Wall Street Class Actions

A.G. Edwards Class Action Settlement Questioned

Last Updated on Wednesday, 12 May 2010 04:07 Wednesday, 12 May 2010 04:07

In Bachmann v. A.G. Edwards, Inc. a $60 million settlement was recently announced.  However, it has come under fire because:

1. $34 million of the $60 million class action settlement is a so-called “coupon settlement” where the class gets nothing unless they give the defendant further business.
2. the attorneys are asking for 35%, or $21 million of the $60 million
3. the class action attorneys are asking for “quick pay” or immediate payment, even though the class benefits are delayed.

Will there be a mass of class action settlement objectors?  Stay tuned.

Yelp class action lawsuit expands

Last Updated on Saturday, 3 April 2010 03:33 Saturday, 3 April 2010 03:33

Nine small businesses have joined the class action lawsuit against Yelp alleging that internet review site extorts businesses that by demanding money to hide negative reviews.

The new plaintiffs were added in an amended complaint filed in the month-old California lawsuit. They include a cruise line, appliance repair company, bakery, pet grooming service and  a furniture store.  The lawsuit charges extortion, fraud, and unfair business practices.

Yelp was founded in 2004 by Jeremy Stoppelman and Russel Simmons, with backgrounds in computer engineering and computer science.  The online guide has been criticized by businesses alleging  that sales reps for Yelp manipulate reviews based on whether businesses buy advertisements with them.

Yelp lawyers have not yet filed a response to the lawsuit with the California court.  However, company officials have repeatedly denied any culpability in the case.  A scheduling conference is set for April 26 in United States District Court, Central District of California.

Attorney Elizabeth Lee Beck, whose California law firm represents the plaintiffs, says future amendments to the lawsuit likely will be necessary as more businesses seek to be included in the action.

“We’ve been contacted by every type of business that you can imagine, all across the country,” she says. “We’ve been certainly contacted by a number of veterinarians, doctors and dentists, just to name a few from the medical profession.”

The complaint centers on Yelp’s review filter, which plaintiffs claim is being manipulated. According to Yelp, the allegations are based on a lack of knowledge about how the system works.

Stephanie Ichinose, Yelp’s director of communications, explains:

“Yelp users write reviews and post them to the site. Yelp does not verify the authenticity of reviewers but attempts to present the most useful and helpful reviews from engaged community members, many of whom have complete profiles and are frequent Yelp users.”

Thirty million people visit the site monthly, making Yelp high-stakes publicity for businesses in the 35 major markets where the site is anchored. With that kind of leverage has emerged users who try to game the system by posting glowing reviews to promote businesses, usually for a fee. It’s a practice known as shilling, Ichinose says.

To combat shil reviews, Yelp employs a custom review filter to look for patterns of abuse. While Ichinose would not detail the filter’s recipe for catching phony reviews, she explained that it’s built on algorithms in the software.

“Yelp isn’t a place where you can come in and throw up a review and expect it to remain. That doesn’t foster a sense of community,” Ichinose says. “We’re trying to return the most helpful reviews for this business. Yelp is word-of-mouth in digital form, and we’re weighting voices. We want folks engaged in this process.”

Shilling is not an easy problem to solve, Ichinose admits. So she understands how business owners might be confused by the system: “Say you had 10 five-star reviews. Then a couple weeks later, you get a call from someone at Yelp to advertise. You come back, and six of the reviews have been suppressed by the filter and you only have four reviews still standing. The confluence of these independent events can be very confusing if you don’t know about the filter.”

Securities fraud class action settlements up in 2009

Last Updated on Saturday, 3 April 2010 03:20 Saturday, 3 April 2010 03:20

According to a new study jointly published by Cornerstone Research and Stanford University’s School of Law, securities fraud class action settlements rose in dollar value last year.  There were 103 settlements totaling $3.83 billion in 2009, up from 97 settlements worth $2.75 billion in 2008.

But two settlements alone accounted for 39 percent of last year’s total: UnitedHealthGroup’s $925.5 million paid to settle options backdating charges, and a $586 million settlement that major investment banks and dozens of other defendants paid to end litigation over alleged fraudulent IPO practices.

The median settlement was exactly the same as the prior year — $8 million.

Institutional investors were the lead plaintiffs in 65% of the settled cases.  Fostering institutional investor involvement in class actions was one goal of the Private Securities Litigation Reform Act of 1995.

Experts attribute the increase to a combination of securities fraud cases stemming from the financial crisis, as well as the settlement of the two mega-cases regarding UnitedHealth and IPOs.