By Molly J. Bowen
Securities Litigation 101

Initially, participating in a deposition can seem daunting and fraught with peril. But with the proper preparation and support of counsel, the person being deposed, known as the deponent, can overcome these worries and fulfill this important lead plaintiff duty. This article seeks to demystify the process and provide practical guidance for pension funds and other lead plaintiff entities to follow as they prepare for their first deposition.

Process

Depositions are one of the key tools the parties use to obtain evidence. A deposition is essentially a formal interview conducted under oath and transcribed by a court reporter. The attorney taking the deposition will ask the deponent a series of questions designed to learn new information, gain admissions on key issues, and expose credibility issues. Depositions of corporations, government agencies, and other entities including pension plans are referred to as 30(b)(6) depositions, after the Federal Rule of Civil Procedure that governs the process.

In a securities fraud class action, the defendant may request the lead plaintiff’s deposition. The deposition offers defendants an opportunity to test fitness to serve as the lead plaintiff and represent the class. The defendant will send the lead plaintiff a notice identifying the topics the defendant intends to cover at the deposition. The topics typically fall into two categories: (1) lead plaintiff’s investments and (2) lead plaintiff’s oversight of the litigation. In particular, defendants will explore how the lead plaintiff makes investment decisions, oversight of outside asset managers, any contemporaneous knowledge of the alleged fraud, knowledge of the allegations, diligence in monitoring the litigation, and oversight of outside counsel.

Frequently, defendants’ 30(b)(6) notice will seek testimony that is improper, such as a topic that is irrelevant to the litigation, would be excessively burdensome to testify about, or would reveal attorney-client privileged communications. In those situations, your counsel can lodge objections to the notice, negotiate with defendants, and involve the court if necessary to ensure the potential deposition topics are appropriate.

In responding to the deposition notice, the lead plaintiff will have to designate an individual or individuals to testify on its behalf. Sometimes, a lead plaintiff will designate one person to discuss the fund’s investments in the defendant company and a different person to testify on oversight of the litigation. Importantly, the deponent does not need to have personal knowledge or have been personally involved in the underlying events; the entity can educate an individual on the noticed topics so she can competently testify on its behalf.

Preparation In the weeks preceding the deposition, the lead plaintiff and its designated deponents will need to prepare for the deposition. Counsel will guide the preparation which typically includes reviewing a small collection of documents, such as:

• The deposition notice and specific topics of testimony;
• Key case documents, such as the complaint, motion to dismiss decision, class certification opening brief, and any lead plaintiff declaration;
• Documents that the lead plaintiff produced to defendants;
• Documents that the lead plaintiff’s asset manager produced to defendants; and
• Public documents relevant to the litigation, including investment policies, board minutes, or other documentation of the decision to initiate litigation and any news articles or social media statements about the litigation.

It may also be useful for the lead plaintiff designee to review any noteworthy prior court decisions involving the entity, especially any negative rulings regarding the lead plaintiff’s ability to serve as a representative of the class. In addition, if the deponent was not directly involved in the activities likely to be the subject of questions (such as the selection and oversight of outside counsel), they may wish to speak to individuals who were involved in that process or are knowledgeable about it. Finally, the preparation should address anything specific to the case or the lead plaintiff. The lead plaintiff may also wish to coordinate with counsel to practice answering likely questions so they have a sense of the rhythm and a chance to work out some initial nerves. Counsel can also explain why defendants will ask certain questions so you have context to understand defendant’s goals.

The Deposition

At the deposition, the court reporter will swear in the lead plaintiff’s designated deponent and the opposing attorney will ask a series of questions. The lead plaintiff’s attorney can object if they believe a question was improper, but with a few exceptions, the lead plaintiff is required to answer the questions notwithstanding the objection.

To successfully handle the deposition, the keys are to listen carefully to the question that is asked, ask for clarification if you do not understand, leave time for counsel to object, and then answer honestly. While it is useful to bear in mind a question’s likely purpose to avoid stepping into traps, it is not the deponent’s job to try to outwit opposing counsel. Focus on answering the questions and allow your counsel to handle the strategy.

At the end of the defense attorney’s questioning, your counsel can ask you questions. In many depositions, this is unnecessary. But if some testimony was unclear or could be misinterpreted, your counsel may ask you about it to ensure that the record is clear and accurate.

After the deposition, the court reporter will send you the transcript to review. If you believe any testimony has been transcribed incorrectly, you can note the errors to be included with the deposition transcript.

Conclusion

It is critically important to the class that the lead plaintiff participate in the 30(b)(6) deposition and take it seriously, as it is one of a lead plaintiff’s most important responsibilities. Although a deposition may initially seem intimidating or excessively time-consuming, with the appropriate guidance and support from counsel, it can be very manageable.

By Kate Fitzgerald

The government of Rwanda announced on March 24 via The New York Times that Paul Rusesabagina, famed “Hotel Rwanda” human rights activist, political dissident, and winner of the U.S. Presidential Medal of Freedom, had been released from prison after two and a half years. His release came amid U.S. government negotiations and a week after a federal lawsuit brought by his family, whose legal team includes two Cohen Milstein attorneys, was allowed to proceed.

