DRI Corporate Counsel committee

From: RDShatt
To: kfreeman@meadowbrook.com, l_henke58@yahoo.com, laura.proctor@lpcorp.com, cbroerman@centurysurety.com, ed.buckles@electrolux.com, kris.carey@us.mcd.com, fulcherkyle@johndeere.com, chris.howard@syngenta.com, glenna.m.kyle@exxonmobil.com, christina.magee@zurichna.com, amass@hanover.com, scnordling@cvty.com, kpihlstrom@onebeacon.com, katrina.reinhardt@dowcorning.com, john_siegart@trg.com, kurt.tandan@adidas-Group.com, clinton.thute@catlin.com, kay.e.tuveson@healthpartners.com, lee.vail@farmersinsurance.com
Sent: 12/12/2009 9:19:13 A.M. Central Standard Time

Subj: Inquiry of DRI Corporate Counsel committee

Ladies and Gentlemen,

In my blog How To Combat Plaintiffs' Lawyers, I record my involvement with several securities law class action lawsuits in which I contend that, if securities purchasers (on the open market) have sustained financial losses by reason of misrepresentations that officers, accountants, and others have purveyed, corresponding windfall gains have accrued to lucky sellers who happened to sell before the misrepresentations became publicly known. Those lucky sellers are not parties to the litigation and walk away with their windfall gains. To extract funds from the corporation for the losses effectively redistributes the losses (increased by plaintiff and corporate defense attorney fees), such redistribution being in somewhat random ways and being made among the unlucky purchasers (some effectively getting their losses increased, some decreased), and also among other securities holders who did not have a loss from the misrepresentation (but wind up with an effective loss because of such redistribution).

I know some would say that inappropriately tries to look too much through the corporate form. Nonetheless the funds for any liability the corporation has to pay could have been distributed to security holders in some pro rata way, and that gives, I think, some legitimacy to the concept of "effective loss".

My inquiry to you is, all things considered, do you agree that the law should make the foregoing redistribution of losses (where lucky selling security holders have walked away with windfall gains and don't have to give those back)? If you think the law should not make that redistribution of losses, do you think there are any valid legal, equitable or procedural arguments that could be made to a court that would avoid or mitigate the amount of such redistribution of losses?

In answering my inquiries, I hope you will take into account your role as corporate counsel and how you view your obligation to protect the interests of security holders in the litigation and advance arguments to the court to try to protect those interests.

If you wish to read my blog posts related to my involvement and objections in securities class action lawsuits of the type in question, see these links: http://robertshattuck.blogspot.com/2007/11/november-2007-tyco-class-action.html (Tyco); http://robertshattuck.blogspot.com/2008/04/letter-to-judge-thompson.html (Xerox); http://robertshattuck.blogspot.com/2008/11/why-arent-government-retirement-systems.html (Monster, Inc.).

I hope I hear from you.

Sincerely,
Robert Shattuck

Also a letter to the Chairman of British Airways

I am also trying to get a letter to Mr. Martin Broughton, Chairman of British Airways, that is similar to my letter to Richard Branson, inasmuch as British Airways is ensnared in the same fuel surcharge class action litigation as is Virgin Airways.

Trying to get Richard Branson's attention

I am trying to get Richard Branson's attention with the below letter:

Mr. Richard Branson
Virgin Atlantic Airways

Re: Air Passenger Fuel Surcharge Litigation

Dear Mr. Branson,

I am writing to you about the ensnarement of Virgin Atlantic in the fuel surcharge class action litigation against it and Biritish Airways that is pending in the district court for the Northern District of California.

First, let me say I have no information or opinion relative to the economic/legal policy merits of the antitrust laws that are applicable to Virgin Atlantic or whether there was any violation of those laws by Virgin Atlantic.

I do, on the other hand, strongly object to private class action litigation such as the Virgin Atlantic fuel surcharge litigation on the basis of numerous social, economic and legal policy grounds. If you are interested I have a blog in which I set out my objections at length. Generally speaking, I am sure you are aware of the strong sentiment against plaintiffs' lawyers in the United States, led in part by the U.S. Chamber of Commerce and its Institute for Legal Reform .

As you are also presumably aware, this parasitical activity of the plaintiffs' lawyers is seeping into the United Kingdom.

I hope Virgin Atlantic's ensnarement in the Northern District of California litigation prompts you to take a more active interest about this subject. If it does, I have some suggestions for you.

