Stradley Ronon's Securities Litigation Practice: Poised To Meet The Financial Markets Crisis

Saturday, November 1, 2008 - 01:00
David C. Franceski, Jr.

Editor: Mr. Franceski, would you tell our readers something about your professional experience?

Franceski: I joined Stradley Ronon directly out of law school in 1980 as a general commercial litigator. Though at the beginning of my career I litigated all kinds of complex commercial cases, I had the opportunity early on to concentrate a good deal of my time on financial services litigation, and more particularly securities litigation. My first jury trial was actually a securities case. As the firm's securities practice flourished, my involvement with the firm's financial services clients grew as well, and as a result of that, I had the privilege to litigate a host of different civil, criminal and regulatory matters for a number of the country's largest banks, broker-dealers, investment banks, mutual fund families, and the like. And as with all of our securities litigators, I've also had my fair share of private securities litigation matters as well. Today, securities litigation and the management of our diverse securities litigation practice occupies virtually 100 percent of my time. Perhaps the most personally rewarding aspect of that experience has been the unique opportunity to try over a hundred jury, non-jury, arbitration and regulatory matters. While we do everything possible to resolve our clients' problems as cheaply and efficiently as possible, trial is still where the action is for a diehard litigator.

Editor: Would you give us an overview of Stradley Ronon's Securities Litigation Practice Group?

Franceski: We currently have 11 partners and 12 associates in our Securities Litigation Group.

The practice is centered in the firm's Philadelphia office, but our clients, and therefore our practice, are national in scope. Several years ago we also expanded our Washington DC presence by bringing aboard Greg DiMeglio from the Enforcement Division of the SEC, and we have continued to strengthen the office, and with it, our SEC regulatory and enforcement expertise.

As I mentioned earlier, the clients are varied, many of them well-recognized national and regional broker-dealers, investment banks and registered investment advisors. The group engages in just about any type of litigation related to stocks, bonds, mutual funds and other investment products, including class actions, mass actions, corporate control litigation, industry arbitrations and civil and criminal insider trading claims. And then we have our regulatory work before the SEC, FINRA (formerly NASD), the New York Stock Exchange and the various regional securities exchanges such as the PHILEX.

Editor: How are appeals handled? Is this part of the group's practice or is it a separate practice group?

Franceski: We handle all of our cases from beginning to end, and any appeals that arise out of the trial court proceedings or the arbitration proceedings are generally handled by the same litigation team that tried the matter. We are conscious of the expense to the client that goes into bringing a separate appellate team up to date with respect to an appeal from below. On occasion, we may add to the team to bring a fresh perspective to post-trial proceedings, but ordinarily we see the cases through to conclusion, whatever stage of the process that may be.

Editor: And some of the group's success stories in recent years? Highlights of the practice?

Franceski: Our greatest success story, I believe, is the high level of client satisfaction that we enjoy and consequent client loyalty. In terms of specific achievements, we've had a number just within the last several years. To name a few, earlier this year two of our partners, Keith Dutill and Lee Rosengard, concluded a lengthy and very complex hedge fund receivership which resulted in the recovery of more than $170 million for the failed fund's investors.

In the last six months of 2007, another of our partners, Greg DiMeglio, successfully guided a failed financial institution through a major internal investigation of what turned out to be a massive equipment leasing fraud.

And in January of this year, we capped an extremely challenging five-year period defending a myriad of claims against our retail brokerage clients with a complete vindication of one Wall Street firm, caught up in a multi-million-dollar trading away claim after more than 30 full days of arbitration.

Editor: You mention arbitration. To what extent has ADR impacted the group's litigation work?

Franceski: We do not view ADR and litigation as separate and distinct processes. We consider ADR to be one aspect of a client-centric litigation practice dedicated to obtaining the best and most cost-effective results for the client. ADR, and particularly mediation and arbitration, can be a very effective means of resolving disputes in any practice area, and as a group we are great proponents of alternative dispute resolution - although we are not hesitant to try cases when that's the best option for the client.

Editor: Are there certain types of disputes that lend themselves better to ADR than litigation?

Franceski : In just about any dispute there are moments when ADR becomes an effective way of resolving the dispute, or, at the very least, narrowing the issues and moving the matter toward a successful conclusion. To be sure, there are cases where the issues are so novel or the parties so far apart that ADR may not be appropriate. But those are few and far between. Just saving the cost of full-blown litigation can be a win-win in some cases.