Renowned for his heroic role in sheltering more than 1,200 Tutsis at the luxury hotel he managed in the city of Kigali during the 1994 Rwandan genocide, which became the subject of the movie “Hotel Rwanda,” Rusesabagina, 68, became an outspoken critic of the increasingly autocratic leadership of Rwanda’s President Paul Kagame. His political dissent did not go unnoticed.

As alleged in the family’s U.S. federal complaint, in 2020, Rusesabagina, a Belgian citizen and permanent resident of the United States, was invited to Burundi to speak at churches and with civic leaders about his experiences during the 1994 genocide. He left his home in San Antonio, Texas for a routine trip. While flying to his destination, he was kidnapped. His flight was redirected to Rwanda, where he was arrested and subsequently imprisoned, tortured, and subjected to a sham trial, which resulted in a 25-year prison sentence—essentially, a life sentence, given his age and history of cancer.

As alleged in the family’s U.S. federal complaint, in 2020, Rusesabagina, a Belgian citizen and permanent resident of the United States, was invited to Burundi to speak at churches and with civic leaders about his experiences during the 1994 genocide. He left his home in San Antonio, Texas for a routine trip. While flying to his destination, he was kidnapped. His flight was redirected to Rwanda, where he was arrested and subsequently imprisoned, tortured, and subjected to a sham trial, which resulted in a 25-year prison sentence—essentially, a life sentence, given his age and history of cancer.

The United States was engaged in diplomatic efforts to free Paul Rusesabagina, and formally declared him “wrongfully detained” under the Robert Levinson Hostage Recovery and Hostage-taking Accountability Act.

At the same time, his wife and six children enlisted the services of an international legal team of human rights lawyers, including Agnieszka Fryszman and Nicholas Jacques of Cohen Milstein.

On February 22, 2022, his family filed suit in U.S. District Court for the District of Columbia against the government of Rwanda, President Kagame, and three high-ranking Rwandan officials who planned the kidnapping, alleging the illegal surveillance of the Rusesabagina family, misrepresentation, false imprisonment, and other violations of the federal Electronic Communications Privacy Act, Torture Victim Protection Act (TVPA), and Foreign Sovereign Immunity Act (FSIA).

On March 16, 2023, the Court held that the plaintiffs’ claims could move forward against the three Rwandan officials: Brig. Gen. Joseph Nzabamwita, the Secretary General of Rwandan National Intelligence and Security Services (RNISS); Colonel Jeannot Ruhunga, the head of the Rwandan Investigative Bureau (RIB); and Johnston Busingye, then-Minister of Justice and Attorney General of Rwanda.

One week later, after extensive negotiations with the United States, Rwanda commuted Rusesabagina’s sentence. On March 29, 2023, after two-and-a-half years in captivity, he returned home to his family in the United States.

While nobody outside the Rwandan government can know what tipped the balance in its decision, some observers have given credit to the U.S. litigation, in which the judge had just ruled that defendants could not shield themselves through sovereign immunity.

As detailed by William S. Dodge, U.C. Davis Law professor and member of the Department of State’s Advisory Committee on International Law, in the Transnational Litigation Blog, on March 16,

According to news reports, the United States had been negotiating with Rwanda for months, attempting to secure Rusesabagina’s release. It is telling that the negotiations succeeded just a week after Judge Leon decided that the case could go forward. …the Rusesabagina case shows that human rights litigation can sometimes support rather than hinder U.S. diplomacy. We may never know precisely what finally convinced Rwanda to free Paul Rusesabagina. But the prospect of continuing litigation in U.S. courts and the possibility of ending that litigation must surely have influenced the Rwandan government.

Significantly the District Court found the government officials were not entitled to sovereign immunity and would have to respond to the litigation, including discovery and trial, in the District of Columbia.

The Court agreed with plaintiffs that the two officials from the RNISS and RIB were not entitled to immunity because they were not heads of state, heads of government, or foreign ministers. Nor were they Rwandan diplomats. The Court also determined that the third official, who is presently Rwanda’s High Commissioner to the United Kingdom, although a diplomat, was also not entitled to diplomatic immunity in United States courts given that his function was not affiliated with the United States.

Second, the Court held that the defendants’ conduct of illegally tapping Rusesabagina’s family phones in the United States and fraudulently inducing him to leave the United States on a trip he thought would take him to Burundi met the minimum contacts with the United States criteria to fulfill the Fifth Amendment’s due process clause.

In addition to Cohen Milstein attorneys Fryszman and Jacques, the Rusesabagina family’s legal team included Steve Perles and Edward MacAllister from the Perles Law Firm and Brady Eaves of the Eaves Law Firm.

Cohen Milstein is delighted to have been of service to the Rusesabagina family. We are also appreciative of the industry recognition for our work, including being named to The American Lawyer’s Litigator of the Week—RunnersUp and Shout Outs.