First, I have recently agitated the Xerox Board of Directors about their settlement of a class action securities lawsuit against Xerox. You may find more information about this at this link: Xerox If you know any of the Xerox directors personally (the "independent" Xerox directors are Glenn A. Britt, Richard J. Harrington, William Curt Hunter, Vernon E. Jordan Jr., Hilmar Kopper, Ralph S. Larsen, Robert A. McDonald, N. J. Nicholas, Jr., Ann N. Reese, and Stephen Robert), you might want to have a discussion with them about Xerox's ensnarement by the plaintiffs' lawyers.

Second, I have by chance been a member of the plaintiff class in several class action lawsuits, including the Virgin Atlantic fuel surcharge class action litigation. I have written letters to the judges objecting to the legal shenanigans they are overseeing (see Letter to Judge Pauley, Letter to Judge Thompson ), and I will probably write a letter to Judge Breyer in the Virgin Atlantic case. These judges do not and will not pay any attention to me, but they could pay attention to you and Virgin Atlantic. If you are interested, I would suggest you explore with Virgin Atlantic's lawyers how you and Virgin Atlantic can best register objection. (The answer to this could be, as in the Xerox case, don't try to object or resist, because, if you do, Virgin Atlantic will get hammered more by the plaintiffs' lawyers and their cohort judges.)

Third, I see that the plaintiffs' lawyers fees are subject to negotiation with Virgin Atlantic. You might consider that as a venue for registering objection and have Virgin Atlantic take a hard line about those fees because of the social inutility, or disutility, of the work the lawyers do.

If any of the above suggestions appeal to you, please let me know, because I would have additional suggestions to proffer to you.

I hope you consider this letter to you worthwhile.

Sincerely,
Robert Shattuck

Enron; Professor John Coffee

Overlawyered.com had this post about the Enron attorneys fees and Professor John Coffee of Columbia being supportive of fee request.

I sent Professor Coffee the following email:

Subj: Enron attorney fees


Dear Professor Coffee,

I saw you referred to and quoted in a March 17, 2008 entry in overlawyered.com as being supportive of the Enron attorney fees request and to the effect that you often testify for fee requests.

Do you have any writings in electronic form that you could send to me, or are there any books or articles you have written not in electronic form that you could cite me to, in which you lay out your positions and arguments relative to tort reform and plaintiffs' lawyers?

For what it is worth, I am squarely in Walter Olson's camp and have my own blog to show for it. I am interested in finding cogent statements of the case on the other side from Mr. Olson and myself, but have not found much yet. I hope you can help me out.

Thank you.

Sincerely,

Robert Shattuck

I discuss Enron is this blog here.

November 2007- Tyco class action

Just this month I tried to get the following published as an op/ed piece in The Wall Street Journal and other newspapers:


Tyco: On Snookering Clients Out Of $460 Million

So the plaintiffs’ lawyers in the Tyco class action litigation are putting in for $460,000,000 of attorneys fees for their handiwork in shepherding that case through the legal system.

A little thought and analysis will reveal that the end result is wildly disparate treatment of four groups of innocent Tyco shareholders. One group (not represented by the lawyers) is running off with a windfall, that windfall was at the loss and expense of other Tyco shareholders, and the plaintiffs lawyers are achieving a shuffling around of the losses among such other shareholders, decreasing the loss of some of them (maybe even turning it into a gain), and augmenting the losses of others of them. For this work the plaintiffs lawyers want $460,000,000 from the shareholders for whom the lawyers shuffled around the losses (which aggregate losses are increased by said $460 million).

Let’s elaborate:

The gist of the class action lawsuit is that Tyco, some of its officers and directors, its accountants and other defendants allegedly did nefarious things that resulted in the price of Tyco stock being artificially inflated during the period from December 13, 1999 to June 6, 2002 (the “Artificially Inflated Period”). That allegedly caused losses to shareholders who bought Tyco stock during the Artificially Inflated Period. To compensate them, under the settlement agreement, Tyco will pay into the settlement fund $2,975,000,000, and Price Waterhouse will pay $225,000,000. The total settlement fund is then to be distributed to shareholders who bought Tyco stock during the Artificially Inflated Period in proportion to the respective amounts of losses they suffered. For this purpose the settlement agreement sets forth a day by day schedule of the amount by which Tyco stock is deemed to have been artificially inflated as of each day in the Artificially Inflated Period. A shareholder’s loss is basically the amount, according to the schedule, by which the Tyco stock was inflated as of the date on which the stockholder purchased his Tyco stock.

Well, OK.