Editor: There was a time when one of the attractive features about arbitration was its relatively lower cost compared to litigation. That is not necessarily true today.

Franceski: There is some truth to that. First of all, these disputes have gotten much more complex over the years - the claims which will inevitably result from the current market turmoil are a good example - and that is driving an increase in the costs associated with ADR. These claims take some time to develop, try and, on the part of the arbitrators, to understand and decide. A second factor has to do with the gradual return, in arbitration, to traditional litigation tools, such as wide-ranging discovery and motion practice. A third factor has to do with the understandable temptation to afford parties every opportunity to be heard - sometimes to a fault and even where one party seems to have very little merit to its side of the dispute - which then simply tends to prolong the inevitable.

Editor: As you know, most of our readers are general counsel and the members of corporate legal departments. The current financial markets crisis is the single most important thing on their minds at the moment.

Franceski : Our group has been watching developments in the financial markets crisis with great interest. I think the recent moves by the SEC have been largely helpful, but they only begin to address some of the more systemic problems in our economy and our free market financial system. For example, the SEC recently suspended, for a limited time, short selling with respect to financial and other stocks. I believe that was an appropriate short-term move. I've seen first-hand how abusive and manipulative unrestrained short selling can be, and how much damage it can do to a publicly traded company whose stock price is the "currency" by which it raises much needed additional capital.

Some years ago one of our clients, an issuer in the biomedical field, suffered substantial losses as a result of a very manipulative naked short selling "bear raid," and when we investigated how it happened, we discovered that the markets for our client's stock were easily distorted and, at least at that point, ill-prepared to address the abuses that lead to those distortions. The client's business sustained a serious setback. That said, suspending short selling still does not address many of the fundamental market issues that generated the short selling in the first place.

The regulators have also persuaded a number of major financial institutions to announce buy-back programs for auction-rate securities. I think those institutions should be commended for stepping up - as they do more often than they are given credit for doing.

None of that, however, even begins to address the turmoil in housing and the frozen credit markets.

Editor: And the "bailout" legislation?Franceski: I would prefer to call it a rescue program, and I think it was absolutely necessary. I think it is a first step, and an appropriate step, to take out of the marketplace assets that may have considerable future value, but which are currently threatening the entire financial marketplace - not just on Wall Street, but on Main Street as well, and not just here in the United States, but world-wide. These assets put tremendous pressure on the balance sheets of our major financial institutions, both here and abroad.

Editor: Do you have any thoughts on what the financial services industry might look like - and the degree of regulation it might be subject to - once the dust settles?

Franceski : In a word, less leveraged and more highly regulated. The segment of the industry with which I am most familiar - the bank and brokerage sectors - actually were subject to considerable regulation prior to the crisis. On the brokerage side, the financial marketplace has rightly understood for some time that protecting retail customers should be a high priority. With respect to investment banking, there may have been a sense that, given the sophistication of the players in that market, and their presumed ability to manage their own risk in a free-market economy, regulation was unnecessary. Unfortunately, that turned out not to be the case.

I think we will see fewer derivative products in the markets and more transparency with respect to how they are bought and sold. I think we will also see better risk management on the part of our major financial institutions and less leverage in the financial markets overall.

I also foresee a concentration and consolidation among the bigger players in the financial services industry. Just recently, I read an article which likened the industry to a barbell, with a cluster of large institutions at one end, few such institutions in the middle, and a cluster of smaller institutions at the other end. I believe that the consolidation of national and multi-national institutions that is occurring at the one end of the barbell offers a tremendous opportunity for the smaller local and regional institutions at the other end.

Editor: Is there anything you would like to add?

Franceski: Over the course of my almost 30-year career in this practice area, we have been through a number of these major market displacements. Notwithstanding how dire each of these events appeared to be at the time, the financial services industry - and the economy - survived more or less intact. I have every reason to believe the same will happen this time around - though not without some anxious moments and perhaps some serious financial pain in the short term. Ultimately, however, we are the beneficiaries of a very resilient and innovative economy, and we have fundamentally strong financial, legal and political institutions which enable us to overcome the downturns. I expect this time will be no different, though it may take some time. And as all of that takes shape, I expect our group to be in the thick of it.

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