By Chad Bray
After six years of litigation, it turns out a union trust fund that is lead plaintiff in a securities-fraud suit never bought the securities at issue in the case.
“That remarkable revelation occurred six years to the day after the filing of the lawsuit,” Manhattan federal judge William Pauley III said in a court order Thursday. The judge dismissed the trust fund as a lead plaintiff, calling the “epic failures” in the case “a cautionary lesson for securities litigators.”
But that wasn’t all. He added: “In retrospect, it was something so obvious that every lawyer in the case should have recognized the problem and reacted immediately. But no one did.”
The judge knocked the plaintiffs and defense lawyers for this issue. “Smith Barney and its attorneys share responsibility for such a fundamental oversight. Astonishingly, defense counsel failed to ask their clients whether Local 649 had invested in any of the Smith Barney funds and, if so, specifically which ones. And Smith Barney was in a perfect position to know,” Pauley wrote in his order.
Smith Barney is represented by Wilmer Hale. The firm declined to comment to the Law Blog.
The lawsuit, filed in 2005, alleges various misrepresentation by an investment advisor for certain Smith Barney mutual funds, which later were acquired by Citigroup Inc. Citigroup has moved to dismiss the litigation.
Stanley D. Bernstein, a lawyer for the firm that represents the union trust fund and the other lead plaintiff in the case, said that the union trust’s account statement indicated it had purchased shares in a Smith Barney fund and the trust signed a certification that it had purchased shares in the fund. That was wrong, he said.
“That’s unfortunate the account statement was wrong,” said Bernstein, of Bernstein Liebhard. “It is what it is. We look forward to moving on and getting past this.”
Bernstein said his firm represents other clients who purchased the securities at issue in Smith Barney funds and thinks it possible another client also may be allowed to serve as a lead plaintiff.