So what does that result in for Tyco shareholders who have been affected by the allegedly nefarious things that were done?

First let’s take shareholders who bought their stock before December 13, 1999 and sold it during the period from December 13, 1999 through June 6, 2002. They are in luck and have reaped a windfall by obtaining the benefit of a stock sale price that was artificially inflated, and they do not have to return a dime of it to anyone. How much in total is that windfall? It is very likely that no one in the courtroom knows at this time, since it is dependent on identifying beneficial owners in billions of dollars of “street name” transactions during the Artificially Inflated Period. That information is only now being collected through claim forms that shareholders who are claiming losses must submit before December 28, 2007. (The “lucky” shareholders themselves will not be submitting any such information.) In the absence of definite information, it would not be unreasonable to speculate that the total amount of the windfall gain is at least $2,975,000,000, and it could be a lot, lot more, maybe $10,000,000,000, that has been dropped on the plates of the lucky stockholders who purchased their stock before December 13, 1999, sold it an artificially inflated price between December 13, 1999 and June 6, 2002, and who don’t have to return a dime of it to anyone. (It should be noted that this “lucky” group of Tyco shareholders should also be considered to include Tyco shareholders who bought stock during the Artificially Inflated Period at one inflated price and sold it during the Artificially Inflated Period at a higher artificially inflated price.)

The very large windfall that the lucky Tyco stockholders have received and get to keep, whatever the total amount of that is, came out of the pockets of the hapless investors who purchased their Tyco stock between December 13, 1999 and June 6, 2002 at artificially inflated prices. (and who did not get in the “lucky” group by selling it during the Artificially Inflated Period at a higher inflated price than the inflated price they purchased it for).. What happens with the unlucky Tyco stockholders?.

The unlucky shareholders need to be differentiated between those who sold before June 6, 2002 and those who sold after June 6, 2002 (or never sold at all.) Further, consideration needs to given to shareholders who purchased before December 13, 1999 and held their stock the entire time and also stockholders who purchased after June 6, 2002 (the acquisitions in both cases being presumably at non-inflated prices).

Well, Tyco is having to pay $2,975,000,000 into the settlement fund. This payment is coming out of the pockets of all of Tyco’s current shareholders. The portion that comes from shareholders who purchased their Tyco stock between December 13, 1999 and June 6, 2002 and continued to hold their Tyco shares will be paid into the settlement fund, and they will receive in the settlement their calculated share of the fund. That share could be less than or could be greater than their share of the $2,975,000,000 that Tyco pays into the fund, or in other words they may have a net loss or a net gain from the settlement. Further, the individual net gains (or net losses) for each shareholder in this group are not going to be proportionate across the group, but no one in courtroom would be able to know anything definite about this at the current time, and no one may ever bother to find out about it.

Shareholders who bought after December 13, 1999 and sold prior to June 26, 2002 will not contribute anything into the settlement fund, but will receive an amount from the settlement fund and will gain from the settlement.

Finally, shareholders who purchased before December 13, 1999 and who continued to hold their shares, as well as shareholders who purchased after June 6, 2002, and who thus experienced no loss due to the artificially inflated stock price during the Artificially Inflated Period, will receive nothing from the settlement fund but will make a contribution to the settlement fund and hence experience a loss from the settlement.

Wow, there you have it. Four groups of Tyco shareholders who are innocent of any wrongdoing, and four disparate treatments that has not a wit of rationality to it, namely a very lucky group of shareholders who get a huge windfall, a second group who may have a net gain or a net loss from the settlement, a third group that will have a gain from the settlement, and a fourth group that will only suffer an unjustified loss from the settlement.

And further wow: For their participation in shepherding through the legal system the foregoing irrational outcome for the four groups of innocent Tyco shareholders, the plaintiffs lawyers are requesting to be subtracted from the settlement fund $460,000,000 in attorney’s fees for themselves. There is the further cost coming out of the pockets of current Tyco shareholders the legal fees that Tyco has to pay to its attorneys for having represented Tyco. These hundreds of millions of dollars of attorneys fees in no way affect the lucky group of Tyco shareholders who received and get to keep the their multibillion dollar windfall, but the fees may tip a potential net gain into a net loss for the second group of shareholders, they reduce the compensation the third group receives for their losses, and they increase the unjustified loss of the fourth group of shareholders.

Now that is world class client snookering. No two ways about it.

Robert Shattuck
[my address and telephone number]

November 2004 objection to attorney fees.

