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Faster Than a Plummeting Share Price, Another Class Action From Lerach

July 03, 1998|WALTER HAMILTON

It didn't take long for Bill Lerach, the reputed king of class-action securities fraud lawsuits, to target Advanced Fibre Communications.

On Tuesday, the Petaluma, Calif.-based telecommunications company warned that its second-quarter earnings would miss estimates because of reduced sales to its main customer and slower business in China. On Wednesday, Advanced Fibre's shares plunged a dramatic 52%.

And on Thursday, as the stock fell another $1.19 to $17.94 on Nasdaq, Lerach filed suit.

Lerach is a partner at Milberg, Weiss, Bershad, Hynes & Lerach in San Diego, the leading law firm in the country that sues companies on behalf of shareholders. Lerach's complaint charges that Advanced Fibre's management, while making "false and misleading statements" that "artificially inflated" the stock in the last year, sold almost 3.7 million shares for $128 million. In their sales, 11 company insiders unloaded an average of 61% of their personal holdings, the suit charges.

"That's a huge, massive insider bailout," Lerach said in an interview.

Erin Mulligan, an Advanced Fibre spokeswoman, termed the suit "an unfortunate development" but declined to comment further.

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The suit itself isn't surprising. Lerach has made a career out of suing companies whose stocks drop sharply, alleging fraud of some sort. But the speed with which it hit is noteworthy, even for Lerach: Of the 175 class-action securities suits filed last year, only 14% came within a week of the period in which the alleged wrongdoing occurred, according to Cornerstone Research, a litigation consulting firm. The Advanced Fibre suit arrived within two days.

Lerach said his firm "worked around the clock" on the suit and that the evidence against the company was "highly incriminatory. . . . I don't have any problem filing this complaint quickly."

The case is one more example of the recent spurt in such fraud suits. About 2 1/2 years ago, Congress passed legislation to stem the tide of frivolous suits in federal court. Critics say most securities class-action suits are meritless and are designed simply to force companies to pay out money in settlements to spare the expense and time of fighting them.

Critics contend that the targeted stocks usually have dropped because the companies were buffeted by normal market forces, not fraud.

The number of federal class action cases dropped immediately after Congress passed the Private Securities Litigation Reform Act in 1995. But the case load has risen again and is on course to greatly surpass the number of suits filed before the law, according to a new Stanford Law School study.

Plaintiffs' attorneys typically keep about one-third of the amounts recovered in these cases.

Yet it's doubtful that the Advanced Fibre case will be resolved any time soon. Before the law, securities class-action cases normally were resolved--by dismissals, settlements or jury trials--within two years. But since the law's enactment the vast majority of cases remain pending because of confusion about the law's practical application.

That obviously isn't stopping Lerach & Co.

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