Late last month, the United States Court of Appeals for the Seventh Circuit revived an Employee Retirement Income Security Act of 1974 (“ERISA”) lawsuit by participants in two Northwestern University’s 403(b) retirement savings plans. Following guidance from the Supreme Court’s 2022 Hughes v. Northwestern decision, a three-judge panel reinstated two of the seven original ERISA claims against Northwestern, which administers approximately $5 billion in assets in the two plans. Specifically, the three-judge panel reconsidered three claims by participants regarding breach of fiduciary duties: “that Northwestern (1) failed to monitor and incurred excessive recordkeeping fees, (2) failed to swap out retail shares for cheaper but otherwise identical institutional shares, and (3) retained duplicative funds.” On March 23, the Appeals Court ruled the first two claims could proceed. The revival of these claims could result in more litigation about fiduciary decisions made by retirement plans. The decision will directly affect Taft-Hartley retirement plans, which are subject to ERISA; it also offers reminders of how all pension plan officials should carry out their fiduciary duties to participants.

As background, in August 2016, participants filed suit against Northwestern’s two retirement plans alleging seven different ERISA violations, including violations of duty of prudence, ERISA-prohibited transactions, and Northwestern officers’ failure to monitor fiduciaries. Among the seven claims, two are especially worth mentioning given their applicability to all types of pension plans.

First, participants claimed a breach of fiduciary duty by Northwestern because of excessive recordkeeping fees. Participants asserted Northwestern paid four to five times more for recordkeeping fees by using an uncapped revenuesharing arrangement. According to plaintiffs, Northwestern should have reduced its expenses by combining two recordkeepers into one and leveraging its larger size to bargain for fee rebates. Second, participants alleged a breach of fiduciary duty by Northwestern because it failed to monitor the plans’ investments. Here, participants argued the plans held too many funds that resulted in confusion among participants and generated additional expenses. Like the first claim, plaintiff argued Northwestern should have leveraged its size to bargain for replacing retail shares for lower-cost institutional-class shares of the same funds.

In May 2018, a federal district court judge dismissed the case. In March 2020, the Seventh Circuit affirmed the district court’s dismissal. But in January 2022, the Supreme Court unanimously vacated the Seventh Circuit’s decision and remanded the case back to the district court. In a brief six-page opinion, Associate Justice Sonia Sotomayor reaffirmed and applied the Supreme Court’s holding from its 2015 Tibble v. Edison decision. Her opinion held that courts must determine whether participants alleged a violation of the duty of prudence as set out in Tibble. As part of its inquiry, courts must determine whether a plan fell short of its fiduciary duty by failing to routinely monitor investments and recordkeeping costs and remove imprudent investments or recordkeepers within a reasonable time. The Supreme Court also rejected the Seventh Circuit’s reliance on the so-called “categorical rule” where “providing some low-cost options eliminates concerns about other investment options being imprudent.”

Although Hughes v. Northwestern arises from ERISA law that does not directly apply to public pension funds, the most recent Seventh Circuit opinion remains highly instructive for those pension funds because ERISA reflects relevant trust law and the common law that is applicable to all pension plans. As such, ERISA provides guidance for and is a standard for public pension plan conduct. Specifically, the Seventh Circuit’s decision to revive two breach of fiduciary duty claims against Northwestern provides two key takeaways for all retirement plan fiduciaries, regardless of whether they are subject to ERISA.

First, pension funds should establish and follow processes governing their investment plan and carefully document such processes. The Hughes opinion states that “courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.” The language from Hughes is a reminder that pension plan fiduciaries should create and adhere to procedures when evaluating investment options and recordkeepers. Furthermore, such processes should be well-documented. It’s important to remember that a duty of prudence requires fiduciaries to follow a standard of conduct, not outcome. In other words, the courts will not judge pension plans by the results of their investment decisions, but by the process to reach such decisions.

Second, a pension plan that maintains large numbers of investment options, including low-cost options, could still violate its fiduciary duty. In Hughes, the Supreme Court stated the Seventh Circuit erred by focusing on the fact that Northwestern’s savings plans offered different funds, including low-cost index funds. The Supreme Court then stated that “plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options.” The Hughes decision is a reminder that pension plans should routinely review their investment funds and remove poorly performing funds. In the event pension plans elect to keep funds with higher fees, they should again document the process and state the reasons for doing so.

With EY declining to break up its consulting and auditing practice, investors are left to navigate a field of potential landmines in the enormous roster of clients that the Big Four boasts, in an industry that’s perceived as increasingly untrustworthy, says Cohen Milstein’s Laura H. Posner.

Alarm bells are ringing for investor protection advocates following the news that EY is abandoning its plan to split its consulting and auditing businesses, known as Project Everest. The high-profile failure sets a bad precedent for other Big Four firms to take on similar splits, despite the dire need for greater auditor independence in an industry that’s perceived as increasingly untrustworthy.

EY, Deloitte, KPMG, and PwC play an essential role in keeping financial markets intact and providing a bedrock of trust for investors in the prospects of a company. That bedrock has been eroded in recent years, as these firms have grown massive and employ consulting arms that often consult for the very same firms they’re auditing.

This trend has laid bare a mountain of conflicts of interest concerns borne out in recent lawsuits exposing the lengths auditing firms will go to cover up for their consulting clients. Securities lawsuits and regulatory agencies have exposed abject failures to provide effective and honest audits, but given the global reach of the Big Four, they likely are only the tip of the iceberg.

Now that EY has deserted any plans to assuage these concerns through a thoughtful split, it’s created a contentious environment for other firms to pursue well-advised efforts to separate their business lines. Investors are left to navigate a field of potential landmines in the enormous roster of clients that the Big Four boasts, where auditor independence is understandably in question.

