Sent: 5/29/2009 5:42:21 A.M. Central Daylight Time
Subj: email sent to Gov. Riley using online form
The Honorable Bob Riley, Governor
State of Alabama
600 Dexter Avenue
Montgomery, Alabama 36130
Re: Piling on against weakened Alabama businesses
Dear Governor Riley,
There is an egregious piling on that is going on against weakened Alabama businesses that I think you should know about. You may be able to do something about it, and I hope you will. I have previously written Dr. Bronner about the matter, and he should be able to give you his views quickly. Also, I am in the process of contacting "experts" on the subject, and I will pass along to you whatever I learn from them. Further, I will try to publicize this matter by contacting the media.
Let me try to explain the "piling on" that is going on.
Let's say I am an Alabama corporation and that, beginning at a certain point in time, some corporate officers of mine engage in accounting fraud or make misrepresentations about my business condition. While this is going on, my stock price becomes artificially inflated compared to what it would be if the truth were known, and during the period that my stock price is artificially inflated, millions of my shares are bought and sold on the stock exchange by parties who do not know the stock price is artificially inflated. Sellers during this time (call them the "lucky" shareholders) get the benefit of an artificially inflated stock price and walk away with windfall gains totaling possibly hundreds of millions or billions of dollars. The buyers during this period (call them "unlucky" shareholders) have overpaid for their shares by approximately the same total amount of the windfall gains the "lucky" shareholders obtained. At some point, the accounting fraud or the other misrepresentations made by corporate officers become publicly known, and the artificially inflated stock price falls back down to a non-artificially inflated level.
Now for the piling on.
I, as a corporation, have "unlucky" shareholders with real financial losses. I also have "lucky" shareholders who by chance sold my shares and have walked away with windfall gains corresponding to those "unlucky" shareholders' losses.
Who do the plaintiffs' lawyers sue? They sue me the corporation. I, however, don't have the windfall gains in my corporate coffers. In the end, the windfall gains remain in the hands of the "lucky" shareholders who are not before the court, and the lawsuit generates a circular payment that accomplishes a shuffling around of the losses among my shareholders who experienced the losses and also shifting a part of the losses to other of my shareholders who did not have losses (or windfall gain), and also shifts a part to some of the lucky shareholders who had windfall gains but who, by chance, are subject to a some partial reclamation of their windfall gains because they did not sell all their shares. In addition, the shareholder losses in question are more than just shuffled around; they are increased in total by the huge cut taken by the plaintiffs’ lawyers and also by very sizable attorney fees I have to pay to the lawyers who I have to hire to defend me in the lawsuit.
Does the foregoing sound crazy? It is crazy.
And the plaintiffs' lawyers are doing it and getting away with it all over the country. They got nearly a half billion dollars in legal fees from Tyco (see this link about Tyco (http://robertshattuck.blogspot.com/2007/11/november-2007-tyco-class-action.html)), and I learned of two other cases involving Xerox and Monster, Inc. because I received class action notices. See this link about Xerox (http://robertshattuck.blogspot.com/2008/04/letter-to-judge-thompson.html) and this link about Monster Inc. (http://robertshattuck.blogspot.com/2008/11/why-arent-government-retirement-systems.html)
Moreover, these crazy lawsuits are continuing to go on currently, at a time when our economy is in a recession, and businesses and banks are in a weakened condition and struggling to turn things around. The last thing they need is huge class action lawsuits that do nothing more than arbitrarily shuffle around losses in random ways and that divert hundreds of millions of dollars of needed corporate assets in order to pay off plaintiffs' lawyers who purvey this nonsense and to pay defense lawyers to defend against the nonsense.
I am writing you this letter because I learned that in February the plaintiffs lawyers have recently filed one of these cookie cutter class action lawsuits against Colonial BancGroup. See this link about Colonial class action (http://securities.stanford.edu/1042/CNB_01/).
Besides the general concern you as Governor have for Alabama banks and businesses to regain their health and be able to hire Alabama workers, there are also Alabama governmental retirement plans which are very likely invested in corporations and banks, such as Colonial BancGroup, that are having their values reduced by these class action lawsuits.
I hope you will try to take action to stop this "piling on" by plaintiffs' lawyers, particularly at a time when Alabama businesses and banks are in a weakened state, and when assets in Alabama's governmental retirement plans are greatly suffering in value.
3812 Spring Valley Circle
Birmingham, AL 35223