The opinion of the court was delivered by: Walls, District Judge
The matter before this Court is the appointment of lead plaintiff and lead counsel in this securities class action against Suprema Specialties, Inc. ("Suprema" or the "Company") pursuant to Section 21D(a)(3)(B) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 27(a)(3) of the Securities Act of 1933 (the "Securities Act"), each as amended by the Private Securities Litigation Reform Act of 1995 (the "PSLRA" or the "Reform Act"). The following parties move for lead plaintiff and counsel, respectively: (1) StoneRidge Investment Partners, LLC ("StoneRidge Investment"), and the Law Firm of Harvey Greenfield with the Law Office of Kantrowitz, Goldhamer & Graifman as co-lead counsel, (2) the Garden State Securities Group ("Garden State") and Rabin & Peckel, LLP, (3) Teachers' Retirement System of Louisiana ("Louisiana Teachers") and Bernstein Litowitz, Berger & Grossman, LLP ("Bernstein Litowitz"), (4) The Hitel Group Inc. ("Hitel Group") and Wolf Popper, LLP with Lite DePalma Greenberg & Rivas, LLC as liason counsel, and (5) Wyper Capital Management, LP and Ascend Capital who withdrew their motion in support of StoneRidge Investment. After considering the factual and legal arguments raised in the parties' papers and hearing oral argument, this Court appoints Louisiana Teachers as Lead Plaintiff and Bernstein Litowitz as Lead Counsel.
FACTUAL AND PROCEDURAL BACKGROUND
This action was brought on behalf of a class consisting of all persons and entities who purchased the common stock of Suprema in the open market and/or traceable to a prospectus and offering during the period of August 15, 2001 through December 21, 2001 (the "Class Period"). Currently pending before this Court are eleven related class action complaints *fn1 alleging violations of Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and the rules promulgated thereunder, including Rule 10b-5, 17 C.F.R. 240.10b-5. Some complaints also allege violations of Sections 11, 12(a) and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77(a)(2) and 77(o).
On August 15, 2001, Suprema issued a press release wherein the Company announced consolidated new sales, net income, and earnings per share for the year ended June 30, 2001, and made numerous positive statements concerning its net sales and net income. On or about September 23, 2001, Suprema filed its Annual Report (Form 10-K) for the year ended June 30, 2001 which contained similar positive statements. On November 14, 2001, Suprema filed its Quarterly Report (Form 10-Q) for the first quarter of 2001, ending on September 30, 2001 which reflected corporate growth. In each of these filings, Suprema assured the public and the Securities Exchange Commission ("SEC") that the financial statements were in conformance with Generally Accepted Accounting Principles ("GAAP"). However, the positive statements in each of the filings allegedly were materially false and misleading because they failed to truthfully and accurately disclose Suprema's net sales, net income, gross margins and working capital. As a result of these statements, the market price of Suprema's common stock was inflated.
On November 6, 2001, the Company filed a registration statement and prospectus with the SEC seeking the issuance of 4.05 million shares of common stock, of which 3.5 million shares were to be sold by the Company and 550,000 by certain selling shareholders. The offering would nearly double the number of outstanding shares of Suprema common stock from 5.7 million shares to 9.75 million shares. The Secondary Offering commenced on or about November 8, 2001. During the course of the Secondary Offering, Suprema raised in excess of $41 million. In addition, the following defendants sold stock in the Secondary Offering: Mark Cocchiola, Steven Venechanoa, and the Estate of Lauriero.
On Friday, December 21, 2001, just before the close of the market, Suprema issued a press release which revealed the resignations of its Chief Financial Officer and its Controller. The Company also announced that it "has initiated an internal investigation of its prior financial results and has instructed its auditors to review the Company's financial records." (Decl. of Erik Sandstedt, Ex. 4). Immediately thereafter, the National Association of Securities Dealers Automated Quotation System ("NASDAQ") halted trading of Suprema common stock, which was trading at $13, until Suprema satisfied their request to provide information concerning the internal investigation. On January 8, 2002, Suprema revealed the existence of material accounting irregularities. Subsequent reports indicated that substantial accounts receivable reported by the Company were false and illusory. In late February, Suprema announced that it had filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §1101 et. seq., in the United States Bankruptcy Court of the Southern District of New York. The Company also announced that its stock would be de-listed by NASDAQ. On or about March 1, 2002, Suprema was de-listed and since that time the Company's stock has been trading on the pink sheets for less than pennies per share. DISCUSSION
I. Appointment of Lead Plaintiff
The Reform Act established new standards and procedures for selecting lead plaintiffs in securities fraud class actions. *fn2 Under the Reform Act, courts are required to appoint a "lead plaintiff" at the initial stages of litigation. Specifically, the Reform Act instructs the court to "appoint as plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of the class members." 15 U.S.C. §78u-4(a)(3)(B)(i). The Reform Act then creates a rebuttable presumption that the most adequate plaintiff is the person or group of persons that:
(a) has either filed the complaint or made a motion in response to a notice . . . ;
(b) in the determination of the court, has the largest financial interest in the relief sought by the class; and
(c) otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. *fn3 15 U.S.C. §78u-4(a)(3)(B)(iii)(I).
