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December 02, 2008


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The limitation on the number of times (5 in 3 years) any single person can serve as lead plaintiff is thankfully subject to the discretion of the judge, who can exempt institutional investors. CalPERS, for instance, regularly gets exemptions from that rule to serve as LP.

That rule was included as a direct response to Milberg Weiss's tactics of using "professional" plaintiffs when it was still a race to the courthouse to get the lead plaintiff role. It is worth noting that it is not only over-inclusive but unnecessary in the end as it turns out those plaintiffs were being paid off - why else would they agree to serve as LP so many times in the first place? - which already is illegal and unethical, and for which Bill Lerach is now in prison.

It is also worth noting that the Lead Plaintiff is not the only entity with the power to reduce agency costs for the class. The court is charged with protecting the interests of the class and must always approve not just the settlement, but the attorneys fees as well.

There is a lot of scrutiny paid to the size of attorneys fees inside and outside the Academy that is generally motivated by politics these days. Big Business has been successful in the last quarter century at deregulating the financial markets and health care, and consumer protection. And after eliminating regulation ex ante they have gone after the lawyers engaging in ex post regulation. The real issue is how to eliminate the need for plaintiffs lawyers by regulating markets adequately, effectively and efficiently. After all, the most efficient engine isn't the one capable of the highest output, it's the best tuned one.

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