I was a member of the plaintiff class in a class action lawsuit against Charter Communications in which the plaintiffs' attorneys wanted $8.5 million in fees. I tried to file an objection in November 2004. Here was the document I tried to file:

IN THE SUPERIOR COURT
OF ATHENS-CLARKE COUNTY
STATE OF GEORGIA

EMMA S. TOBAR ET AL,

Plaintiffs, Civil Action File No.SU02-CV-0659-G

v.

CHARTER COMMUNICATIONS
HOLDING COMPANY, LLC, et al,

Defendants


OBJECTION TO SETTLEMENT BY CLASS MEMBER ROBERT SHATTUCK AND REQUEST FOR WAIVER OF OCTOBER 28, 2004 MAILING DEADLINE


I object to the attorneys' fees and attorney costs in the proposed settlement. I request that the October 28, 2004 deadline for the postmark on the mailing of this objection be waived and that the Court consider this objection.

My full name is Robert D. Shattuck, Jr.. My current address and my billing address where I received Charter cable service is _______________________________.

I. The settlement

In this class action against the Charter cable television companies, the class plaintiffs allege that (I) Charter's wire maintenance fee (shown as $3.95 on my most recent monthly bill) was imposed on subscribers without their request or permission and that it was worthless or of lesser value than charged; and (ii) the rental fee for a converter box was imposed only when the boxes had no value and served no purpose. Under the settlement, depending on whether a class member is a present or former payer of the wire maintenance fee or a present or former renter of a converter box, a class member may receive for free one of a number of different possible benefits consisting of (a) one movie channel service for six months, (b) Charter High Speed Internet Service for six months, (c) lowest tier Digital Service for six months, (d) upgrade from Basic Service to Expanded Service for six months, (e) six Video on Demand movies, and (f) six pay per view movies. The settlement notice states that wire maintenance fee customers who believe that they did not voluntarily and affirmatively select this service, may notify Charter and terminate the wire maintenance fee service.

Under the settlement the plaintiffs' lawyers may apply to the Court for attorneys' fees and expenses, to be paid by Charter, and Charter has agreed to pay the same to the extent they do not exceed $8,500,000.

II. The attorney's fees are a perverse incentive that contributes to waste of judicial and other public resources and is counterproductive to important policy considerations

The amount of attorney fees and costs of $8,500,000, which are substantially based on the dollar amount that is at stake in this action, is excessive and a perverse incentive that contributes to and results in wasteful uses of judicial and public type resources and in judgments and settlements that fail to advance, and that in fact undermine, important social and economic policies of trying to lessen questionable, irksome and/or dishonest commercial practices and to provide meaningful compensation to deserving victims.

III. Further statement of reasons for objection

A. Questionable, irksome and/or dishonest commercial practices are very widespread

Charter's practices with respect to wire maintenance fees and converter boxes may have been questionable, irksome and/or dishonest.

In this real world we live in, there is no end or limit to questionable, irksome and/or dishonest commercial practices. Anywhere you turn, you are going to find them, and tens of millions of people are guilty of them. I could spend a day compiling a list and be just at the tip of the iceberg, but I will indicate the gamut by throwing out ten or fifteen examples.

How about this list: doctors who submit Medicaid claims for services not rendered; car repair shops that perform unneeded car repairs; lawyers who pad their time or run up time by throwing excessive legal manpower onto a case; accounting firms that charge their clients the full cost of airline tickets whereas the accounting firm has gotten a significant discount from the airlines; lawyers and accountants who charge a $.50 per page copying charge whereas Kinko's down the street charges $.15 per page; drug companies that nominally charge certain customers a higher price for a drug in order to be able to stick Medicare with the higher price, but then give a rebate to those customers; tree cutters who collect an upfront payment and then do not show up to cut the trees; plaintiffs' lawyers who make large campaign contributions to judges running for elected judgeships; politicians who do not think they are biased by electionx contributions and who think they are ethically superior to insurance brokers who receive "contingent commissions" from insurers and superior to stock analysts who are compensated based on investment banking business received by their employer from the company whose stock the stock analysts are analyzing and superior to doctors who speak at continuing medical education courses about drugs of drug companies that are paying the doctors significant honorariums; "phishers" who try to trick people by phony emails and web sites into revealing credit card numbers, bank information and Social Security numbers; spam emailers who exploit the anonymity of the Internet and burden it with billions of emails that impose millions of dollars of costs to businesses taken up by employee time dealing with spam; BMW automobile dealers that do a touch up paint job on a car and try to pass the car off as new.

