To: jbernstein@labaton.com, rcs@cabaniss.com, pfruin@maynardcooper.com, blatham@bassberry.com, larry.polk@sutherland.com, kevinlogue@paulhastings.com
Sent: 3/5/2013 12:11:29 P.M. Central Standard Time
Subj: In re Regions Morgan Keegan Closed-End Fund Litigation, No. 07-cv-02830 SHM dkv
VIA US MAIL
Clerk of the Court
United States District Court for the Western District of Tennessee
Clifford Davis/Odell Horton Federal Building
167 North Main Street, Room 242
Memphis, Tennessee 38103
Re: In re Regions Morgan Keegan Closed-End Fund Litigation, No. 07-cv-02830 SHM dkv
To the Honorable United States District Court for the Western District of Tennessee:
Procedural
I object to the proposed settlement in “In re Regions Morgan Keegan Closed-End Fund Litigation, No. 07-cv-02830 SHM dkv.”
This objection is preliminary for the reasons that (i) I am endeavoring to obtain assistance from counsel who is more technically proficient than myself, (ii) part of my contentions are advocacy on behalf of a societal interest of deterring corporate wrongdoing, which is contrary to my interest as a member of the plaintiff class, as to which I wish to reserve on the best way to make my contentions, (iii) I am soliciting the defendants to consider my objection and whether they may also advance my contentions in some fashion at this juncture, and (iv) I am making solicitations of non-parties whom I believe have a special interest in the litigation for them to submit their views to the Court on an amicus basis.
By reason of my objection being preliminary at this time, I am sending this objection at this time by U.S. mail to the Court and I am sending it electronically to other persons specified in the Notice.
My name, address and telephone number are Robert Shattuck, 3812 Spring Valley Circle, Birmingham, AL 35223, (205) 967-5586. My closed end fund shares were held in my IRA, and the name shown on the notice I received is MLPF&S CUST FPO ROBERT D SHATTUCK JR IRA. My trading files are voluminous, and I am in the process of obtaining the required purchase trade information.
Background
I have previously objected in class action lawsuits of which I received notice as being in the plaintiff class. I have attempted to register numerous other complaints about class action lawsuits. These objections and other complaints of mine are digested in my blog How To Combat Plaintiffs' Lawyers (URL http://robertshattuck.blogspot.com/).
Many other persons have substantial complaints about class action lawsuits and their settlement, and there are several websites that provide much information in support of those who find much class action litigation objectionable . Among the more noteworthy of these websites are http://overlawyered.com/ and the Center for Class Action Fairness (URL http://centerforclassactionfairness.blogspot.com/ ). Mr. Ted Frank at the Center for Class Action Fairness is very active in filing objections to class action lawsuits, and he has his particular standards, criteria, and legal positions and arguments for trying to make successful objections.
I have my own argumentation that I have been developing in making objections. I don't have Mr. Frank's technical proficiency to know whether I am presenting my arguments in a way that a Court may take them into account in deciding to approve or not approve a settlement and attorney fees.
General statement of objection
There are two large class action lawsuits pending in the Southern District of New York involving "artificially inflated" stock prices created by misrepresentations and non-disclosures, which are similar to this case. I am not a member of the plaintiff class in either of those lawsuits, which are against Citigroup and Bank of America, but I am in the process of filing amicus objections, which can be found on the Internet at URL http://robertshattuck.blogspot.com/2012/11/bank-of-america-draft-objection.html. In those objections, I make a general statement of objection as follows:
This (and other large class action litigation) has a significant adverse effect on the protection of the public from corporate wrongdoing, because of an undue focus of such litigation on entity liability to try to deter corporate wrongdoing. This focus undermines business ethics and diverts corporate and societal resources away from a more effective deterrent of holding individually liable the officers and employees who design and carry out the corporate wrongdoing.There are two points I would like to emphasize.
This adverse effect flowing from the undue focus on entity liability is augmented by insufficient attention being paid to the fact that the litigation mainly seeks transfers of amounts by and among persons in interest who are not culpable of any wrongdoing and is, at bottom, a case of unjust enrichment. Instead of being treated as the unjust enrichment case it is, the litigation is allowed to play up the wrongdoing carried out by the culpable officers and employees, and it improperly makes the same relevant to the how the unjust enrichment involving innocent persons gets resolved. If more attention was paid to the case being about unjust enrichment as between innocent persons, there would be less willingness of the Court to allow entity liability to undermine the protection of the public from corporate wrongdoing.
Further, the innocent persons in this case who have benefited from the alleged wrongdoing are largely not parties to the litigation, they will not be required to pay over their unjust enrichment to other innocent persons who have suffered harm from the wrongdoing, and the transfers among innocent parties in interest who have losses are an arbitrary shifting around of losses of those parties, decreasing the losses of some and increasing the losses of others.
