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Both lawsuits were filed Jan. 26 in the U.S. District Court for the Southern District of California. Each named Countrywide, some of its former executives and directors, and others as defendants. Among the individual defendants is former Countrywide chief executive Angelo R. Mozilo, who agreed last year to a $67.5 million settlement with the U.S. Securities and Exchange Commission.

By filing the "opt-out" suits, Michigan and Fresno County joined a long list of large institutional investors who declined to remain a part of the class and participate in a $624 million class-action settlement reached in 2010. These funds believe they can recover more money through individual actions.

In their complaints, the plaintiffs argue that Countrywide misled its investors regarding the Company's underwriting practices, its exposure to the subprime market and its financial results.

The complaints state that, between March 12, 2004, and March 7, 2008, Countrywide assured investors that it should not be affected by a housing market downturn. However, the lenders' share price dropped from more than $35 per share to about $5 per share as a series of disclosures revealed that the company actually had lax mortgage underwriting guidelines and had failed to properly increase its loan loss reserves as necessary.

Countrywide was the largest mortgage lender in the United States when Bank of America purchased it in July 2008.

Plaintiffs in Kwikset Corp. v. Superior Court were consumers who had purchased locksets manufactured by Kwikset Corp. that were labeled as "Made in the USA," despite containing foreign parts or being partially assembled abroad.

At issue was whether plaintiffs still had standing to sue under California's consumer protection and false advertising laws. Since Proposition 64 took effect, those laws have required a showing that the plaintiff "lost money or property" as a result of the defendant's conduct. Plaintiffs argued that they lost the money they spent to purchase the mislabeled locksets. Defendant countered that plaintiffs had lost nothing because they received working locksets in return.

Berman DeValerio's amicus brief, filed on behalf of the California Teamsters, the California Nurses Association and the Service Employees International Union, informed the Court of the importance that union members and others place on the "Made in the USA" label. It argued that consumers misled into buying products falsely labeled as "Made in the USA" should have standing to bring false advertising claims.

In a 5-to-2 decision issued Jan. 27, the Court ruled decisively in favor of plaintiffs. The Court held that "plaintiffs who can truthfully allege they were deceived by a product's label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property' within the meaning of Proposition 64 and have standing to sue" under California's consumer protection and false advertising laws. As the Court succinctly put it: "Simply stated: labels matter." The Court's opinion provided much-needed clarity in the law and is an excellent result for consumers.

In the Bears Stearns case, the judge's Jan. 19, 2011 decision allows plaintiffs to pursue securities fraud claims against the Bear Stearns Companies, former auditor Deloitte & Touche LLP and seven individual defendants. Plaintiffs and their lawyers will now begin gathering evidence and testimony for trial.

"The judge has ruled that our case is strong enough to warrant a full hearing on the merits," Michigan Attorney General Bill Schuette said in a statement reacting to the news. "We are encouraged that the Court agrees that pensioners can pursue their legal rights when there is strong evidence, as there is here, of such a massive deception."

The State of Michigan is the court-appointed lead plaintiff in the lawsuit, which accuses the defendants of misleading the state's pension funds and other investors about Bear Stearns' risky exposure to the U.S. housing market and subsequent write-downs to its assets which led to a collapse of the company and its stock. Berman DeValerio is co-lead counsel.

The case is In re Bear Stearns Companies, Inc. Securities, Derivative, and ERISA Litigation. The judge's opinion is available here.

In the second case, a federal judge named four Ohio pension funds co-lead plaintiffs in a national class action against BP, along with the New York State Common Retirement Fund. Berman DeValerio represents the Ohio funds in the lawsuit, which named the London-based energy company, certain of its officers and directors, and BP America, Inc. as defendants.

The lawsuit stems from violations of federal securities laws. Specifically, the New York and Ohio funds allege that the defendants made false and misleading statements regarding BP's safety protocols, operations, and safety record, as well as the company's ability to respond to a major oil spill.

