CLASS ACTION: Boston-based Eaton Vance Corp has emerged as the largest plaintiff in the litany of securities fraud claims made against Irish pharmaceuticals group Elan. Fox Asset Management, a subsidiary of Eaton Vance based in New Jersey, has joined the class action being put together by New York law firm Wolf Haldenstein Alder Freeman & Hertz, according to Mr Fred Isquith, a partner with the law firm.
"We believe that Fox is the largest single claimant," he said.
Fox lost $12 million (€13.6 million) when shares in the Dublin-based group slumped after concerns about its accounting practices were raised in February, he said. The shares, currently trading around $11 in the US, were at $50 at the start of the year when Elan's accounting practices came under scrutiny in the wake of the Enron collapse. Shortly afterward the company issued a profits warning, driving the shares down further.
The shares fell 10.45 per cent in Dublin yesterday to €12, their lowest level since December 1996, as the company prepares to announce first-quarter results.
Around 30 law firms have issued proceedings against Elan on behalf of clients. They have been taken under class-action legislation, which allows plaintiffs to sue on behalf of a class of shareholder or other injured party.
The claims centre on around 50 research-and-development vehicles set up by Elan. Wolf Halderstein alleged that Elan used them to inflate its earnings because it would invest in the vehicles and then take back the cash as licensing fees that were booked as revenues.
The run on Elan shares was triggered by a front-page article in the Wall Street Journal that focused on the use of the R&D firms.
Other law firms have filed similar class-action law suits in San Diego and Atlanta. Under US law, the various claims will be combined but only those initiated within two months of the first class action are taken into account when the class of plaintiff eligible to share damages is defined by the courts.
This process got under way last week when the court was asked to consolidate the class actions and appoint a lead plaintiff and lead counsel. Normally the largest plaintiff is the lead plaintiff and its lawyers the lead counsel. The lead counsel will fight the action and earn the largest fee, which can be up to 25 per cent of damages won.
Any shareholder who falls within the class defined by the court is eligible to share any damages that are awarded. According to Mr Isquith, any Irish shareholder who bought their shares on the US market will almost certainly qualify for the class.
Over half of the Elan shares bought by Irish brokers for private clients are purchased in the US, according to Dublin market sources. It has not yet emerged if any private or institutional Irish investors have joined any of the class actions.
Once the consolidated complaint has been filed, Elan will be able to apply to the court to have the action dismissed. Elan has said its accounting and business practices will stand up to any scrutiny. A spokesman for the group has dismissed the actions as being entirely without merit.
Many of the class actions also list Mr Donal Geaney, Elan chairman and chief executive, as a defendant, along with a number of other senior management figures. KPMG, the company's auditors, has also been named in the litigation but has not commented.
Eaton Vance manages assets of around $49 billion. Although small by US standards, Eaton Vance has been one of the best-performing fund managers in the recent bear market. Fox Asset Management, which is an 80 per cent-owned subsidiary, has around $2 billion in assets under management.
