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Sokolow v. LJM Funds Management, Ltd.

United States District Court, N.D. Illinois, Eastern Division

June 26, 2018

LEONARD SOKOLOW, Plaintiff,
v.
LJM FUNDS MANAGEMENT, LTD., Defendants. STANLEY BENNET, Plaintiff,
v.
LJM FUNDS MANAGEMENT, LTD., Defendants. JAMES NOSEWICZ, Plaintiff,
v.
LJM FUNDS MANAGEMENT, LTD., Defendants.

          MEMORANDUM OPINION AND ORDER

          Robert M. Dow, Jr. United States District Judge

         This is a securities class action against LJM Funds Management, Ltd.; Two Roads Shared Trust; Northern Lights Distributors, LLC; Andrew Rogers; Mark Gertsen; Mark Garbin; Neil Kaufman; Anita Krug; James Colantino; Anish Parvataneni; and Anthony Caine. Seven movants requested that the Court consolidate the above-captioned cases and sought appointment as lead plaintiff in this matter: (1) Paragon National, LP [47], (2) Lynda Godkin [52], (3) High Country Capital Management [57], (4) Tradition Capital Management LLC, and SRS Capital Advisors, Inc. (together, the “Investment Advisor Group”) [61], (5) Donn Glander, Charles Irvine, Gustav Swanson and Pell Limited Liability Company (together, the “Glander Group”) [67], (6) Justin and Jenny Kaufman, Joseph N. Wilson and Dr. Larry and Marilyn Cohen (collectively, the “Kaufman Group”) [71], (7) MWH Investments, LLC, Personal CFO Solutions, LLC, John W. Kapouch, and James Frugé (collectively, the “MWH Group”) [75]. Subsequently, the Investment Advisor Group and the Kaufman Group (together, the “Combined Group”) asked that they be appointed lead plaintiff together. [97.] All other movants except the MWH Group and Lynda Godkin either support or do not oppose appointing the Combined Group as lead plaintiff in this action.

         To the extent that the motions [47; 52; 57; 61; 67; 71; 75] request consolidation of the above-captioned cases, they [47; 52; 57; 61; 67; 71; 75] are denied as moot because the Court already has consolidated the above-captioned cases. [See 78.] For the reasons set forth below, the Court grants in part the motions of the Investment Advisor Group [61] and the Kaufman Group [71] and approves the selection of Robbins Geller Rudman & Dowd and Labaton Sucharow LLP as co-lead counsel. The Court denies the remaining motions [47; 52; 57; 67; 75] in full. The case is set for further status on July 17, 2018 at 10:15 a.m.

         I. Background

         The above-captioned actions arise from alleged violations of the Securities Act of 1933 (the “Securities Act”) by LJM Funds Management, Ltd. (“LJM”), Two Roads Shared Trust, Northern Lights Distributors, LLC, and several individual defendants (collectively, the “Defendants”). LJM Preservation & Growth Fund (the “Fund”) is a mutual fund traded under the symbol (“LJMIX”). Plaintiffs allege that Defendants caused the Fund's publically traded share price to be artificially inflated by making false and/or misleading statements related to the Fund and/or failing to disclose that (i) the Fund was not focused on capital preservation, (ii) did not take appropriate steps to preserve capital in down markets, and (iii) left investors exposed to an unacceptably high risk of catastrophic losses. Plaintiffs further allege that when the fraud was revealed to the investing public, the market value of the Fund's shares declined precipitously, damaging class members. Seven movants originally sought to be appointed lead plaintiff. Only the Combined Group, the MWH Group, and Lynda Godkin continue to seek appointment as lead plaintiff. Currently pending before the court are the motions for appointment as lead plaintiff filed by the remaining three movants.

         II. Legal Standard

         The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides guidelines for the appointment of a lead plaintiff in a securities class action case. The PSLRA requires that the Court “appoint as a lead 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 PSLRA establishes a rebuttable presumption that the “most adequate plaintiff” is the “person or group of persons” who “has either filed the complaint or made a motion in response to a notice, ” “has the largest financial interest in the relief sought by the class, ” and “otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure.” 15 U.S.C. 78u-4(a)(3)(B)(iii)(I)(aa); (bb); and (cc). This presumption may be rebutted, however, if a member of the purported class establishes that the “presumptively most adequate plaintiff will not fairly and adequately protect the interests of the class” or “is subject to unique defenses that render such plaintiff incapable of adequately representing the class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(II). The PSRLA further provides that the “most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.” 15 U.S.C. § 78u-4(a)(3)(b)(v).