This presumption may be "rebutted only upon proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff - (aa) will not fairly and adequately protect the interests of the class; or (bb) is subject to unique defenses that render such plaintiff incapable of adequately representing the class." Id. §78u-4(a)(3)(B)(iii)(II). The Third Circuit has explained that in reviewing rebuttal evidence, courts should only consider whether anyone can prove that the presumptive lead will not fairly and adequately represent the interests of the class and not whether another movant is preferable. In re Cendant Corp. Litig., 264 F.3d 201, 268 (3d Cir. 2001).
To become the presumptive lead plaintiff, the movant need only make a prima facie showing that he satisfies the typicality and adequacy requirements of Rule 23. See Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 924 (3d Cir. 1992). To rebut the presumption, however, members of the putative class must submit proof that the presumptive lead plaintiff does not meet the requirements. In re Cendant Corp. Litig., 264 F.3d at 263.
The typicality requirement is satisfied when the named plaintiff has (1) suffered the same injuries as the absent class members, (2) as a result of the same course of conduct by defendants, and (3) their claims are based on the same legal issues. Weiss v. York Hosp., 745 F.2d 786, 809 & n.36 (3d Cir. 1984). Where the claims asserted by the movant are based on the same legal theories and arise from the "same event or practice or course of conduct that gives rise to the claims of the class members," the typicality requirement is satisfied. Grasty v. Amalgamated Clothing and Textile Workers Union, AFL-CIO, CLC, 828 F.2d 123, 130 (3d Cir. 1987).
The "fairly and adequately" representing the class prong is modified by Section 21D of the Reform Act which directs the Court to limit its inquiry to the existence of any conflict with the interests of the other members of the class. This prong is satisfied when both the class representative and its attorney are capable of satisfying their obligations, and neither has interests conflicting with those of other Class members. See Sosna v. Iowa, 419 U.S. 393, 403, 95 S.Ct. 553, 559, 42 L.Ed.2d 53 (1975); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625, 117 S.Ct. 2231, 2250, 138 L.Ed.2d 689 (1997). The Third Circuit explained that when assessing adequacy of representation, courts should consider whether the proposed lead plaintiff "has the ability and incentive to represent the claims of the class vigorously, [whether it] has obtained adequate counsel, and [whether] there is [a] conflict between [the movant's] claims and those asserted on behalf of the class." In re Cendant Corp. Litig., 264 F.3d at 265 (quoting Hassine v. Jeffes, 846 F.2d 169, 179 (3d Cir., 1988).
Further, the Third Circuit instructs courts to consider two additional factors in making its initial adequacy assessment. First, the court should consider "whether the movant has demonstrated a willingness and ability to select competent class counsel and to negotiate a reasonable retainer agreement with that counsel." Id. at 265-66. The second consideration is only applicable when the movant is a group, rather than an individual. Specifically, "[i]f the court determines that the way in which a group seeking to become lead plaintiff was formed or the manner in which it is constituted would preclude it from fulfilling the tasks assigned to a lead plaintiff, the court should disqualify that movant on the grounds that it will not fairly and adequately represent the interests of the class." Id. at 266. Courts should also consider whether a movant group is too large to adequately represent the class. Id. Finally, the Third Circuit recognizes that there may be other reasons to justify a court's decision that the adequacy or typicality requirement has not been satisfied. See id. at 268.
In this case, as mentioned above, four plaintiffs or groups of plaintiffs move for lead plaintiff status. The first is StoneRidge Investment, an investment advisor and a group consisting of 22 unaffiliated organizations, that collectively held approximately 170,000 shares of Suprema stock and allegedly suffered losses of approximately $2,100,000 during the Class Period. The second is Garden State, a group of five individuals, that collectively held approximately 61,500 shares and allegedly suffered losses of $709,173. The third is Lousiana Teachers, an institutional investor, that owned 47,200 shares and allegedly suffered losses of $600,000. The final movant is the Hitel Group that held approximately 10,000 shares and allegedly suffered losses of $127,500.
StoneRidge Investment, an investment advisor and investment management company focusing on institutional clients, seeks to be named sole lead plaintiff on behalf of the 22 entities for which it makes investment decisions, or alternatively as a lead plaintiff group with those entities. Although on the surface it appears that StoneRidge Investment has suffered the greatest financial loss, *fn4 it is not entitled to presumptive lead plaintiff status under the Reform Act because it may not aggregate its losses with the 22 entities it represents. This Court finds that StoneRidge Investment may not bring the action on behalf of its clients because it did not function as a "single investor" and it has not submitted any evidence that it received permission to move on its clients' behalf. Further, this Court finds that StoneRidge ...