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In addition, we have fine-tuned our skills to meet the particular needs of clients before securities industry arbitration forums — especially when the decisions reached in these proceedings may have enforcement implications for the client. Several of our partners regularly serve as arbitrators, providing further significant insight into the arbitration process.
One of our partners serves as an arbitrator on the New York Stock Exchange (NYSE) and National Association of Securities Dealers, Inc. (NASD) arbitration panels. Another of our partners has served as a National Futures Association arbitrator on several matters. One of our senior litigators was appointed a “Distinguished Neutral” by the Center For Public Resources, the country’s leading nonprofit alternative dispute resolution organization, and another of our partners has been a member of the American Arbitration Association’s Panel of Arbitrators since 1984.
Our attorneys have handled arbitrations before the NYSE, NASD, Chicago Stock Exchange (CSE), and other forums. We frequently represent securities firms and other clients in arbitrations involving customer disputes, disputes between securities firms, compensation disputes, and employment disputes.
Representative Matters:
HealthSouth Securities Class Action
Ernst & Young
Winston & Strawn represents Ernst & Young (E&Y) in a securities class action pending in the Northern District of Alabama. Stockholders and bondholders of HealthSouth Corporation brought claims against E&Y under Section 10(b) of the Exchange Act and Section 11 of the Securities Act. E&Y was the outside auditor for HealthSouth, whose former officers have pled guilty to artificially inflating HealthSouth's income statement and balance sheet by several billion dollars. The plaintiffs claim E&Y's audit opinion letter to HealthSouth's board of directors, which was included in HealthSouth's Form 10Ks, was materially false or misleading. Winston & Strawn also represents E&Y in an arbitration against HealthSouth relating to E&Y's audit and HealthSouth's inflation of its financial statements. Fact discovery in both of these matters is ongoing.
Thomas G. Ong v. Sears, Roebuck & Co. Inc.
Goldman Sachs & Co.
We represent Bear Stearns & Co., Credit Suisse Securities (USA), LLC, Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Lehman Brothers, and Merrill Lynch & Co., Inc. in a purported securities class action arising from three 2002 debt offerings by Sears Roebuck Acceptance Corp. (SRAC) pending in the U.S. District Court for the Northern District of Illinois. The complaint alleges violations of Section 10b of the Exchange Act and Sections 11 and 12 of the Securities Act against SRAC, its parent, Sears Roebuck & Company, various officers and directors of those companies and the respective lead underwriters of the debt offerings. We successfully moved to dismiss the Section 11 and 12 claims against three of our clients in their entirety, and won a partial motion to dismiss on behalf of two other clients. The court now has preliminarily approved a settlement of all claims in the litigation, with the settlement to be funded entirely by the issuer.
Prime Group Realty Trust Shareholder Class Action
Prime Group Realty Trust
Winston & Strawn represented Prime Group Realty Trust (PGRT) and its controlling shareholder, The Lightstone Group, in a class action brought in Maryland state court by the Series B preferred shareholders of PGRT. The shareholders asserted claims of breach of contract against PGRT and claims of breach of fiduciary duty and unjust enrichment against Lightstone. The shareholders sought to recover a $100 million Liquidation Preference, alleging that this Preference was owed to them as part of the constructive liquidation of PGRT's assets and winding up of its business. In September 2007, the court granted PGRT and Lightstone's motion to dismiss the shareholders' complaint, with prejudice.
Kanter v. Barella, 489 F.3d 170 (3d Cir. 2007)
MedQuist Inc.