Read the complete article on Bloomberg Tax.

In February 2023, the Centers for Disease Control and Prevention released an alarming report revealing that nearly 3 in 5 U.S. teen girls felt persistently sad or hopeless in 2021 —double that of boys, representing a nearly 60% increase and the highest level reported over the past decade.

Takisha Richardson penned a list of 3 things you can do to help a girl exhibiting the signs of sadness, depression or hopelessness.

1. Pay Attention

If you notice drastic changes in your teen’s behavior, approach her gently to find out what’s going on.

2. Be Approachable

Don’t overreact. In lieu of being critical or judgmental, provide a listening ear and help get your teen to the appropriate professionals for help.

3. Avoid Denial

Don’t tell yourself your teen is just going through a phase. Trust your gut and what you know about your teen. At the first sign of change or trouble, delicately approach your teen to try to get insight and help.

Takisha Richardson is a member of Cohen Milstein’s Sexual Abuse, Sex Trafficking, and Domestic Violence team, a former Assistant State Attorney, and Chief of the Special Victims Unit of the State Attorney’s Office for Palm Beach County, Florida.

The Treasury Department has a rare opportunity on its hands. Significant changes to its anti-money-laundering whistleblower program have the potential to cripple money-laundering networks by altering the landscape for financial services professionals. The question is — will it work in practice?

The answer depends on how the Treasury implements these new laws and if the program will provide sufficient incentives to ensure that whistleblowing is both confidential and financially rewarding.

The AML whistleblower program was created in 2020, though the Treasury has not yet issued regulations to specify exactly how the program will work. With amendments added in January, the program’s significant potential to aid law enforcement is far more viable. These new amendments require the government to pay whistleblowers a minimum award and establish a dedicated fund for the payments of those awards. Today, an eligible whistleblower who provides the Treasury or Department of Justice with information that leads to an AML enforcement action and monetary recovery of over $1 million is entitled to an award of at least 10% and up to 30% of the recovered amounts.

A recent history of enforcement actions illustrates the substantial value this updated whistleblower program could produce for both the government and financial professionals who blow the whistle on AML violators.

On Jan. 5, Danske Bank was ordered to forfeit over $2 billion after admitting that it failed to report to the Financial Crimes Enforcement Network that it used U.S. banks to process at least $160 billion of funds obtained at its Estonia location with little to no oversight by AML compliance programs. If a whistleblower had brought this information to the government’s attention through the AML whistleblower program, he or she could have received a minimum award of $200 million.

Coinbase reached a $100 million settlement in January 2023 with the New York State Department of Financial Services for failure to develop a functional compliance program, problems with customer due diligence programs and lack of screening required by Treasury’s Office of Foreign Assets Control. A qualified whistleblower here could have received at least $10 million.

In October 2022, Bittrex, an online crypto exchange platform and a virtual-asset service provider, was assessed a $29 million penalty by Fincen for failure to maintain an effective AML program and to effectively address virtual-asset risks, including failure to monitor anonymity-enhanced cryptocurrencies, transactions from sanctioned jurisdictions subject to OFAC, and exposing U.S. financial systems to darknet markets and ransomware attackers. The minimum whistleblower award in this scenario could have totaled nearly $3 million.

Individuals with information about AML violations are a valuable resource for prosecuting money laundering violations. It’s clear from these and other examples that AML violations are widespread, and whistleblowers can play a role in stopping them in the future, while being rewarded for their actions.

A successful whistleblower program communicates clear rules to whistleblowers to provide financial incentives for coming forward, and provisions to protect the confidentiality of their whistleblowing. The Treasury need look no further for a great example of a modern-day whistleblower program than at its sister federal agency, the Securities and Exchange Commission. Since it was established in 2010, the SEC’s whistleblower program has received tips that have led to over $6.3 billion of recoveries and the payment of over $1.3 billion in awards to over 300 whistleblowers.

The AML amendments importantly provide that a whistleblower who meets all the criteria for an award is entitled to receive at least 10% of the monetary recovery from an enforcement action and can receive up to 30% of that amount. But rules to describe how the award will be determined within that range have yet to be developed. The Treasury should follow the lead of the SEC and issue regulations that list the factors it will consider in determining an award percentage, such as the nature and quality of the information provided, the importance of the action to the agency’s enforcement priorities, and whether the whistleblower facilitated or impeded the agency’s investigation.

The Treasury should also consider making it crystal clear, as the SEC recently did, that it will not use a large monetary recovery as a reason to lower the award percentage that a whistleblower would otherwise receive. This rule is critically important to ensure that whistleblowers who have information regarding the most damaging frauds are fully incentivized to participate in the program.

Read BankThink: Treasury Should Model New AML Whistleblower Rules on SEC’s.

With the head-snapping implosion of Silicon Valley Bank and cryptocurrency lenders Signature and Silvergate Bank, amidst speculation of independent auditor complicity, this past week, it feels like 2008 all over again.

Only this time, we’re in a post-Dodd-Frank world and Barney Frank is on the board of Signature.

Recession seems all but certain, as the Fed is still expected to push interest rates higher by a 0.25 percentage point later this March, despite the recent run on the banks.

