July 23, 2019 / 5:49 PM / 2 months ago

COLUMN-Boeing 737 MAX shareholders' lawsuit sparks law firm war: Frankel

 (The opinions expressed here are those of the author, a
columnist for Reuters.)
    By Alison Frankel
    New York, July 23 (Reuters) - The battle between two law
firms vying to lead a shareholder lawsuit against Boeing over
its 737 MAX planes escalated in court on Friday, with one
accusing the other of engaging in a campaign of "harassment" and
"intimidation."
    Kahn Swick & Foti represents a Nevada family that claims to
have invested $40 million in Boeing stock and lost nearly $5
million when Boeing's share price fell by $34 billion within two
weeks of the March 10 crash of an Ethiopian Airlines 737 MAX. 
    Bernstein Litowitz Berger & Grossmann, for its part, says
the family's assertion is “implausible." It reached that
conclusion after firm investigators staked out the Nevada
family’s homes and peppered their friends and coworkers with
phone calls.
    According to Bernstein Litowitz’s brief, people who know the
Nevada family - a retiree who lives half of the year in
Shanghai, an office worker in the state’s pest control bureau,
and a casino employee who moonlights for a pest control company
– “expressed disbelief” about the family’s claim to have
invested more than $40 million in Boeing stock.
    The family’s lawyers, meanwhile, accused Bernstein Litowitz
of trying to scare off the Nevada family in order to clear the
way for its client, the Mississippi Public Employees’ Retirement
System. Kahn Swick & Foti argued in its brief that Bernstein
Litowitz and MissPERS are so desperate to run the Boeing case
that they hired investigators "to harass and stalk" their rival
lead plaintiff candidates.
    Bernstein Litowitz partner Gerald Silk and Kahn Swick
partner Ramzi Abadou both declined to provide statements
responding to the other’s allegations. 
    Kahn Swick clients Kathleen Wang and Kenneth Wang Jr, did
not respond to emails requesting comment. Boeing lawyers from
Kirkland & Ellis also did not respond to requests for comment.
    
    HIGH STAKES 
    In selecting lead plaintiffs for shareholder class actions,
judges usually look first at the magnitude of an investor’s
losses. With the biggest losses of any of the five investors
that asked to lead the Boeing case, the Wangs currently have an
edge.
    MissPERS has said it lost about $2.5 million in its Boeing
stake, the second largest claimed loss.
    It’s not at all unusual for law firms to fight over whose
client will win appointment to lead shareholder class actions.
The investor selected as a lead plaintiff typically picks the
lawyers who will serve as lead counsel. Those lawyers, in turn,
are entitled to the lion’s share of court-awarded fees if the
case settles. Boeing lost tens of billions of dollars in market
capitalization after its 737 MAX planes were grounded, making it
an attractive target for shareholder litigation.
     The Boeing leadership fight, however, is unusual - both in
the magnitude of the losses claimed by the Nevada family and the
ferocity of Bernstein Litowitz’s investigation of the family’s
claims.
    Kahn Swick’s clients - Kenneth and Kathleen Wang and their
adult son, Kenneth Wang Jr - certified in a filing in federal
court in Chicago that they purchased more than $40 million in
Boeing stock in the months preceding the Ethiopian Airlines
crash and the grounding of 737 MAX planes. Wang family members
sometimes purchased millions of dollars' worth of shares in a
single day. The family alleges that the value of its stake
dropped by $4.7 million as the market responded to bad news
about the 737 MAX jets.
    Bernstein Litowitz says the Wangs' certification does not
indicate sales of Boeing shares – an “unusual” trading pattern, 
given the magnitude of the Wangs’ investment. According to
Bernstein Litowitz’s analysis, the Wangs claim to have bought
more Boeing shares and lost more money than Charles Schwab, TD
Asset Management and Oppenheimer, which collectively manage
billions of dollars.
    Despite Bernstein Litowitz's suspicions about the Wangs'
trading, the firm initially attempted to team up with the
family, suggesting that the Wangs and MissPERS move jointly to
lead the Boeing case.(Several other investors, including a
Canadian pension fund, have also asked to be appointed lead
plaintiffs, though none have losses as large as either the Wangs
or MissPERS.) 
    
    SUSPICIONS CONFIRMED? 
    When Kahn Swick and the Wangs turned down Bernstein
Litowitz’s invitation to join forces, Kahn Swick said Bernstein
Litowitz brought in a team of investigators to vet the Wangs’
claims. Investigators ran down the Wangs’ financial records in
the U.S. and China, which isn’t out of the ordinary in
securities class actions. 
    But according to Kahn Swick’s filings, Bernstein didn’t stop
there. Investigators hired by the firm parked outside the Wang
residences and made “repeated phone calls to their business
associates, work colleagues, friends and neighbors,” probing for
information about how the apparently modest family could have
amassed a $40 million investment in Boeing. Bernstein
investigators called Kenny Wang’s boss at the pest control
company and his girlfriend’s sister. They even, according to
Kahn Swick, entered the home of one of Kathleen Wang’s neighbors
for an interview in person.
    Kahn Swick filed a motion to curtail Bernstein Litowitz’s
investigation. Judge John Tharp denied that motion on July 3,
ruling that both sides should have an opportunity to address the
propriety of the investigation. The Wangs' lawyers also went to
Nevada state court to ask for an order of protection against
Bernstein Litowitz investigators. That motion is scheduled for a
hearing next week.
    Bernstein Litowitz suggested in the brief it filed Friday
that the investigation vindicated its suspicions about the
Wangs’ reported Boeing investment. Kathleen and Kenneth Wang,
Sr, appear to have no property except for a home valued at about
$685,000 and two cars worth about $30,000. Kenneth Wang Jr has a
$385,000 house and two cars, the firm said. He and his mother
both appear to earn about $60,000 a year at their jobs,
according to the brief.
    The owner of the pest control company where the son is
employed, who describes himself as a longtime family friend,
told Bernstein investigators there was no way the Wangs had
invested $40 million. He described the Wangs as “regular working
people” and called the assertion that they had tens of millions
of dollars in investments “wrong” and “a lie,” according to the
Bernstein brief.
    Bernstein said that in a case as important as the Boeing
shareholder litigation, Judge Tharp cannot appoint lead
investors with a cloud over their heads. Kahn Swick responded
that if the judge has questions about the Wangs’ trades, the
family will show the judge backup documents detailing the
transactions, even though such backup is not necessary under the
guidelines for securities suits.
    The other investors bidding to lead the case seem to be
hoping Judge Tharp decides that both the Wangs and MissPERS are
too compromised to represent all Boeing investors. The next
round of briefs is due on Aug. 2. Stay tuned.
    

 (Reporting by Alison Frankel. Editing by Noeleen Walder. 
    
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