NEW YORK, Dec 6 (Reuters) – Bernstein Litowitz Berger & Grossmann and Labaton Sucharow will be the lead law firms in securities lawsuits arising out of Facebook Inc’s $16 billion initial public offering, according to a federal judge’s ruling on Thursday.
The two firms represent a group of state pension funds in North Carolina and Arkansas and other investors that were chosen as lead plaintiffs in proposed class action litigation over the IPO. The investors have accused Facebook of misrepresenting its financial condition in the run-up to the May stock offering.
I wrote in Octobober about Cowell’s cozy relationship with these New York based law firms:
Bernstein Litowitz Berger & Grossmann (Bernstein) is a New York based law firm specializing in securities class action suits. Labaton Sucharow (Laboton) is also based in New York and has the same specialization.
Something else they have in common: Both are donors to Janet Cowell.
Indeed, according to state records, employees of Bernstein have donated nearly $75,000 to Cowell since 2008. For their part, Labaton employees are more recent friends-of-Janet, donating $5,000 last fall. Not coincidentally, Labaton employees have also donated thousands to Arkansas State Treasurer Martha Shoffner – the Arkansas Teacher Retirement System is one of the primary supporting plaintiffs in the class action suit North Carolina’s pension fund is heading up.
This cozy relationship between securities law firms and major public pension fund managers like Cowell is part of a growing national trend, raising questions of political pay-to-play schemes so many citizens have become weary of.
This episode is just the latest in a long line of incidents in which high-priced law firms donate big dollars to state treasurers, and in turn these law firms get rewarded with being lead plaintiffs in class action law suits. If this isn’t a pay-to-play scheme, what is? Why else would New York law firms be so interested in giving tens of thousands of dollars to state treasurers in North Carolina, Arkansas and many other states around the nation? These law firms are the ambulance chasers of the financial world, and politicians like Cowell are all too eager to take their money knowing full well there is expectations of payback.
As I wrote in October:
These law firms have become financial ambulance-chasers of sorts, often sniffing out possible suits on behalf of funds in which the fund managers themselves are unaware of any wrongdoing. According to a quote in the Forbes article, “Even some pension fund officials admit the lawyers, not the funds, guide this class action assault. ‘We don’t go to them, they come to us. They’re simply looking for lead plaintiffs,’ says William Reeves, general counsel to Teachers’ Retirement System of Louisiana, a Bernstein Litowitz client in eight recent suits.”
Whenever you have a politician in control of this much money – in the case of North Carolina’s retirement system it is more than $70 billion – you have tremendous opportunity for pay-to-play schemes. How to solve this problem? De-politicize the retirement system of state employees and teachers and convert them to a 401(k) style retirement plan in which each individual employee owns their retirement funds.