When companies merge, there's often litigation over whether they disclose sufficient information to investors. The litigation often results in large fees paid out to the lawyers who bring the cases, but not much money for the investors that the lawyers are supposed to represent. But one attorney who works at the American Enterprise Institute has been objecting to settlements in these cases, and he's found a lot of success blocking
lawyers from obtaining the fees that they seek. Our guest to talk about this is Caleb Hannan, a reporter for Bloomberg business Week, who wrote an article about the controversy over these lawsuits and about the lawyer who's trying to stop them this week. Caleb, these clases often settled, usually do They're called disclosure only settlements by a lot of people. Explain what that means. So, let's say that two large
public companies merge UM. In the past ten years, you saw a relative explosion in the number of times that a plainet's attorney brought a class action suit UM for that settlement. So it used to be that it may bee like half the time it happened, and then for the past ten years it was five to ninety percent of the time it happened. And Um, you could argue about the motivations of those Planets attorneys, just like in any field of law, there are good ones and there
are bad ones. Um. What Ted Frank's mission has become over the past two years is basically to find the lowest hanging fruit and to pick it and to make life harder for those planets attorneys that he sees as
taking advantage of the system. And tell us, does he just go after these settlements this disclosure only settlements that are involved or are there other class actions that he goes after no disclosure only are really, as I said before, the lowest hanging fruit, because the disparity between what the
lawyers get and what the class gets so obvious. The class gets let's say twelve the twenty pages of documents that weren't disclosed before, much of which that information is just sort of useless, and then the attorneys get hundreds of thousands, in some cases millions of dollars. But no, Ted Frank goes after cases. Um, if he feels the settlement isn't good enough, he's going to go after it. And the best example there is the case that got
him into all of this. Uh He was a guy who, like a lot of people, had purchased a video game called Grand Theft Auto. And one day he got a letter and it said you were due back some tiny percentage of the thirty thousand dollars that a group of class action attorneys got for you and other class action members. Uh Ted did a little more research on it and found out that the lawyers, instead of getting thirty thousand's,
got over a million dollars for that settlement. So, on his own accord, he went up to the courthouse and said I object, and the settlement was denied. So that was his start. His start came from a really personal, you know, mission driven beginnings. Well, Caleb, he took that and he started sort of making a crusade about this. He's on, he's paid a salary by the American Enterprise Institute, and he sort of does this professionally. Now what kind
of impact is he having on these lawsuits? So I think the impact could be felt most in the statistics about how many of these cases are now drawing litigation, and that that number has finally dipped, I believe under the percent figure where it had never fallen below that in the past ten years. UM. But he admits, and other other people who are on this crusade sort of admit that really you're just trying to slow these planets attorneys down. You're never going to stop them, so um.
For example, he sometimes takes cases in jurisdictions where he knows or he hopes that the case will get more attention. Um. For example, he objected to a sulment um in jurisdiction that eventually found its way onto the desk of Judge Richard Posner, who, even if you don't follow the law, you've probably heard his name because he's just very famous. He's a famous as any Jude outside of the Supreme Court,
and Frank got his wish. Posner wrote the decision, and in that decision he wrote that these types of settlements, these disclosure only settlements, were a racket really meant to enrich the planet's attorneys and not to bring back anything for the class um. So the effect he's having it is measurable. Um. But really it's it's forcing these plaineffs
attorneys to work harder. It used to be that they could just object, especially in places like Delaware where a lot of these lawsuits originated, and they were almost guaranteed to get a settlement, and to get a pretty favorable settlement. Now, because of precedent that Frank and others like him are setting, they're sort of having to hunt for jurisdictions and they're
having to work a lot harder. And Frank's basic goal is to make them work so hard that it just becomes too difficult and too costly for them to actually bring these suits. Canibit in about thirty seconds. Tell us about the Competitive Enterprise Institute, who supports it, and where it stands politically. Sure, so if you, um, depending on your political perspective, the CEI is either a fierce defender of free market values or it's an enemy of all
good science. Um, it's it's definitely politically loaded. Uh. It's funded by a lot of um, fairly famous right wing or libertarian UH causes or people. Um. Frank sort of is set apart from the group they they're they're merely he has a nonprofit that's under the wing a CEI. He's certainly paid by them. What's important to know is that the work he's doing also gets the stamp of approval from people like the CO founder of the litigation arm of Public Citizen. Alright, well, Caleb, we're gonna have
to we're gonna have to stop. There are thanks to Caleb Pennon of Bloomberg Business Week for being on Bloomberg Law