I could spend a week expanding the above list to fill many pages. The point is that human nature is human nature and it is human nature to use its God given intelligence to connive and seek selfish advantage, and there are and are going to be for a long time into the future never ending questionable, irksome and/or dishonest commercial activities and practices that take place. Most of us are guilty at one time or another of engaging in such practices, and some more frequently than others, and just about all of us are victims hundreds or thousands of times over in our lives.

B. Trying to curtail questionable, irksome and/or dishonest commercial practices and to compensate victims

Society makes efforts and in various ways tries to alter human nature, to lessen and keep from increasing the quantum of questionable, irksome and/or dishonest commercial activities, and to provide meaningful remedies to deserving victims.

Portions of these efforts are outside of the law and government. Society, including through religious, educational and family institutions, tries to teach and inculcate in its members, ethical and moral standards of behavior. These are not totally successful judging by the questionable, irksome and/or dishonest commercial activities and practices that abound.

In the legal, governmental domain, society uses more coercive approaches. In such domain, there is a more "public" realm and a "private" realm.

The public realm includes the two parallel systems of the criminal law system and the governmental regulatory system that mete out penalties of jail sentences and fines to try to deter citizens from doing things that cause damage to other members of society and that also seek compensation on behalf of segments of the public who have been victims.

The private realm is that of private litigation where an injured private party sues another party alleged to have caused the injury.

In the public realm of the criminal law system and the regulatory apparatus, there are employed hundreds of thousands of police and other law enforcement agents, lawyers, prosecutors, investigators, scientists, researchers, accountants, legislators, judges and other administrative and clerical personnel. These workers first write the criminal laws and governmental regulations that intimately affect both personal freedoms and trillions of dollars of economic commerce. Ongoing policy debate transpires among democratically elected legislative bodies, government regulators, the regulated parties, and affected citizens as to what is cost effective in terms of the costs involved to achieve various levels of safety or protection in the environment, in consumer products, and in the workplace. There are those who advocate that very high levels of costs should be paid in order to achieve very small incremental improvements in the level of safety or protection. Creative ideas get proposed, such as allowing rights to pollute the air to be bought and sold in order to achieve the best cost/benefit results, and some people are appalled by such a notion. Many consumers argue that the regulators are too lax, and industry frequently thinks the regulators are too strict.

These employees also carry out the wide range of activities needed to enforce the law and regulations, including investigating whether violations may have occurred. conducting tribunals to make legal determinations as to whether violations have in fact occurred, and determining and administering sanctions.

A very salient point about criminal prosecutors and government regulators, who are entrusted with the responsibility of acting fairly and judiciously on behalf of the public in carrying out their public realm functions, is that they are not paid based on how much in fines they collect or how much jail time they get people sentenced for or on the magnitude of the dollar cost associated with the regulations they enact or the monetary transfers they obtain for victims or otherwise. The reason for this is that basing compensation in that fashion would have great potential for undermining the fairness and judiciousness with which society thinks criminal prosecutors and government regulators should carry out their public functions on behalf of all of society.

Class action lawsuits are more public than private in nature, by which "private" means where one party alone has a sufficient economic interest to bring the action, and "public" means where no one party alone has a sufficient economic interest to bring the action but, from a collective public perspective, the action is deserving to be brought. They partake of a public character in various ways that is reflected in the terminology "regulation by litigation."

The attorneys fees are in large part based on the magnitude of the dollar amount that is at stake and are very enormous when compared to the compensation of criminal prosecutors and government regulators.

The attorneys fee in this class action, and in many class action lawsuits, are excessive and a perverse incentive that is wasteful of judicial and other public type resources and that results in judgments and settlements that fail to advance, and that in fact undermine, important social and ecoomic policies of trying to lessen questionable, irksome and/or dishonest commercial practices and to provide meaningful compensation to deserving victims.

In fee driven class action cases such as this case, several important things are lost sight of. One is that of individual responsibility, and that, if you really want people to change their behavior and lessen the perpetration of questionable, irksome and/or dishonest commercial activity or practice individuals who design and/or knowlingly implement the same have to believe they will be personally punished and they personally will be made to pay. If, instead, you punish entities and make entities pay, you potentially will likely fail to punish the responsible individual and fail to make the responsible individual pay. To the extent that failure exists, all individual perpetrators and would be perpetrators of questionable, irksome and/or dishonest commercial practices will take note and very likely not be deterred about what he or she does or will do.

