are, "you guys"?

[Dantilla]

Originally posted by Superman
Capitalism proponents argue that this self-interest thing is what cures all of society's ills.

I doubt you can find any capitalist to agree with that. That's greatly oversimplified and exaggerated. Capitalism is a great system, with a few, very few, restraints. Anti-trust laws are good. So are the stock trading laws that were introduced after the great depression to prevent a reoccurance. With no oversight, there would be abuse of the system. Look at what is happening in Russia. The bad elements of society make some restrictions neccessary. Believe me. We have plenty of restrictions in this country!

Oversimplified and exaggerated isn't normally like you, Supe. Once again, though, thanks for making me think.

[lendaddy]

Originally posted by Rodeo
If you steal ten million dollars from someone, the victim will hire a lawyer and sue you for all your worth. If you steal a dollar each from ten million people, no problem! Enjoy your newfound wealth!

That's what you guys are saying.

No, I believe we would all like to see them rot in jail and repay the funds. There is no reason a group of lawyers need to get rich off the crimes of others especially when the true victims get effectively nothing. These things should be handled by the public attorneys.

[jyl]

Originally posted by lendaddy
No, I believe we would all like to see them rot in jail and repay the funds. There is no reason a group of lawyers need to get rich off the crimes of others especially when the true victims get effectively nothing. These things should be handled by the public attorneys.

So how much more are you willing to pay in taxes to fund more federal prosecutors dedicated to securities law violations? Shall we spend $1 billion more on the SEC? $3 billion? Recall that the federal government is already running a huge budget deficit.

[lendaddy]

Originally posted by jyl
So how much more are you willing to pay in taxes to fund more federal prosecutors dedicated to securities law violations? Shall we spend $1 billion more on the SEC? $3 billion? Recall that the federal government is already running a huge budget deficit.

They can cover their expenses from the booty

[cool_chick]

Originally posted by widebody911
It's actually more common than you think. I actively traded in dot-coms back in the late 90's, and I still get invitations to join class-action shareholder suits from such distinguished firms as Dewey, Cheatham and Howe.

I know that firm!

LOL

[cool_chick]

Originally posted by lendaddy
No, I believe we would all like to see them rot in jail and repay the funds. There is no reason a group of lawyers need to get rich off the crimes of others especially when the true victims get effectively nothing. These things should be handled by the public attorneys.

I see what you're saying, and I tend to agree with you; however, in this situation, I tend to think the "fear" of repercussion in the pocketbook would serve as a deterrent for said conglomerate. In other words, if they fear of ALL losing their money via litigation, they may be less inclined to be dishonest....whereas, if we leave it up to the prosecutors, one usually becomes the scapegoat and it's business as usual...

[lendaddy]

Originally posted by cool_chick
I see what you're saying, and I agree to a point; however, in this situation, I tend to think the "fear" of repercussion in the pocketbook would serve as a deterrent for said conglomerate. In other words, if they fear of ALL losing their money via litigation, they may be less inclined to be dishonest....whereas, if we leave it up to the prosecutors, one usually becomes the scapegoat and it's business as usual...

Believe me Ken Lay would have preferred a big payout in a class-action. Jail is a MUCH bigger deterrent than $

[turbo6bar]

Originally posted by Rodeo
If you steal a dollar each from ten million people, no problem! Enjoy your newfound wealth!

I thought this thread was about GM and not the federal government.

[cool_chick]

Originally posted by lendaddy
Believe me Ken Lay would have preferred a big payout in a class-action. Jail is a MUCH bigger deterrent than $

But do you honestly think this deters the company itself from allowing this to happen? Sure it "looks" bad initially....but within a month or two...it's like, Kenneth Lay who?

And it's business as usual again for the company.

That was my point.

[nostatic]

obviously we need to make these capital crimes. Public hanging for corporate malfeasance. Maybe that would slow them down...

[lendaddy]

Originally posted by cool_chick
But do you honestly think this deters the company itself from allowing this to happen? Sure it "looks" bad initially....but within a month or two...it's like, Kenneth Lay who?

And it's business as usual again for the company.

That was my point.

Good grief yes it deterrs them. The CFO's are retiring from firms like it's a fashion statement right now (new accounting laws). They're scared to death of the jail time. Money can be made, jail time is a b1tch.