         III. Analysis

         A. Timing of Motions

         By statute, any motions for lead plaintiff of a class action brought under the PSLRA must be made within 60 days of the Early Notice. See 15 U.S.C. §77z-1(a)(3)(A)(i)(II). The Investment Advisor Group and the Kaufman Group modified their initial proposals and submitted a joint response brief asking that they be appointed lead plaintiff together, with their respective attorneys serving as co-lead counsel. [See 97.] Although the Combined Group filed its joint amended proposal after the 60-day deadline in the PSLRA, courts have permitted amended motions by groups that were combined after the 60-day deadline as long as each member of the amended group previously filed a timely motion for appointment as lead plaintiff. See City of Sterling Heights Gen. Employees' Ret. Sys. v. Hospira, Inc., 2012 WL 1339678, at *3 (N.D. Ill. Apr. 18, 2012) (citing Peters v. Jinkosolar Holding Co., Ltd., 2012 WL 946875, at *10 (S.D.N.Y. March 19, 2012)). Because the Investment Advisor Group and the Kaufman Group each filed timely motions, the Court concludes that the amended proposal also is timely. Thus, all of the remaining movants have satisfied 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(aa).

         B. Financial Interest

         The PSLRA presumes that the most adequate plaintiff is the plaintiff who-in addition to satisfying other requirements-has the largest financial interest in the relief sought by the class. “The largest financial interest provision seeks to increase the likelihood that institutional investors will serve as lead plaintiffs by requiring courts to presume that the member of the purported class with the largest financial stake in the relief sought is the ‘most adequate plaintiff.' The PSLRA, however, does not specify how courts should measure the largest financial interest in the relief sought by the class.” Hospira, Inc., 2012 WL 1339678, at *3 (internal citations and quotations omitted).

         Most courts consider: “(1) the total number of shares purchased during the class period; (2) the net shares purchased during the class period (in other words, the difference between the number of shares purchased and the number of shares sold during the class period); (3) the net funds expended during the class period (in other words, the difference between the amount spent to purchase shares and the amount received for the sale of shares during the class period); and (4) the approximate losses suffered.” Hospira, Inc., 2012 WL 1339678, at *4 (citing Lax v. First Merch. Acceptance Corp., 1997 WL 461036, at *5 (N.D. Ill. Aug. 11, 1997)); see also In re Cendant Corp. Litig., 264 F.3d 201, 263 (3d Cir. 2001) (“[W]e agree with the many district courts that have held that courts should consider, among other things: (1) the number of shares that the movant purchased during the putative class period; (2) the total net funds expended by the plaintiffs during the class period; and (3) the approximate losses suffered by the plaintiffs.” (citations omitted)). While courts differ on the precise weight to apply to each factor, most courts agree that fourth factor-the approximate losses suffered-is the most salient factor in assessing the lead plaintiff. See In re CMED Sec. Litig., 2012 WL 1118302, at *3 (S.D.N.Y. April 2, 2012) (“In giving weight to the four factors, courts in this District, as others, place the most emphasis on the last of the four factors: the approximate losses suffered by the movant above any weight accorded to net shares purchased and net expenditures.” (citations and quotations omitted)); In re Diamond Foods, Inc. Sec. Litig., 281 F.R.D. 405, 408 (N.D. Cal. Mar. 20, 2012) (concluding that the “fourth factor, ‘approximate loss,' is generally considered the most important factor”); Canson v. WebMD Health Corp., 2011 WL 5331712, at *2 (S.D.N.Y. Nov. 7, 2011) (concluding that “[t]he fourth factor, loss suffered, weighs most heavily in the court's analysis” (citation omitted)).

         The movants still being considered for appointment as lead plaintiff claim the following losses:

Movant

Claimed Financial Interest [1]

Combined Group

$8, 623, 635

MWH Group

$8, 270, 160

Lynda Godkin

$188, 000


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