The truth about those false and misleading claims began to emerge after an explosion on BP's mobile offshore drilling unit, Deepwater Horizon, caused the rig to sink and oil to spill into the Gulf of Mexico leading to the largest oil spill in history. As the full impact of the spill became known, BP's stock fell approximately 40%, eliminating billions of dollars in the Company's total market capitalization value.

According to the court filings, the New York and Ohio funds estimated their combined losses as ranging from $181 million to $229.4 million, depending on the calculation methodology, on transactions between June 20, 2005 and June 1, 2010.

The case is In re BP, PLC Securities Litigation. The judge's lead plaintiff memorandum and order is available here.

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Under the settlement agreement - still awaiting court approval - both companies will delay votes on the merger to enable consideration of other potential takeover offers. Institutional investors had argued that the proposed merger deal deterred competing bids that might have yielded better results for shareholders.

Plaintiffs successfully obtained concessions, requiring Alberto Culver's board to eliminate the matching rights it had granted Unilever and, if presented with a superior bid, to share with any bidder the same confidential information provided to Unilever. Alberto Culver must also lower the break-up fee to back out of the deal, reducing it from $125 million to $100 million. Finally, Plaintiffs negotiated the disclosure of substantially more information about the proposed transaction and process, and also negotiated a postponement of the scheduled vote to allow shareholders more time to analyze the transaction and for potential bidders to consider making a superior bid.

Alberto Culver, headquartered in Melrose Park, Illinois, owns a variety of popular beauty products, including the Nexxus, Noxzema, St. Ives and VO5 brands. Unilever manufactures Dove soaps, Pond's creams and Suave shampoos, among many other brands.

The lawsuit was filed in Delaware Chancery Court on Oct. 7, 2010. In addition to the Oklahoma Firefighters, the shareholder group was also led by City of Riviera Beach, Laborers Local 235 and KBC Asset Management.

The Nov. 18 BankAtlantic verdict is the first jury verdict to come out of the recent financial crisis, and it could bode well for cases that are pending against other companies.

"There are a lot of defendants headed to trial who are charged with making misrepresentations about real estate loan portfolios. It's great to see one of the early cases coming in with a verdict for plaintiffs," said Peter Pease, a partner in Berman DeValerio's Boston office.

The overwhelming majority of securities cases are settled or dismissed prior to trial. In fact, only 10 securities class actions have been tried to a verdict since the Private Securities Litigation Reform Act (PSLRA) took effect in 1996, according to information compiled by Adam Savett, director of securities class actions for Claims Compensation Bureau, LLC. In six of those 10 cases, juries found for plaintiffs, compared to four for defendants. (Seven more have been tried since 1996, but settled during trial, according to Savett's data. Another 11 securities cases have gone to trial since 1996, but the challenged conduct occurred before the effective date of the PSLRA.)

The BankAtlantic case covers investors who purchased shares in the Florida-based lender between April 26 and Oct. 26, 2007.

For decades, rating agencies ran wild on Wall Street, using their privileged position in the financial game to post some of the highest profit margins on the S&P 500. But the agencies' transformation from passive assessors of corporate risk to financial engineers exacted a catastrophic toll on the world economy.

While the rating agencies didn't single-handedly cause the 2008 financial collapse, they could have single-handedly prevented it. Now, with the economy still in tatters, Congress, federal regulators and activist investors are working on two fronts: to hold the rating agencies liable for their part in the crisis and keep them accountable in the future.

Working Toward Accountability
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama on July 21, 2010, aims to increase accountability and transparency among rating firms in a number of ways. Among other things, the law requires the agencies to disclose more information about rating methodologies and tighten internal controls designed to avoid conflicts of interest. Under Dodd-Frank, the Securities and Exchange Commission will establish an Office of Credit Ratings to oversee the agencies, while the SEC and other federal agencies will eliminate their reliance on ratings.

One critical component of reform is the creation of a new system by which the rating agencies will be compensated for their ratings. The Dodd-Frank bill contemplates rulemaking by the SEC on this front, and several proposals are under consideration which aim to neutralize the pernicious effects of the present system, where the issuer of the security pays the rating agency for rating its security.