Winston & Strawn represented MedQuist, a medical transcription service provider, in a derivative lawsuit asserting a claim for breach of fiduciary duty against our client, its majority shareholder, Philips, and ten current and former MedQuist board members arising from allegations that MedQuist had systematically overbilled its customers for medical transcription services. This action, brought in the District of New Jersey, was one of six class actions filed following a July 2004 press release in which MedQuist announced the findings of an independent review of its billing methods. The New Jersey district court dismissed the derivative suit against MedQuist for failure of the plaintiff to make a demand on the MedQuist board and plaintiff’s inability to plead that the board failed to properly monitor MedQuist’s financial transactions and reporting. The plaintiff appealed this decision to the Third Circuit, which handed down a complete victory for MedQuist, affirming the District of New Jersey opinion dismissing with prejudice the shareholder derivative lawsuit against MedQuist. The appellate court also affirmed the district court’s decision denying the plaintiff the opportunity to replead.
Legg Mason Securities Arbitration
Legg Mason & Co. LLC
Winston & Strawn represented asset management firm Legg Mason in a lawsuit brought by the beneficiaries of three separate trusts alleging breach of contract, negligence, failure to supervise, suitability, breach of fiduciary duty, and misrepresentations and omissions. The claimants sought $6 million in actual damages and an unspecified amount of punitive damages. Prior to his death in 2002, the trustee of the trust at issue had bought and sold well over $50 million of securities. His daughter, a beneficiary of the trust, brought the case alleging that her father never would have invested in such risky securities. After eight days of arbitration hearings, a three-judge NASD arbitration panel dismissed all claims with prejudice against Legg Mason and the broker in charge. The NASD panel ultimately found that the investments were suitable for the trustee’s investment objectives.
Plumbers & Pipefitters National Pension Fund v. Cisco Systems, Inc.
Cisco Systems, Inc.
Winston & Strawn was retained by Cisco Systems, Inc. to act as trial counsel for Cisco and 12 of its current or past executives and directors in defense of a nationwide securities fraud class action filed in the Northern District of California. The plaintiff-class was composed of all those who purchased Cisco securities between November 10, 1999 and February 6, 2001. The plaintiffs alleged that the defendants inflated the price of Cisco stock during the class period by, among other things, issuing overly optimistic earnings forecasts and engaging in improper accounting practices. The lawsuit asserted securities fraud claims in violation of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of 1934, and insider trading claims in violation of Section 20A of the Exchange Act. The plaintiffs sought damages of approximately $6.5 billion. This case was set to go to trial in October 2006. Over the course of our representation of the Cisco defendants, Winston attorneys completed fact discovery—including dozens of depositions—took the lead on expert discovery, and argued summary judgment motions. In December 2006, the case settled for an amount less than 1.5 percent of the damages sought by the plaintiffs.
Securities Exchange Commission v. Heartland Advisors et al.
William J. Nasgovitz
Winston & Strawn was retained to represent William Nasgovitz, president and chief executive officer of Heartland Advisors, Inc., in a civil enforcement action brought by the Securities and Exchange Commission in the Eastern District of Wisconsin. The SEC complaint raised various allegations, including insider trading, related to certain high yield bond funds that were managed by Heartland Advisors in years prior to 2002. On August 31, 2006, the court granted our motion for summary judgment on the Insider Trading claims against Nasgovitz in this matter in an opinion written by Judge C. N. Clevert.
ULLICO Stock Investigation
Ullico, Inc.
Winston & Strawn and Governor James Thompson served as special counsel to ULLICO, a Washington, D.C.-based union-owned insurance company, to conduct an internal investigations into possible insider trading and fiduciary duty violations related to certain ULLICO stock transactions that occurred under its former management. Our attorneys prepared the 138-page confidential "Thompson Report," which was issued to the ULLICO directors and officers and their counsel. ULLICO’s board voted to publicly disclose the report, and Governor Thompson testified before a U.S. Senate panel investigating the matter. After the report was publicly released, ULLICO elected a new board and management team and adopted the corporate governance reforms recommended by our firm.
Morningstar Internal Investigation
Morningstar, Inc.