Related to the above aspect of seeking to punish entities and making entities pay is the result that frequently innocent individuals (such as employees, customers and stockholders) will bear the cost of the payment and they may be as innocent as the victims themselves. Attorney fee driven class action lawsuits lose sight of that, and the law as an instrument of justice loses respect in the eyes of society.

Fee driven class action lawsuits lose sight of cost/benefit principles, particularly related to whether the result achieved for amount of attorneys' fees that get paid is justifiable compared to other objectives and results that could be achieved with the amount.

C.The waste and counterproductively of the instant class action lawsuit

Let us apply the foregoing discussion to the instant litigation.

The officers and other employees at Charter who designed and knowingly implemented Charter's commercial practice of charging for the wire maintenance fees and converter box rentals in question were probably rewarded in their job positions at Charter for helping Charter get the additional revenues in question. It is doubtful these employees have been or will fired by Charter. These employees possibly will provide input into Charter's future pricing decisions to the effect that Charter will monitor how many customers terminate the $3.95 cable maintenance fee, and, if a lot do, then Charter will raise the regular cable charges accordingly. The employees may put their brains to work on other schemes to increase Charter's revenue. The next scheme they come up with may escape detection, and, if not, at least Charter's revenues will be increased in the short run, good salaries will have been continued to be received, and, just as in the instant case, the Charter employees in question will not be forced to pay anything, so in the case of detection of a future scheme, the employees will again escape scott free.

If and when these employees look for another job, you gain be fairly sure that nothing untoward will appear on their resume from their involvement with the cable maintenance fee/converter box rental practices at Charter, and, in fact, their reputation may precede them and a prospective employer may very well say, "Yes, this Charter employee made a pretty good and clever effort to increase Charter's revenues, and maybe he or she can come up with something good to enhance our company's revenues. In the short run, that could get our company's stock price up and, if we should have worries that we have been too clever by half, we just sell the stock and stick any loss with a hapless purchaser of the stock. In the meantime we and this employee form Charter will draw good salaries for awhile."

That's the story for the Charter employees who thought up and implemented the wire maintenance/converter box scheme.

Who pays and who loses? I don't know how long I have been paying the wire maintenance fee. I know I don't like the monopoly position that cable television companies are sometimes in and that I don't like the periodic increases in the cable charges. I have not investigated the satellite TV alternative. I use DSL for my high speed Internet access. I might get a savings by combining Charter's Internet and cable TV service, but I hear more bad experiences with the cable Internet than I do about the DSL Internet connection. I will say that mentioning DSL means thinking about the very irritating line item charges in my landline and cell phone telephone bills, but I don't want to get started on that.

I doubt if I will bother claiming my benefit under the settlement agreement in question. I will probably get around to inquiring of Charter about terminating my $3.95 wire maintenance fee. I assume if too many people terminate that fee, Charter, in its pricing decisions, will find a way to recoup, and there is a good chance I will wind up paying one way or the other.

The "in kind"benefits under the settlement agreement will probably not cost Charter very much and may even increase Charter's revenues by customers who claim the benefits that are temporary and they decide they like the additional services and start paying for them on a regular basis.

That leaves the $8,500,000 in attorney's fees and costs that Charter is going to pay. That is cash out of Charter's pocket. Charter has its revenue goals and maybe it will find ways to recoup the $8,500,000 out of increased cable charges of which I will pay my share. Who knows?

In my private affairs, I need to look at my many utility bills and all the other commercial transaction documents that come my way and decide whether I am satisfied with the situation. As mentioned, I don't like a whole lot of line items on my telephone bills. If some of them are dishonest, I would like them stopped. But, in my view, the proper way for that to be done is through a properly functioning criminal law and/or regulatory apparatus by a criminal prosecutor or a regulator who is not being perversely influenced by excessive compensation by how much he or she is able to get out of the company making the charge. That would go a long way to convince me that what is being done is fair and appropriate. I have no confidence that what is being done in this class action if fair and appropriate and I think there is a good chance it is a significant waste of judicial resources and it fails to advance, and in fact undermines, desirable objectives.

IV. Summary

Per the foregoing discussion, I believe the $8,500,000 in attorneys fees being awarded in this case, and "my" share of them, are being wasted, are excessive and are a perverse incentive that is wasteful of judicial and other public type resources and that results in judgments and settlements, including this settlement, that fail to advance, and that in fact undermine, important social and economic policies of trying to lessen questionable, irksome and/or dishonest commercial practices and to provide meaningful compensation to deserving victims.