In many parts of the country and industry sectors, it’s already here—from layoffs in the tech sector, which experienced over 95,000 job losses in 2022, up by a whopping 649% from 2021 according to the Challenger Report, a tumbling housing sector, and stalling retail and manufacturing sectors.

In a shrinking economy a few things are certain, as history seems to repeat itself— recessions generally reveal frauds that were previously concealed by rapid growth and fat profit margins, as suggested by Warren Buffet’s famous quote: “When the tide goes out, you see who’s swimming naked.”

Since the 1980s, a recession has occurred on average every six to eight years. In addition to uncovering fraud, recessions have been a catalyst for lawmakers and regulators to re-assess corporate governance reform, the integrity of free markets and investor protections in hopes of protecting investors and the economy from malfeasance.

Notable recessionary reforms to mitigate malfeasance and fraud include the Sarbanes-Oxley Act (SOX) and the Dodd-Frank Act. SOX is the direct result of the ending of the “irrational exuberance” in the stock market—as U.S. Securities and Exchange Commission Chair Alan Greenspan coined it in 1996—which foretold the 2001 implosion of the dot.com bubble, as well the revelation that Enron was cooking its books with the help of its auditor, Arthur Andersen.

Dodd-Frank was borne from the subprime mortgage crisis, which flowed into the Great Recession of 2008, and the cascade of revelations of malfeasance from insider trading and fraud at Countrywide, one of the largest subprime mortgage issuers at the time, to the downfall of Bear Stearns and Lehman Brothers. Published in July 2010, Dodd-Frank also addressed the May 2010 flash crash, which erased almost $1 trillion in market value in U.S. stock markets.

One can only speculate that the irrational exuberance in highly unregulated cryptocurrencies and the spectacular collapse of FTX and Alameda Research and technology related frauds like Theranos and Nikola—and the looming government investigations into potential bank-related fraud and improprieties carried out by SVB, Signature, and Silvergate and their auditors—are a preview of schemes that will be hallmarks of the 2023 recession.

This may also, again, result in various regulatory reforms—including increasing safeguards on banks the size of SVB and Signature.

Despite reforms and regulatory patches, Congress and regulators can never seem to keep up with the constant flow of fraud and malfeasance.

This is where investors play a critical role.

Investor Impact

In their efforts to recoup losses, investors can play a key role to hold banks, market makers and other bad actors accountable through civil litigation.

Recessionary fraud has had a staggering impact on investors. The Great Recession, the worst U.S. economic disaster since the Great Depression, wiped out nearly $8 trillion in value in the U.S. stock market between late 2007 and 2009. While the Department of Justice was able to extract $200 billion in civil fines and penalties from culpable financial institutions, little went to investors.

Through private litigation, specifically securities class actions governed by the Private Securities Litigation Reform Act (PSLRA), investors were able to recoup not insignificant losses from banks, mortgage lenders and other complicit financial entities.

For instance, of the 113 mortgage backed securities (MBS) settlements achieved by government agencies, insurers, and investors between 2011 and 2017, 24 were securities class actions filed by investors, who in turn, were able to recover more than $3.9 billion.

Congress has endorsed such investor actions. When the PSLRA was enacted, Congress recognized that ‘‘[P]rivate lawsuits promote public and global confidence in our capital markets and help . . . to guarantee that corporate officers, auditors, directors, lawyers and others properly perform their jobs’’ and are ‘‘an indispensable tool’’ used to ‘‘protect investors and to maintain confidence in the securities markets.’’

The Supreme Court has, in its words, ‘‘repeatedly []emphasized that implied private actions provide ‘a most effective weapon in the enforcement’ ’’ of the securities laws and are ‘‘a necessary supplement to Commission action.’’

The SEC has also been supportive of the efforts of private litigants. For example, in 1995, SEC Chairman Arthur Levitt in his testimony before the Senate on the PSLRA recognized that ‘‘[P]rivate rights of action are not only fundamental to the success of our securities markets, they are an essential complement to the SEC’s own enforcement program.’’

Indeed, empirical analysis confirms the value of private securities litigation in that they ‘‘provide greater deterrence against more serious securities law violations compared with the SEC.’’

Hindsight is the Best Insight

This reliance on private actions holds true for some of the other biggest frauds in recent history. In actions related to the giant Enron fraud, the SEC recovered $440 million, while private attorneys recovered around $7.3 billion for investors. Similarly, in suits related to the accounting fraud at Worldcom, the SEC recovered $750 million, while private attorneys representing investors recovered $6.1 billion for their clients.

In an even more dramatic example, private attorneys recovered approximately $3.2 billion for investors harmed by the massive fraud at Cendant and the SEC recovered nothing—though the Department of Justice did prosecute, convict, and send to prison Cendant’s Chief Executive Officer.

While all of this may sound like ancient history, in the court of law it’s not and provides an important roadmap for investors on how to effectively prosecute such cases going forward.

Read the compelete OpEd by Michael B. Eisenkraft in the New York Law Journal.

If you are concerned about pay equity, this tip sheet can provide an overview of your legal rights, help you collect the information you need, and tell you where to turn for additional assistance.

Things to Look For

Pay Comparisons: Learn what others with comparable experience and jobs in your company are being paid. Glass Door, PayScale.com, Blind and other salary review websites may provide information reported by current or former employees. New job postings at your company may also list salary ranges. Information from peers at other companies can also be useful.