On the accountability front, Dodd-Frank eliminates rating agencies' long-standing exemption from legal liability for any misleading statements in ratings that are later used in registration statements.

Even before Congress acted, however, the rating agencies were feeling some legal heat. The California Public Employees' Retirement System's seminal lawsuit, CalPERS v. Moody's et al., filed by Berman DeValerio in July 2009, is one of several private actions pending against the agencies. The Connecticut attorney general's office is litigating a case against Standard & Poor's and Moody's Corp., while the California attorney general's office is conducting its own far-reaching investigation.

Historical Perspective
To understand how rating agencies got out of control, it is helpful to look at their history.

In their earliest days, rating agencies performed a simple yet valuable service to the investor community by rating creditworthiness and analyzing the value of corporate bonds and government debt. In the early 1900s, John Moody published a newsletter for investors focused on railroads that eventually branched out to become a widely used evaluation tool for corporate debt and creditworthiness. Other rating companies followed in Moody's footsteps, including Fitch Publishers and Standard Statistics (the precursor to Standard & Poor's). But for decades the industry changed little fundamentally.

In the 1970s, however, two key transformations took place. Rating agencies transitioned from a subscription-based revenue stream to an "issuer pays" model in which the rating agencies were paid by the debt-issuers. Additionally, the SEC granted certain credit rating agencies status as Nationally Recognized Statistical Rating Organizations, effectively creating a government-sanctioned oligopoly with little regulation.

The rating agencies operated in an environment in which they could more or less do as they pleased. And real trouble arrived with the advent of structured finance in the late 1980s.

Due to the inherent complexity and opaqueness of structured finance products, such as mortgage-backed securities and collateralized debt obligations, rating agencies assumed a more pivotal role in the financial industry. They not only assisted in engineering the construction of structured investment products, they also became a gatekeeper to the structured finance market. Put another way: none of these products could successfully come to market without a rating agency's blessing.

Throughout the late 1990s and into the early 2000s, the rating agencies established and operated inadequate and incompetent review processes that were an important cause of the eventual financial collapse. Simultaneously, they were reaping huge profits.

By rating a structured investment product, Moody's or Fitch typically received between $100,000 and $1 million in revenue, as opposed to $50,000 for rating a municipal bond of similar size. The more complex the product, the more the rating agencies could charge - and the more essential the rating agencies became to the debt issuer.
Competition spurred a "race to the bottom" in rating quality. Banks would shop for the best rating available, creating a dangerous conflict of interest for rating agencies. This market dynamic was evident to the players involved, including Moody's CEO Raymond McDaniel.

In an October 2007 report to the company's Board of Directors, McDaniel clearly pointed to the dangers of the present-day ratings game. "The real problem is not that the market does underweights (sic) ratings quality but rather that ... it actually penalizes quality by awarding rating mandates based on the lowest credit enhancement needed for the highest rating," he wrote. "Unchecked, competition on this basis can place the entire financial system at risk."

Less than a year later, Moody's CEO proved prescient: the toxic combination of a boom in complex, opaque structured investments and government-sanctioned, profit-driven ratings helped trigger the worst economic collapse since the Great Depression.

What's in Store
Looking forward, the SEC and other regulators must work to strike a balance between curbing the rating agencies' excess and allowing them to fulfill an important market function. Without healthy rating agencies, large investors would be forced to dedicate tremendous resources to conducting their own due diligence from the ground up. This would drive up transaction costs, while yielding inconsistent analyses. Lacking alternatives, smaller funds could be forced to limit the scope of their investment mix, raising volatility and reducing risk-adjusted rates of return.

Dodd-Frank provides a structure for effective regulation: the house has been framed, but the walls still need to be filled in. The SEC has a lot of work ahead in making rules to keep the rating firms in check.

Now is the time for institutional investors to provide input to the rule-making process. The result, we all hope, is a set of regulations that allows rating agencies to flourish while increasing confidence that their ratings are accurate, thorough and the product of transparent procedures that minimize conflicts of interest.