The dysfunctionality of this class action securities litigation is brought into relief by the fact that they are two cases among many similar cases. An innocent shareholder who may have his losses reduced by the settlement in one of these case can, in another case, have his losses increased. All the aggregate losses in all the cases are augmented by the attorneys fees and other costs of litigation. Thus, from the point of view of the investing public, not only are these cases counterproductive in deterring corporate wrongdoing, they harm the financial market place by their arbitrary shifting around of losses that variously lessen or increase the losses of investors from case to case, and that augment the aggregate of the losses by the attorneys fees and costs of litigation.
In exercising its discretion to approve the settlement and attorney fees, the Court should determine whether the interest of the public in preventing corporate wrongdoing is being served or undermined and whether the case is only about unjust enrichment as among innocent persons in interest. and how well or how poorly the settlement does justice in that regard, particularly taking into account that the innocent persons who were unjustly enriched by the wrongdoing are not parties to the litigation and will not be required to disgorge their unjust enrichment, and there is only shifting of losses around among the parties in interest who had losses and the increasing of those aggregate losses.
Attorney fees that the Court approves should presumably have a connection with the value associated with the bringing of the litigation and its disposition. If little or no justice is being done in the case as an unjust enrichment case, if it adds burdens to investors by augmenting losses that are experienced, and if there is no deterrence value to the litigation and it is wasteful of resources and counterproductive to achieving deterrence, the Court should adjust its approval of the settlement and attorney fees accordingly. The higher the attorneys fees that are approved that do not provide value, the more there will be encouragement to the bringing of litigation that is on balance detrimental to the public interest and to the goal of doing justice.
I consider the foregoing general statement of objection applicable to this case, subject to a difference in the cases that is discussed below.
First, I wish the Court to consider the extent to which shareholders of the Closed End Funds who sold during the period of the artificially inflated price were basically lucky and walked away with windfall gains (or windfall avoidance of losses) by reason of the misrepresentation and non-disclosure wrongdoing (i.e., if there had not been the misrepresentation and non-disclosure, the price at which the shares could have been sold would have been lower and the selling shareholders in question would not have had a windfall gain or windfall avoidance of loss). These selling stockholders were not culpable of any wrongdoing in making their sales at the artificially inflated prices. Their windfall gains (or windfall avoidance of losses) were at the corresponding expense of other persons who bought the shares in question at the artificially inflated prices and who were basically unlucky. In considering the foregoing, the Court should ask itself how well the law is working in this situation in which one set of lucky, non-culpable persons (selling stockholders) walk away with and keep such windfall gains and the law is not providing a way for recovery from them of those windfall gains by the second set of unlucky, non-culpable parties (the persons purchasing the shares at artificially inflated prices) who experienced losses corresponding to the wondfall gains obtained by the first set of persons.
If the Court asks the foregoing question, the Court should next proceed to consider, if the windfall gains are not being recovered from the lucky persons who had the windfall gains, then who is being called on to compensate the purchasers for the losses they experienced that correspond to the windfall gains that others walk away with..
Citigroup and Bank of America
In the Citigroup and Bank of America cases, in which selling shareholders will walk away with their windfall gains, the substance is that, if the settlements are approved, there will be a shifting around of losses among the purchasers experiencing losses and also a shifting of losses to other stockholders who had neither windfall gain nor a loss (e.g., stockholders who purchased their shares before the start of the aritficially inflated period and held their shares throughout the entirety of the artificially inflated period).
I have not been able to tell that any of the Court or the parties in the Citigroup and Bank of America lawsuits have endeavored to focus on how the law is operating to allow selling shareholders to walk away with their windfall gains and to shift around arbitrarily the corresponding losses among those who experienced the losses and also aribtrarily shifting losses to other shareholders who experienced neither windfall gain nor experienced losses. My amicus objections attempt to call these circumstances to the attention of the Court and attempts to urge that the Court reflect on the matter and decide whether the same should affect how the Court exercises its discretion in approving the settlements and attorney fees, or not.
Given the arbitrary shifting around of losses that has the effect of increasing the losses of some purchasers and decreasing the losses of other purchasers, there seems to be disparate interests in the outcome of the litigation, even within the plaintiff class, and I don't see how those interests are being adequately receiving representation in the settlement. Corporate management of the defendant banks don't have a personal interest in registering complaint about how the law is operating, as just described, and seems inclined to wash its hands of the matter.
If I was a purchasing shareholder in Citigroup or Bank of America, and I had a loss, I would find it objectionable if the amount of my loss was being arbitrarily increased because my loss was less than that of other purchasing shareholders, and part of their greater loss was getting aribitrarily getting shifted to me and increasing my loss.
