GlobalTort : Commentary from lawyers and experts on mass torts, law, insurance and science

The NYT story is here.  One can assume that day-traders and  hedge funds will be busy shorting bank stocks and otherwise betting on the litigation impacts. 

The key excerpts are:

By NELSON D. SCHWARTZ

• Print
• Comments
• Trackbacks
• Share Link

Hard to believe. Banks do face pressures these days, and B of A is under particular pressure with its stock price down 53%.  But now B of A is responding to generalized blog comments by Henry Blodget (if that name rings a bell, think back to the dotcom bubble and recall that he was sanctioned with a lifetime ban from the securities industry). Stories are here and here, and Henry's take is here. Hopefully B of A's management team can do better.

At present, B of A credit default swaps are becoming expensive and some see a "downward spiral," as described here. Some compare CDS contracts to asbestos, saying both are toxic. There also are economics papers analyzing CDS and related risks of bankruptcy, including the impacts of mass tort risks. See also this paper on hedges, CDS and the financial fiasco. All this takes me back to the days when CDS rates for "asbestos companies" were a major topic. And, even after a chapter 11 filings, investors bet on how reorganization plan outcomes will vary depending on the amount of the estimated liability, as illustrated by this presentation, especially its page 16.

• Print
• Comments
• Trackbacks
• Share Link

Class actions and mass filings raise the stakes for mass tort defendants. Back in the day, before "free fall" descents into chapter 11,  several "asbestos defendants" felt enormous pressures from mass trial proceedings. The names include Cimino, West Virginia's several "mass trials," and the New York Powerhouse Litigation, and at a time, the federal asbestos MDL. 

Today, financial firms face more and more of those pressures from massive financial fraud claims. AmLaw's Litigation Daily includes this new Victor Li story on - and links to - a pair of recent class certification rulings against financial houses. The rulings include Judge Rakoff's opinion explaining his class certification decision against Merrill. Here's a key excerpt from his ruling, at 18:

 "The common questions presented by this case -- essentially, whether the offering documents were false or misleading in one or more respects -- are clearly susceptible to common answers." 

Now the financial houses face major pressures, including media stories which create more stock price pressure. Can a financial house risk appealing and losing?  Can it risk trying a class action trial and losing? Can it risk class-wide discovery and resulting testimony that may be widely publicized? If a case is tried and lost, can it afford an appeal bond?

Financial houses also face the problem arising from the weakest member of the herd. That weakest member of the herd may lose a trial (think any mass tort) or may capitulate and settle (think tobacco litigation). More pressure follows, despite claims that the remaining members of the herd are stronger.

For a recent example of pressure, note this DealBook story on Goldman's stock falling 5% on news that its CEO hired a criminal defense attorney.   

• Print
• Comments
• Trackbacks
• Share Link

Suppose you are a crisis manager worried about your public company's falling stock price due to massive tort claims and/or regulatory changes. As you weigh options and public statements, consider this August 28, 2011 Financial Times article by Phil Davis. Mr. Davis' article  suggests that hedge funds are increasingly seeking out "event-driven" investing, such as taking short or long positions in companies facing mass tort claims or regulatory changes (or engaging in m & a events).

There are various unpleasant realities to "event-driven" investing. One is that crisis managers need to understand that some investors have absolutely no interest in the merits of a business or its defenses to litigation or regulation. Instead, they simply hope to use information better than others to make money as stock prices rise or fall based on perceptions (which may or may not have anything to do with reality). 

Here are some excerpts from the article - the entire article is worth reading:

"Event-driven is one of the least recognised hedge fund strategies and yet, over the long term, 25 per cent of hedge fund assets are allocated to it. Its diversification benefits from mainstream indices are the principal reason for its prevalence in hedge fund portfolios.

Carl Ludwigson, associate director at Paamco, which runs a $10bn multi-strategy fund, says: “We see a move towards more event-driven strategies because they can extract idiosyncratic risk and less market-driven returns.

The event-driven strategy embraces bankruptcies, recapitalisations, spin-offs, asset sales, leadership transitions, litigation and regulatory changes. There are potentially thousands of strands, all of which have little correlation with broad share or bond benchmarks. 

***

The number of investor surveys indicating that event-driven is at the top of many institutional investors’ shopping lists is a clear warning signal that overcrowding will continue. There are even exchange traded funds on the market that replicate the vanilla M&A arbitrage activities of event-driven funds."

• Print
• Comments
• Trackbacks
• Share Link

Here is a different example of how mass tort litigation ends up becoming a media story. In this instance, the media consists of the latest story on Toyota's battles regarding alleged destruction of internal documents in order to avoid the information becoming evidence in rollover cases.

The short version is that after suing Toyota for wrongful discharge, a former inside lawyer has turned over to a federal judge four boxes of documents that are said to support his claim that documents were wrongfully destroyed by Toyota. The judge has ordered the documents to be secured, scanned and coded, and will give Toyota a chance to claim privilege regarding the documents. No doubt plaintiff's lawyers will then assert the crime-fraud exception applies to any otherwise privileged documents. The judge's ruling presumably will be widely reported.

How would you like to be the General Counsel dealing with this situation ? What would you want to know and then what would you decide to do when no one will give you the answers you need ? Much wisdom on the subject of crisis management has been spelled out before by business consultants. See, e.g,, Stop The Presses: The Crisis and Litigation PR Desk Reference. Written by Richard Levick and Larry Smith of Levick Strategic Communications, the book addresses crisis management in general, and its chapters 7 and 8 deal with strategies for dealing with blog stories and other issues that were more or less immaterial as little as 5 years ago. Also potentially relevant is its chapter 9 on the impacts of media related to prosecutorial activity.

• Print
• Comments
• Trackbacks
• Share Link