How Is Pay Set at Your Company: Learn how pay is set at your company. What factors are used in setting starting pay? Do they reflect what’s important in performing the job?  When can pay be adjusted? What factors are considered in making adjustments?  Who controls decision-making?

Be Aware:

• Pay differences may arise at time of hire.  Sometimes a new employer may base their salary offer on your last salary – that’s a red flag.
• Pay differences at time of hire may also be caused by slotting women into lower-level positions than men with comparable qualifications.
• Pay disparities also arise in awards of bonuses and stock options, where differences may be even larger than with salary.
• Annual reviews and pay raises may exacerbate or create pay differences.  Sometimes this is caused by evaluation systems that disadvantage women.

Informal Steps to Take

• Collect as much information as you can about pay ranges in your company and industry.
• Ask your manager about benchmarks for your compensation in your annual review.
• Seek assistance from your work sponsors to correct any pay disparities impacting you.
• Learn how best to negotiate for what you want.  While equal pay should not depend on negotiation, it’s one of the tools you may find helpful.  For example, AnitaB.org, a non-profit organization that helps women in the tech sector, offers salary negotiation workshops.
• Encourage employers to conduct rigorous pay equity audits and make changes based on the results. Salesforce, for example, has been recognized as a leader in that respect, as cited by Wired, “How Salesforce Closed the Pay Gap Between Men and Women,” (Oct. 15, 2019) and Inc., “How to Fix Gender Inequality at Your Company, From the HR Exec Who Helped Close Salesforce’s Pay Gap,” (Sept. 12, 2019).

Know Your Rights

Title VII Protections

• Prohibits discrimination in every aspect of employment, including compensation, on many grounds including sex, race, religion.  Other statutes cover age discrimination or disability discrimination.
• Requires that you file a charge with the EEOC or parallel state agency as a first step before you can go to court.
• Some claims require proof of intent to discriminate, while others require only identification of a specific practice that appears neutral, but which disproportionately disadvantages women, and cannot be justified.
• The deadline to file a charge can be as short as 180 days from the discriminatory event, but you have 300 days when your state or local municipality has an enforcement agency that enforces a parallel state law against discrimination. Thus, in most states you have 300 days to file your charge.

Equal Pay Act Protections

• The federal Equal Pay Act (EPA) prohibits paying employees of different sexes differently if they do equal work on jobs which require equal skill, effort, and responsibility, in the same establishment.  (Pay differentials based on productivity, seniority, merit, or other job-related factor other than sex are permitted.)  No proof of intent to discriminate is required.
• You must file an EPA case in court within two years of the paycheck challenged or in three years if a willful violation is proved.
• Many states have their own equal pay statutes, and some have provisions with stronger worker protections than the federal EPA.

Individual & Class Actions

• Each type of claim can be pursued by an individual on behalf of herself, or on behalf of herself and a class of other “similarly situated” women.
• Class action lawsuits focus on an employer’s pattern of compensating women less.  Relief can include not just money damages for members of the class, but also changes to the system going forward, such as an overhaul of the policies for deciding compensation.
• Individual cases focus on the individual bringing the suit. Courts may exclude evidence related to how others were treated, even when claims are similar; relief can include money damages, but not any system-wide change.

Sharing Salary Information – Important Protections

• Many employers prohibit or discourage employees from sharing salary information with each other. It’s important to know your right to discuss pay information with your colleagues.
• Some states explicitly forbid employers from prohibiting employees from discussing their wages with other employees, including in Massachusetts, New York, Illinois, California and Washington.
• These state laws prohibit employers from retaliating against an employee for disclosing the employee’s own wages or inquiring about or discussing the wages of another employee, as long as they do not reveal information about others that they obtained because of particular job responsibilities, such as in HR.
• Even better, some states now require employers to provide information about the salary range for jobs.
  • Colorado was the first, requiring that both internal and external job postings list the salary range.
  • As of May 15, 2022, New York City requires job postings to list salary ranges.
  • Beginning January 1, 2023, California and Washington state also require job postings to list salary ranges.
  • On March 3, 2023, the Governor of New York signed into law a similar requirement that will take effect across the state on September 17, 2023.
  • Several other states have laws that require disclosure of wages, salary range or rate of pay upon request, including Connecticut, Maryland, Nevada and Rhode Island.
• Federal law offers some protections for discussing pay with co-workers but excludes managers. Enforcement is not as robust and proceeds through the National Labor Relations Board.  See:
  • National Labor Relations Board – Your Right to Discuss Wages
  • National Labor Relations Board – Investigated Charges

