Rare Securities Class Action Trial Begins
in Years-Old Subprime Case
By Alison Frankel
March 30, 2009
Years before the phrase "toxic assets" became a cliche, the shareholders of a mortgage company called Household International filed a class action in Chicago federal district court, alleging that Household had engaged in "a massive predatory lending scheme" that inflated the company's financials. When the scheme came under scrutiny in 2001, the share price fell by more than 50 percent, according to the shareholders' amended complaint. The case has been kicking around so long that the complaint lists William Lerach of Milberg Weiss Bershad Hynes & Lerach as lead counsel.
This week, trial in the case begins. Michael Dowd of Coughlin Stoia Geller Rudman & Robbins is now lead counsel for the plaintiffs. (The lead plaintiffs are an investment adviser called Glickenhaus & Company and several union pension and benefits funds.) Household, which was acquired by HSBC Finance Corp. after the class action was filed, is represented by lead counsel Thomas Kavaler of Cahill Gordon & Reindel. (Cahill is the third lead counsel in the case, following first Milbank, Tweed, Hadley & McCloy and then Wachtell, Lipton, Rosen & Katz.) Local counsel is Eimer Stahl Klevorn & Solberg. Nate Eimer told the Litigation Daily that trial is expected to last between four and eight weeks.
HSBC told the Litigation Daily in an e-mail statement that it does not comment on litigation. "Household will continue to defend itself vigorously against the allegations in the suit, as it has for the last seven years," the statement said. For more background on the suit, check out Kevin LaCroix's post at D&O diary.
The shareholders say damages in the case could be $1 billion, according to Bloomberg, which reports on the rarity of securities class actions like this one going to trial. Carter Ledyard & Milburn partner Robert Zito told Bloomberg that HSBC was taking "a real gamble....It's a difficult case to try in this financial climate."
On the other hand, there is hope for corporate defendants in shareholder class action trials: In a landmark case in San Francisco federal court in November 2007, Morrison & Foerster brought in a complete defense verdict for JDS Uniphase.