Winston & Strawn represented Morningstar in a year-long Securities and Exchange Commission investigation related to incorrect data that Morningstar published with respect to a mutual fund that overstated the fund’s returns. After several Wells submissions, the SEC informed Morningstar that it was not proceeding with any action and closed the investigation. Winston & Strawn also represents Morningstar Associates, LLC, a wholly-owned subsidiary of Morningstar, Inc., in investigations being conducted by the SEC, the Office of the New York State Attorney General, and the Department of Labor related to investment consulting services that Morningstar offers to retirement plan providers.
In re Luxottica Group S.p.A. Securities Litigation
Luxottica
Winston & Strawn represented Luxottica Group S.p.A. and its chairman in a securities class action involving our client’s 2001 acquisition of Sunglass Hut International, Inc. (SHI). The suit alleged that Luxottica violated § 14(d)(7) of the Securities Exchange Act of 1934 and the “Best Price Rule” by entering into a consulting and non-compete agreement with SHI’s chairman shortly before Luxottica commenced a tender offer for SHI’s outstanding common stock. After extensive discovery and our submission of a multi-pronged summary judgment motion, the matter settled very favorably for our client.
In re Parmalat Securities Litigation
Grant Thornton LLP
In re Parmalat Securities Litigation, 375 F. Supp. 2d 278 (S.D.N.Y. 2005) (argued) Winston attorneys briefed and argued a successful motion to dismiss on behalf of Grant Thornton LLP in securities litigation arising out of the widely publicized collapse of Parmalat, the Italian dairy conglomerate. The lead plaintiffs alleged that Grant Thornton LLP should be held liable for the actions of its sister firm, Grant Thornton S.p.A., which served as auditor of Parmalat in Italy. The court rejected this theory and dismissed all claims against Grant Thornton LLP.
Aon Securities Litigation
AON Corporation
Winston & Strawn represented Aon Corporation in a securities fraud class action involving claims in connection with the alleged restatement of Aon’s net income for a three-year period. The lawsuit was a consolidation of numerous separate securities fraud class actions that were filed against our client in late 2002. After our attorneys filed a motion to dismiss the case in its entirety, which triggered the PSLRA’s automatic stay provisions relating to discovery, the parties agreed on a settlement which subsequently was approved by the court.
Morgan Keegan NASD Arbitration
Morgan, Keegan & Company, Inc.
Our attorneys defended Morgan Keegan, a national brokerage firm, in a week-long NASD arbitration in Louisville, Kentucky. The claimant was a former client who had been convicted of insider trading by the U.S. attorney for the Southern District of New York. He alleged that he had been misled by his Morgan Keegan broker, and that numerous brokers and clients within the company were involved in the conspiracy. The panel rejected all 20 of his claims of securities violations. Had the plaintiff been successful, it would have opened the door to suits from other clients who had been investigated and/or prosecuted for insider trading.
Isquith v. Caremark International, Inc.
Caremark RX Inc.
We represented Caremark in this suit filed by a Caremark shareholder against Caremark, its former corporate parent, and others. The district court dismissed the complaint on the defendants’ motion, holding that the plaintiff neither purchased nor sold securities when she received Caremark shares in a spinoff. The Seventh Circuit affirmed in a reported decision, Isquith v. Caremark Intl. Inc., 136 F. 3d 531 (7th Cir. 1998).
In re Caremark International Inc. Derivatives Litigation
Caremark RX Inc.
We represented Caremark in this action in Delaware Chancery Court which culminated in a significant decision on the scope of the duty of care. Specifically, the Court recognized the duty of a director to use good faith efforts to assure that an adequate corporate reporting system existed to monitor compliance by the corporation with applicable laws and a defense to breach fiduciary claims where such compliance systems are used by a corporation.
In re Caremark International Inc. Securities Litigation
Caremark RX Inc.
Winston & Strawn represented Caremark International Inc. in three consolidated securities fraud class actions which were filed in federal court in Illinois. The plaintiffs alleged that Caremark failed to disclose what it knew about the scope of a government investigation into Caremark’s payments to physicians. The cases settled in 1997.
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