The Notices in the Citigroup and Bank of America cases are not very explicit, and can be fairly be called opaque, in describing how selling shareholders are walking away with windfall gains and being allowed to keep the gains and the settlement is largely shifting around the corresponding losses experienced by purchasing shareholders. The authors of those Notices, and the Courts that approved the Notices, presumably think the same is not important to members of the plaintiff class in making decisions about the proposed settlement in those cases. As just stated, I disagree.
The difference in this case
The seeming indifference of the Court and of the parties in Citigroup and Bank of America cases (and of corprate mangement) regarding how the law is operating in those cases as described above comes into relief in the instant case.
In the instant case the Notice does not say which defendants (including the Closed End Funds) are or are not contributing to the settlement fund and how much the respective defendants are contributing. As a member of the plaintiff class, for the reasons indicated above, I believe this is relevant in making a decision about the settlement proposal. By contrast again, the authors of the Notice and this Court which approved the Notice presumably do not think the same is relevant to the plaintiff class.
I searched on the settlement website and found that paragraph 6 of the Stipulation of Settlement provides that RFK and the Morgan Keegan Defendants will pay the required amount into the settlement fund, which I interpret to mean that none of the Closed End Funds will make a contribution to the settlement fund. Also, it appears that no Director Defendants or Officer Defendants will contribute to the settlement fund.
Thus, there is a difference in this case. This case is the same in that sellling shareholders in the Closed End Funds during the artificially inflated period are walking away with windfall gains, and recovery is not being obtained from them for the corrpesonding losses experienced by purchasers of the Closed End Funds' shares. In the instant case, however, there is a difference that there will not be shifting around of those losses among purchasers who experienced losses and a shifting of some losses to other innocent shareholders of the Closed End Funds who experienced neither gain nor loss. In liew of that, in this case the recovery will be from another set of persons not culpable of any of the alleged wrongdoing, to wit, shareholders of RFC and the Morgan Keegan corporate entities.
The shareholders of RFC and the Morgan Keegan corporate entities were not culpable of the wrongdoing and did not have windfall gains or avoid the losses caused by the wrongful misrepresentations and non-disclosures and did not profit from the same, and yet losses are being shifted onto them in the proposed settlement.
This Court should consider how well it thinks the law is working in this case, and, if the Court thinks the law is working poorly, the Court needs to decide how that should affect the exercise of its discretion in approving the settlement and approving attoneys fees, or not.
No deterrent effect
This brings me to the second branch of my objection.
To wit, it is my contention that this class action litigation and settlement have no deterrent effect and are counterproductive to deterring corporate wrongdoing. This contention is laid out at length in my Citigroup and Bank of America objections, which can be found on the Internet, as indicated above, at URL http://robertshattuck.blogspot.com/2012/11/bank-of-america-draft-objection.html. I am not going to copy and paste that argumentation into this objection at this time.
There is a societal interest in effective deterrence of corporate wrongdoing, and advocacy for that societal interest is arguably against the interest of the plaintiff class (including myself as a member of the plaintiff class), to wit, if this litigation and settlement (and other class action litigation and settlements) undermine the deterrence of corporate wrongdoing, it can be argued that the Court should exercise its discretion not to approve the settlement and the attorneys fees, and that might adversely affect recovery by the plaintiff class.
I argue on behalf of the societal interest in effective deterrence of corporate wrongdoing.in Citigroup and Bank of America cases. Other persons and organizations have a special interest in deterring corporate wrongdoing. These include corporate eithcs and compliance professionals, state attorneys general, prosecuting attorneys, regulators (including the SEC and state securities regulators), and corporate management. I have made extensive communications to such persons and organizations to invite them to submit their views about effective deterrence of corporate wrongdoing to the Courts in the Citigroup and Bank of America cases. These communications and responses I have received are compiled in an Appenix A to my objection in those cases, which Appendix A may be found on the Internet at URL http://robertshattuck.blogspot.com/2012/11/bofa-objection-appendix-a.html.
As indicated above, the plaintiff class probably cannot be looked to make argumentation on behalf of the societal interest of deterring corporate wrongdoing. Whether the defendants can or should make argumentation on behalf of such societal interest is something the defendants need to determine. I am making advocacy on behalf of the societal interest, whether on an amicus basis or otherwise. The persons and organizations referred to in the preceding paragraph will make decisions for themselves whether they wish to submit views to a Court.
Ultimately, it it up to the Court to decide, in the exercise of its discretions, whether it will take account of the societal interest of deterring corporate wrongdoing.
Suggestion to the Court
If the Court considers this objection to have possible merits worthy of its consideration, I suggest that the Court request the plaintiffs and the defendants to submit briefs on the issues presented.
Respectfully submitted,
Robert Shattuck (original mailed to the Clerk manually signed)
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