Prohibitions on Using Prior Salary to Set Pay

• Just as important as making sure you have information you need about salary, is making sure your prospective employer does not use information about your prior salary to offer you a lower pay rate than it would otherwise at your new job.
• The legal trend has been for courts to find that employers cannot rely upon prior pay in defending a claim of pay discrimination.  See Rizo v. Yovino, 950 F.3d 1217 (9th Cir. 2020) (en banc).
• Some states prohibit employers from taking adverse action against an applicant who refuses to disclose their pay history. Many states, including Illinois and New York, specifically prohibit employers from asking applicants to disclose their salary history. Some also prohibit relying on prior salary even if disclosed voluntarily.  For example:
  • California: Employers cannot rely on or ask for prior salary in deciding whether to make an offer or what salary to offer.  If the applicant does disclose their salary history voluntarily and without prompting, the employer may not rely on that information in determining the applicant’s salary.
  • Massachusetts: The law prohibits employers from asking either an applicant or their prior employer about prior pay or requiring that an applicant’s prior pay meet any particular criteria.  Even if prior pay is volunteered, the employer cannot rely upon such prior pay as a defense to an equal pay claim.
  • Complete List of State Bans or Restrictions on Asking About Prior Pay: See States with Salary History Bans.
    • States with bans include: Alabama; Colorado; Connecticut; Delaware; Hawaii; Illinois; Maryland; Massachusetts; Missouri; Nevada; New Jersey; New York; Oregon; Puerto Rico; Rhode Island; Vermont; Washington. Additional states and localities prohibit government employers from asking about salary history.

Other Legal Resources

• How to file an EEOC charge:
• If possible, consult with an attorney first, before filing a charge with the EEOC.
  • Local Bar Association: Many local bar associations have referral services that may connect you with attorneys
  • National Employment Lawyers Association (NELA): NELA is the largest professional organization for lawyers who represent employees in employment disputes
  • Cohen Milstein Sellers & Toll PLLC: We work specifically in class action, including gender pay discrimination class actions. We would be happy to consult with you:

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In previous articles, we wrote about factors a fund may consider when deciding whether to file a motion for lead plaintiff in a securities class action and the criteria a judge uses to select among competing movants. In this installment, we discuss what is required and expected of the court-appointed lead plaintiff during the litigation, with institutional investors in mind.

In general, the lead plaintiff selects and retains lead counsel, negotiates attorneys’ fees, oversees the litigation, participates in settlement negotiations, and makes major decisions on advice of counsel—such as whether to participate in mediation, accept a settlement offer, proceed with trial, or appeal. The lead plaintiff must act in the best interests of the class members throughout the litigation.

Federal securities litigation is largely brought under two laws enacted after the Wall Street Crash of 1929: the Securities Act of 1933, which covers newly issued securities, and the Securities Exchange Act of 1934, which covers existing securities traded on exchanges. Six decades later, the Private Securities Litigation Reform Act of 1995 (PSLRA) added lead plaintiff provisions to both laws.

The PSLRA directs judges to “appoint as lead plaintiff the member or members of the purported plaintiff class who the court determines to be most capable of adequately representing the interests of class members” and who “in the determination of the court, has the largest financial interest in the relief sought by the class,” unless someone can show they are not “typical” and “adequate” under Rule 23 of the Federal Rules of Civil Procedure. A “typical” plaintiff is one whose legal claim arises from the same events and is based on the same legal theory as those of the class; an “adequate” one does not have interests that are opposed to the class and has sufficient resources and experience to represent the class and oversee counsel.

Selecting Counsel and Negotiating Fees

Under the law, the lead plaintiff selects and retains counsel to represent the class, subject to court approval. Because the courts typically evaluate a proposed lead counsel’s experience in shareholder class actions and its ability to litigate the case at hand, the lead plaintiff is advised to choose a firm that has a history of successful representations and is free of conflicts of interest.

Negotiating a reasonable fee with a proposed counsel is an important duty for lead plaintiff, since attorneys’ fees and expenses are normally subtracted from any monetary recovery before it is distributed to the class members. An unreasonably high fee, therefore, reduces the portion of the settlement that goes to shareholders. At the same time, lead counsel typically litigates securities class action on contingency, only recouping the cost of attorney time and expenses if the case succeeds, so its fee agreements price in that risk. Because shareholder lawsuits are complex and often take years to resolve, lead counsel may spend hundreds of thousands and even millions of dollars on out-of-pocket expenses such as outside damage experts, massive document reviews, and mediators; that doesn’t count the salaries lead counsel must pay, win or lose, to the lawyers, paralegals and staff who work on the case.

Happily, there are plenty of blueprints available for would-be lead plaintiffs looking to structure a retention agreement. Organizations such as the National Association of Public Pension Attorneys and the Council of Institutional Investors have published primers on securities litigation that offer sample agreements, including fee percentages.

In addition, like the selection of lead counsel itself, attorneys’ fees and expenses are subject to court approval in federal securities litigation. The PSLRA requires attorney fees and expenses to be a “reasonable percentage” of the damages paid to the class, leaving it up to the judge to determine what that means. Federal courts conduct a review of attorney time sheets and expense reports to measure the proposed fee against the work performed. Federal courts also consider the fee percentages to other settlements of a comparable size or in the corresponding circuit to maintain consistency in fee awards.

Overseeing the Litigation

The PSLRA’s requirement that the court appoint as the lead plaintiff the party or parties most capable of adequately representing the class, combined with subsequent decades of jurisprudence, establish clear expectations that the lead plaintiff oversee the litigation and monitor counsel.