I request that the parties and the Court waive the October 28, 2004 postmark deadline for this objection. My tardiness should be excused by the fact that, as indicated above, my economic interest is not sufficient to warrant the pursuit of this action and I had more important things to do in my private capacity. In my capacity as an interested citizen, however, I consider very important to file this objection and believe the deadline should be waived. If the form of this objection and request, such as line spacing or font size, is deficient and needs to be changed or corrected for the benefit of the Court or counsel in order to be accepted as a pleading the case, I will make such correction and re-serve and re-file.


Dated: November 6, 2004 _____ _____________________
Robert D. Shattuck, Jr.
Tel. no. ______________
Email ____________

I mailed this objection to the court and served this objection on the five Counsel and the Charter counsel listed in the Notice of Pendency of Class Action, Proposed Settlement and Hearing at the addresses listed therein, by depositing a copy of same, postage paid, in the United States mail on November 6, 2004, with their respective names and addresses as shown in said Notice on said envelopes
__________________________
Robert D.Shattuck, Jr.

Enron's smartest guys, crooks, victims and other saps

A book about Enron called The Smartest Guys in the Room has got me trying to figure out who they were, and who were the crooks, victims and other saps in the Enron debacle.

Shareholder and debt holder losses in Enron were tens of billions of dollars and overwhelm other numbers mentioned here. One measure of shareholder loss could be Enron’s highest share price multiplied by the number of shares outstanding, but that would be much greater than the actual aggregate amount that Enron received from all the shares of stock it issued, and it would include gains that shareholders obtained from stock that was bought at one price from Enron and that ran up to the ultimate highest price. Because the total amount of shareholder and bondholder losses by any measure dwarfs other numbers, let’s just put it in the $50 billion to $75 billion range.

Andy Fastow was manifestly a lead Enron crook. He masterminded the hundreds of transactions that were set up between Enron and artificial second parties that underlay the massive accounting fraud, and Fastow engaged in criminal self-dealing by having financial interests in those second parties. The Smartest Guys in the Room indicates that Fastow’s take from his Enron involvement was in the $60 million to $100 million dollar range. Fastow had two underlings who were also crooked and similarly profited. The crookedness of Ken Lay and Jeffrey Skilling is yet to be determined. Their take from Enron was mainly from their compensation and stock options received from Enron. A Forbes March 22, 2002 article states that the aggregate compensation for the top five Enron executives (which included Lay and Skilling) for the years 1996 through 2000 was more than $500 million (based on valuing stock options at the time of their exercise).

The auditors Arthur Andersen were complicit in the fraud. Arthur Andersen’s fees from Enron for the year 2000 were $52 million, and Arthur Andersen’s total fees from Enron may be estimated accordingly, maybe $500 million.

Recoveries of Enron stockholders and bond holders from Enron executives and from Arthur Andersen would seem likely not to exceed $2 billion in total.

Many, many investment bankers were complicit in and aided and abetted Enron’s fraudulent schemes. CNN Money, January 12, 2002 online, says, “In underwriting fees alone, the Wall Street firms earned $214 million and several million more in lending, derivatives trading, and consulting fees from Enron, the Wall Street Journal reported.” This article focuses on J.P. Morgan and further said, “J.P Morgan Chase exemplifies the complicated relationships between Wall Street firms and Enron. J.P Morgan said by underwriting bonds and providing loans to Enron, it was left with a $2.6 billion exposure once the company collapsed.” In other words, J.P. Morgan would seem to have more than a $2 billion net loss from its involvement with Enron.

Recently J.P. Morgan settled all its Enron litigation for $2.2 billion, shortly after Citigroup settled for $2 billion.

Enron was an extremely lucrative and important customer for investment banking firms in Enron’s heyday of 1990 to 2001. The hundreds and thousands of employees of these firms who worked long and hard on Enron transactions and who were complicit in Enron’s fraud did so in order to receive significant amounts of compensation as a result of doing that work, not to mention compensation received by senior management associated with fees that their investment banking firms received from Enron.

In 2002, J.P. Morgan had total net revenue of about $27 billion, that included about $2.8 billion of underwriting fees. Its total compensation expense for 2002, that included the compensation of the above employees and senior management, was about $10.5 billion, and its net income for shareholders was about $1.5 billion for 2002. Total stockholders’ equity at the end of 2002 was about $45 billion.

