The Secaucus hedge fund sued in seven states for its alleged role in the mutual fund trading scandal is scheduled to ask today to have the 61 suits combined and heard in federal court in New York.
Canary Capital Partners – the company started by Edward J. Stern, the scion of the family that owns Hartz Mountain Industries – will make its request at a Sacramento hearing held by the federal Judicial Panel on Multidistrict Litigation.
The company, which is accused of making money from mutual fund trades at the expense of the shareholders, wants the suits consolidated and heard in one location, said Cathy Maida, the court’s chief deputy clerk. Cases are generally combined where there are similar factual issues to be discussed – mainly to cut back on the time, effort, and cost of hearing similar issues in cases around the country, she said.
But Canary Capital could face opposition from attorneys representing investors who filed another 120 suits against various mutual funds. A Canary spokesman did not respond to a request for comment Wednesday.
Other defendants in shareholder suits include Bank of America Corp., Bank One, and Janus Capital Group. Canary traded shares in all three, and in some suits there are multiple defendants, which complicates efforts to consolidate the suits.
Stern in September agreed to pay $40 million to settle a complaint filed by New York State Attorney General Eliot Spitzer, which was the first public sign of the mutual fund scandal.
The complaint alleged that Stern and Canary had traded illegally after the market had closed. It also accused him and the company of using “market timing,” a practice of rapid trading that exploits the sluggishness of the mutual fund market to react to news events.
Market timing is not illegal, but many mutual funds ban it.
In the settlement with Spitzer, Stern admitted no wrongdoing and agreed to cooperate with the investigation. His testimony has been used in several other mutual fund cases.
The shareholder suits against Canary largely echo Spitzer’s allegations. Some suits against the mutual funds also accuse them of misleading shareholders by claiming they did not allow market timing when they allegedly permitted Canary to engage in the practice.
A suit against Bank of America alleges that the company installed special computer equipment in Stern’s office to help him trade.
Denise Davis Schwartzman, an attorney for investors who put money into Janus, Putnam, and other funds, said her law firm will argue strenuously against consolidating in New York.
She said key witnesses in the suits would be mutual fund officials and directors, so her clients want each suit heard in the district closest to where the mutual fund is based.
“We are very much opposed to one huge behemoth litigation under one judge,” she said. “It has no efficiency driving it, because the only defendant that would be served by this would be Canary.”
Larry D. Soderquist, a law professor at Vanderbilt University’s Corporate and Securities Law Institute, said a factor on consolidation questions is where most of the witnesses are located.
“It can also depend on the workload of particular federal courts and also the expertise of judges in particular courts,” he said.
The panel is not expected to rule today.
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