While the law and the courts do not require intimate knowledge with the day-to-day details of the litigation, the lead plaintiff should understand the basics, including the important allegations in the complaint and the case’s procedural status. It should be familiar with its responsibilities and understand its duties, especially the need to respond to defendants’ discovery requests by providing relevant documents and deposition testimony related to its investment in the company. The lead plaintiff must be willing and able to perform these duties since defendants may challenge its adequacy of oversight during depositions or at the class certification stage. Within these broad parameters, however, institutional investors have considerable leeway to seek a level of involvement that is appropriate for their staffing resources while maintaining a hand in major strategic decisions that affect the outcome of the case.

The lead plaintiff should require the lead counsel to provide regular updates about the litigation, give them an opportunity to review key pleadings, and advise them of upcoming deadlines and decision points. The lead counsel should provide clear analysis, guidance, and recommendations on any decisions required of the lead plaintiff. During the discovery phase, the lead plaintiff should expect the lead counsel to help produce required documents and, after proper preparation, represent the lead plaintiff in depositions.

Participating in Settlement Talks

One of the most important responsibilities of the lead plaintiff is to participate in any settlement discussions or mediations. An active lead plaintiff can greatly impact the size of the settlement, the makeup of the settlement considerations (e.g., cash only or cash and stock) and the decision to include corporate governance elements in the settlement agreement. In addition, the lead plaintiff is required to approve any settlement prior to court review. If no settlement is reached, the lead plaintiff will need to attend the trial. If the case is lost at trial, lead plaintiff must evaluate with lead counsel and decide whether to appeal.

Conclusion

Understanding the expectations and responsibilities of the lead plaintiff before facing a decision to file a lead plaintiff motion creates clear expectations about the time and staff resources an institutional investor needs to commit to the process. It also highlights the importance of establishing relationships with experienced plaintiffs’ counsel. Perhaps most importantly, it illustrates why sophisticated institutional investors are better able to adequately represent class members than small individual investors, especially in large-scale litigation.

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By Christine Webber

The U.S. Equal Employment Opportunity Commission held a public hearing Jan. 31 examining the implications of artificial intelligence technology on equal employment opportunity.

According to EEOC Chair Charlotte A. Burrows:

The goals of this hearing were to both educate a broader audience about the civil rights implications of the use of these technologies and to identify next steps that the Commission can take to prevent and eliminate unlawful bias in employers’ use of these automated technologies.

During the hearing, panelists Pauline Kim, professor at Washington University School of Law in St. Louis, and Manish Raghavan, assistant professor at Massachusetts Institute of Technology, testified about the prevalent misuse of the four-fifths rule in evaluating whether AI selection tools cause adverse impact.

We agree, and we believe this shows that the EEOC should revise its guidelines to abandon the rule.

Whether or not the EEOC eliminates the rule, courts have long made clear that the four-fifths rule is not the test for adverse impact that they will apply.

As the U.S. Court of Appeals for the Ninth Circuit described in Stout v. Potter in 2002, under the four-fifths rule:

[A] selection practice is considered to have a disparate impact if it has a “selection rate for any race, sex, or ethnic group which is less than four-fifths (4/5) (or eighty percent) of the rate of the group with the highest rate.”

The rule originates from the Uniform Guidelines on Employee Selection Procedures, which were originally published in 1978. The four-fifths rule specifically states that it speaks only to what federal agencies would generally do.

It’s been nearly 45 years since the four-fifths rule was published by the EEOC, but even at that time, courts largely looked to more formal and sophisticated statistical tests for evidence of adverse impact. Since then, the consensus, from the U.S. Supreme Court on down, and including leading authorities, has been that the four-fifths rule of thumb was not the governing test and was not as probative as formal statistical analysis.

As the consensus rejected reliance on the four-fifths rule in favor of statistical significance tests, some proponents of the four-fifths rule argued that Title VII of the Civil Rights Act required showing practical significance in addition to statistical significance, and repackaged the four-fifths rule as a test of practical significance.

While some courts have considered practical significance, the four-fifths rule has not been generally adopted as a test for practical significance, and many courts did not consider practical significance a requirement at all.

Recently, the Supreme Court’s 2009 decision in Ricci v. DeStefano appeared to foreclose reading a practical significance into Title VII, stating that a prima facie case of disparate impact requires that plaintiffs show a statistically significant disparity and nothing more.

The recent push to incorporate a requirement of practical significance into disparate impact analysis, and to make the four-fifths rule the test to show satisfaction of such a requirement, has come in large part from those wanting to enable AI selection devices to be accepted without violating disparate impact rules.

Since AI selection tools provide fertile opportunities for disparate impact claims, and AI vendors want to assure the employers they hope to recruit as customers that their products will not result in Title VII violations, AI vendors have cited the four-fifths rule as the basis for their claims that their products will keep employers compliant with Title VII.

Simultaneously, there has been a push to define disparate impact liability under federal and state laws in relation to the four-fifths rule. For example, a proposed 2020 California Senate bill would have defined disparate impact as being indicated where the selection rate for any protected class existing in 2% or more of the total applicant population is less than four-fifths of the selection rate for the class with the highest selection rate and where such difference in selection rates between such classes is statistically significant and to provide a safe harbor for any selection tool that cleared the four-fifths rule.

The push to anoint the four-fifths rule as the test for disparate impact is not only unsupported by the case law, but it is also bad policy. The four-fifths rule is a proclamation that practices that keep up to 20% more of a disadvantaged group from being hired should be accepted without further scrutiny.

Read the complete article on Law360.