Adios Mr. Weiss
Notorious class-action lawyer Melvyn Weiss was sentenced yesterday to 30 months in prison by a Federal District Court judge in Los Angeles. Over four decades he built the biggest powerhouse specializing in suing large corporations for alleged wrongdoing to shareholders. His crime: paying people to serve as "lead plaintiffs" at the ready so he could be the first to file suit, giving him the greatest chance to be lead counsel in a major class action case and reap the largest rewards for his firm.
Paying plaintiffs, of course, is an illegal kickback. Several of Weiss' partners were also convicted, and the firm itself is still under indictment. A class action law passed in 2006 made it harder to bring these cases, which has reduced the overall case load. In the meantime, Weiss personally made over $200 million between 1985 and 2006 and became an active philanthropist and Democratic party fundraiser.
As I reported in my book, at the height of his success in 2005, Mr. Weiss was on the cover of Forbes magazine with the heading, "The most feared man in corporate America." Rumors circulated that associates in his firm rotated spending a week each in front of a Bloomberg screen looking for stocks taking a precipitious drop, which could lead to a lawsuit.
I have heard Mr. Weiss speak several times. There is no question that his eloquent assertions that the "little guy" was being trounced upon by evil management and he was there to protect them were great sound bites. And indeed there were a number of cases where Weiss and his firm took down some serious bad guys.
But I watched too many times where a major class action was brought with no apparent wrongdoing whatsoever - other than a dropping stock price. Some felt it was pure extortion - settle with us or we'll keep you in court for years, etc. Many settled as a cost of doing business. Some fought. Weiss dropped some cases when some fought him too hard.
What does this have to do with reverse mergers and the smallcap market? Everything. Every company considering going public has to take into account the potential negative that being public increases the likelihood of facing lawsuits from shareholders. Our overly litigious society creates this risk and makes it less desirable for some companies to consider taking advantage of the benefits of a publicly trading stock. It also leads some companies, among other reasons, to consider going public outside the United States where the culture is different.
Hopefully the playing field has been leveled a bit in the world of class actions with the fall of Weiss' firm and the new law. The rest will have to wait and see how our US elections turn out in November. But all in all, a positive development for public companies.
Paying plaintiffs, of course, is an illegal kickback. Several of Weiss' partners were also convicted, and the firm itself is still under indictment. A class action law passed in 2006 made it harder to bring these cases, which has reduced the overall case load. In the meantime, Weiss personally made over $200 million between 1985 and 2006 and became an active philanthropist and Democratic party fundraiser.
As I reported in my book, at the height of his success in 2005, Mr. Weiss was on the cover of Forbes magazine with the heading, "The most feared man in corporate America." Rumors circulated that associates in his firm rotated spending a week each in front of a Bloomberg screen looking for stocks taking a precipitious drop, which could lead to a lawsuit.
I have heard Mr. Weiss speak several times. There is no question that his eloquent assertions that the "little guy" was being trounced upon by evil management and he was there to protect them were great sound bites. And indeed there were a number of cases where Weiss and his firm took down some serious bad guys.
But I watched too many times where a major class action was brought with no apparent wrongdoing whatsoever - other than a dropping stock price. Some felt it was pure extortion - settle with us or we'll keep you in court for years, etc. Many settled as a cost of doing business. Some fought. Weiss dropped some cases when some fought him too hard.
What does this have to do with reverse mergers and the smallcap market? Everything. Every company considering going public has to take into account the potential negative that being public increases the likelihood of facing lawsuits from shareholders. Our overly litigious society creates this risk and makes it less desirable for some companies to consider taking advantage of the benefits of a publicly trading stock. It also leads some companies, among other reasons, to consider going public outside the United States where the culture is different.
Hopefully the playing field has been leveled a bit in the world of class actions with the fall of Weiss' firm and the new law. The rest will have to wait and see how our US elections turn out in November. But all in all, a positive development for public companies.
Labels: Musings
posted by David N. Feldman at
6/03/2008 09:17:00 AM
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