The Lawyers Get All the Money – The Clients Get Nothing
For anyone looking for (another) reason to dislike the legal profession, there is this. Following a merger the tradition in this country is for the shareholders of the selling company to sue for some reason or other. Usually the basis for the suit is that somehow the shareholders of the selling company did not get fair value. The basis for the lawsuit doesn’t really matter, the origin of the suit is to generate legal fees for the firm representing the class of plaintiff’s, with some money, of course, left over for the plaintiffs.
But for some law firms the money going to the plaintiffs just gets in the way of money going to the law firms. So it turns out that a Businessweek investigation found that in a large number of cases the settlement proceeds all go to the plaintiff’s attorneys.
In the last two years, 57 investor class actions filed against merging companies settled with court approval. Of those, 40 cases, or 70 percent, included money for plaintiffs’ lawyers and none for clients, according to court data compiled by Bloomberg. The lawyers’ take in those cases: $32.4 million.
Now one might thing that such a situation is illegal. Apparently not. One might think that such a situation is unethical. Apparently not. Here’s the way the scam works.
Two hours and 27 minutes after a Dec. 27 announcement that Ventas (VTR), a Chicago-based owner of senior housing and medical properties, would acquire Cogdell Spencer, the law firm Rigrodsky & Long posted a notice that it was investigating whether directors had shopped for the best price. The notice invited shareholders in Cogdell, a medical building owner in
, to call Rigrodsky & Long for information. Within a week, 11 more law firms posted similar notices. Lawsuits followed. “Every single deal, as soon as it gets announced, websites go up and notices go up on the Internet that this and that plaintiffs’ firm is investigating,” says Jim Woolery,JPMorgan Chase’s (JPM) co-head of North American mergers and acquisitions and a former partner at Cravath, Swaine & Moore. “What they are doing is trolling for plaintiffs.” He adds, “The overwhelming—overwhelming—majority of these cases do not result in any substantive benefit for shareholders.” Charlotte, N.C.
could crack down on this process. And maybe they are doing so with this result Delaware
“Delaware could risk losing its status as the de facto national corporate law court,” according to the study by Northwestern’s Black and law professors at the University of Cambridge and the University of Oxford. One possible factor is that Chancery judges have gotten tougher on lawyers who produce meager results for their clients, lawyers and academics say.
As for the legal profession itself, well it is self regulating, as should be obvious from this news story.