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Roth v. Knight Trading Group

October 7, 2002

SINAI ROTH, ERIC SIMON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
M. MARK MENDEL, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
PATRICIA CAMPBELL, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
MITCHELL HIRTH, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
ROBERT WARING, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
GILDA PREDA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
JOHN WILKENS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
ANTHONY GLINSKAS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS. : JOSEPH BRECHER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
FREDELL D. WILLIAMS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
TIMOTHY MURPHY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS. : MATTHEW W. WOODS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
SAMUEL SINAY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
S. THOMAS HORNYAK, ELIAS S. HORNYAK, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
WILLIAM BAGNELL, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.
BRUCE MONTAGUE, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
KNIGHT TRADING GROUP, INC. AND KENNETH D. PASTERNAK, DEFENDANTS.



The opinion of the court was delivered by: Walls, District Judge

OPINION

This matter is before the Court to appoint lead plaintiff and lead counsel in this securities class action against Knight Trading Group, Inc. ("Knight Trading") and Kenneth D. Pasternak (collectively, the "Defendants") pursuant to Section 21D(a)(3)(B) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended by the Private Securities Litigation Reform Act of 1995 (the "PSLRA" or the "Reform Act"). Defendants are alleged to have violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78(n) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5.

Each of the following parties filed motions for appointment as Lead Plaintiff and approval of its counsel as Lead Counsel, respectively: (1) Private Asset Management ("PAM") and Schiffrin & Barroway, LLP and Bernstein Liebhard & Lifshitz, LLP; (2) William E. Hassenger ("Hassenger") and Milberg Weiss Bershad Hynes & Lerach, LLP; (3) Terrance Brennan ("Brennan") and Kirby, McInerney & Squire, LLP; and (4) Samuel Sinay ("Sinay") and Zwerling, Schachter & Zwerling, LLP. These parties also moved for consolidation of all related actions. On September 5, 2002, PAM and Hassenger submitted a stipulation to the Court to proceed as combined Lead Plaintiff with Milberg Weiss Bershad Hynes & Lerach, LLP and Schiffrin & Barroway, LLP as co-Lead Counsel. On September 6, 2002, Brennan withdrew his motion for appointment as lead plaintiff. Having heard and considered argument of counsel and for the reasons stated, the Court grants the motion for consolidation; appoints PAM as Lead Plaintiff; and reserves decision on appointing PAM's choice of Schiffrin & Barroway, LLP and Bernstein Liebhard & Lifshitz, LLP as Lead Counsel pending this Court's review of PAM's retainer agreement with Schiffrin & Barroway, LLP and Bernstein Liebhard & Lifshitz, LLP.

BACKGROUND

On June 7, 2002, Sinai Roth and Eric Simon ("Sinai Roth") commenced this action on behalf of a class consisting of all persons and entities who purchased the common stock of Knight Trading (the "Class") during the period of February 29, 2000 through June 3, 2002 (the "Class Period"). Other suits followed. *fn1 Sinai Roth alleges that Defendants, a business engaged in market-making in equity securities, options and asset management, engaged in a fraudulent "front-running" scheme, where customer orders were delayed while Defendants' traders made purchases in the same stocks ordered by customers in violation of trading rules.

During the proposed Class Period, Defendants are alleged to have issued public statements in numerous press releases which fraudulently created the false impression that Knight Trading provided its customers with the ability to execute trades immediately at the price specified by the customer: these public statements failed to disclose Defendants' alleged practice of executing their own trades before those of their customers. The delay allegedly prevented customers from obtaining the proceeds resulting from rising stock prices for the period of time that customers' orders were left unfilled, while Defendants profited by executing their own trades first. Because of Defendants' trading practices, their customers' trades were more expensive when ultimately executed. *fn2

The Securities and Exchange Commission ("SEC") and the National Association of Securities Dealers ("NASD") announced their investigations of Defendants' trading practices on June 3, 2002. The next day, shares of Knight Trading stock dropped 28 percent, causing losses to the shareholders. It was later learned Defendants allegedly failed to disclose that one of Defendants' former employees had reported the front-running activity to the NASD in 2001. Moreover, Defendants failed to disclose the NASD investigation in its Form 10-K filed with the SEC on March 28, 2002; in its amended Form 10-K/a for 2001, filed April 3, 2002; and in the Company's Form 10Q, filed May 15, 2002.

This Court has jurisdiction over this action pursuant to Section 27 of the Exchange Act, 28 U.S.C. §§ 1331 and 1337. Sinai Roth alleges that Defendants violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5, promulgated thereunder. Consequently, Sinai Roth alleges that they and other members of the putative class acquired Knight stock at artificially inflated prices and were damaged.

DISCUSSION

A. Standard for Selecting a Lead Plaintiff

The PSLRA has established a procedure that governs the appointment of a lead plaintiff in actions arising under the Exchange Act that is brought as a plaintiff class action under the Federal Rules of Civil Procedure. 15 U.S.C. § 78u-4(a)(1) and (a)(3)(B)(i).

First, the plaintiff who filed the initial action must publish notice to the class within 20 days of filing the action, informing class members of their right to file a motion for appointment as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A)(i). Within 60 days of publishing the notice, any member(s) of the group may apply to the Court to be appointed as lead plaintiff. 15 U.S.C. § 78u-4(a)(3)(A) and (B).

Second, within 90 days after the publication of the notice the Court shall appoint as lead plaintiff the member(s) of the class that the Court determines to be the most capable of adequately representing the interests of class members. 15 U.S.C. ยง 78u-4(a)(3)(B). The court ...


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