More backdating detritus

Larry Ribstein —  17 November 2010

I’ve written (e.g.) about the misguided criminal prosecutions spawned by the backdating so-called scandal.  WSJ’s Holman Jenkins, who has been on the story from the beginning, echoes these sentiments, emphasizing the real scandal of the prosecutorial misconduct spawned by backdating:

it’s . . . hard not to see the self-interested ethics of the plaintiff’s bar spilling across the entire legal profession. In their official roles, prosecutors invent Kafkaesque new ways to ensnare the unpopular wealthy in legal trouble, then jump to private law firms and make seven-figure livings protecting the wealthy from the monster they themselves unleashed. Shakespeare had a solution, but, alas, this would also be illegal. Thus it must fall to bloggers, the media and judges like Judge Wright to protect Americans from overzealous prosecutors.

Amen.  In our condemnation let us not forget about those plaintiffs’ lawyers.  They’ve been responsible for less human suffering here, and some general arguments can be made for the disciplinary effect of civil litigation.  But no assessment of civil litigation’s role is complete without considering the agency costs of plaintiffs’ lawyers. 

Consider the recent endgame in the Apple backdating litigation. The lawyers did come up with $16.5 million settlement.  But, as if to demonstrate that fiduciary problems are everywhere, the settlement diverted $2.5 million to “corporate governance” programs of three law schools. Two of the schools were affiliated with lead plaintiffs’ lawyers.  Beyond that, one wonders what effect the money would have on the schools’ teaching and research about litigation’s role in corporate governance.

Ted Frank’s Center for Class Action Fairness has embarrassed the parties into at least giving Apple shareholders an opportunity to get that money, and is now asking for a guarantee that the shareholders will get the entire settlement. Here’s the story.

Larry Ribstein

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Professor of Law, University of Illinois College of Law