How then did the stockholders of J.P. Morgan fare from the business J.P. Morgan did with Enron. If the above figure of $214 million of Enron underwriting fees for all Wall Street firms (seeming for all years) is correct, J.P. Morgan’s share might have been in the $100 million range, and some portion of that went to pay the compensation to J.P. Morgan employees and senior management for their Enron related work. On top of that, J.P. Morgan shareholders seem to have a taken a very sizable hit from the $2.6 billion debt exposure referred to above, meaning, after that, the J.P. Morgan shareholders suffered a significant loss from J.P. Morgan’s business with Enron. Then, further on top of that, the $2.2 billion settlement that J.P. Morgan just agreed to will come out of the hide of J.P. Morgan shareholders.

In terms of saps and victims in the Enron debacle, J.P. Morgan’s shareholders seem to qualify. The way it looks to me is that the J.P. Morgan senior management and the investment banker employees, with custody of some $45 billion of J.P. Morgan shareholder equity, went whole hog exploiting the same (including taking on Enron debt) in order to play at the Enron game to obtain underwriting fees and other revenues for J.P. Morgan that justified large amounts of compensation and bonuses for themselves. When the longer term risks materialized (in the form of the Enron debt exposure that J.P. Morgan took on for itself in large part in order to get underwriting business, and the large settlement J.P. Morgan has agreed to pay for the complicity of senior management and its employees in the Enron fraud), the J.P Morgan shareholders were left holding the bag.

In short, I would say, count J.P. Morgan shareholders, along with Enron shareholders and bondholders, as saps and victims in the Enron debacle, possibly to the tune of as much as $4 billion.

Andy Fastow is going to jail and will probably lose his entire take from the Enron fraud. Ken Lay and Jeff Skilling may also go to jail and are also likely to lose much of their takes from Enron. Arthur Andersen has been destroyed by Enron. When all the dust settles, you can’t exactly label any of foregoing as really smart guys, and maybe just as dumb crooks, in the Enron story. Senior management at J.P. Morgan, and the employees there who did Enron work probably cleared $50 million or so in compensation from Enron, and they may have stuck the J.P. Morgan shareholders with upwards of a $4 billion loss, and will keep on their merry way. That’s doing pretty good, and probably puts them in the smart guy category. These guys, however, took some risk in participating in the Enron fraud the way they did, a couple of them may actually go to jail, and given the modest $50 million they may have cleared for what they did, they cannot be put in the smartest guys category.

No, smartest guys in the room award has to go to the plaintiffs’ lawyers. The plaintiffs’ lawyers’ are the enablers of the bad guys at J.P. Morgan who were complicit in the fraud, made off with some of the loot, and stuck the J.P. Morgan shareholders with the Enron bad debt and further stuck the J.P. Morgan shareholders with the $2.2 billion settlement liability for the shenanigans of J.P. Morgan’s senior management and other employees who did the Enron work.

How much of the $2.2 billion extracted from the hapless J.P. Morgan shareholders will the plaintiffs’ lawyers get? $200 million, $300 million? $500 million? Their ideas about transparency for them may keep that hidden. Whatever the fee is that they get for engineering a $2 billion transfer from one bunch of victims and saps to another set of victims and saps, I think you will agree the plaintiffs’ lawyers clearly belong in the smartest guys category.

Besides the amount of the take of the plaintiffs’ lawyers for socking it to the J.P. Morgan shareholder saps, do you know what especially puts the plaintiffs’ lawyers in the smartest guys category?

The answer is: They did it all legally. No risk for them of going to jail; no risk for them of being accused of aiding and abetting fraud. Hell, they weren’t in the room when the shenanigans were going on, just lurking outside, knowing they could count on tricks and shenanigans somewhere, and ready to swoop when saps came in their sights.

Mind blowing fabulous, isn’t it? Absolutely smartest guys, in or out of the room.

And, oh yeh, the Enron and the J.P. Morgan shareholders is not a one time shot for the plaintiffs’ lawyers. There’s also Enron and the Citigroup shareholder saps, WorldCom and who knows what investment banking firm shareholder saps, and HealthSouth and who knows what investment banking firm shareholder saps.

Absolutely smartest guys, biggest take, all legal.

The other guys, Fastow, Lay, Skilling, Arthur Andersen, kind of stupid; and J.P. Morgan senior management and employees, only pikers.

Just blows your mind.

Specific cases I have taken time to write about

In the course of the past couple of years, I have taken the time and effort to write about specific legal cases which I think exemplify egregious exploitation and abuse by plaintiffs' lawyers.

These include Enron, two cases in which I was a member of the plaintiff class in a class action lawsuit, and a current Tyco class action lawsuit.

See label "J. Particular legal cases."