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The Sunday Times: Deutsche Telekom, Parmalat, Royal Dutch Shell have shown corporate fraud is not only endemic in the US

HEADLINE: US class action star targets UK

Big business beware: litigation supremo Michael Hausfeld is setting up shop in Britain and he’s in the mood for a good fight.

March 11, 2007
By Holly Watt

IN American corporate boardrooms, the mere mention of the name Michael Hausfeld is enough to spread panic among directors and investors.

He is one of the country’s top litigators who has won billions in compensation for everyone from Holocaust victims to Alaskan fishermen and consumers ripped off by Microsoft. This month Hausfeld is opening a London office and is preparing an aggressive assault on British companies. In an exclusive interview with The Sunday Times this weekend, he said that there “are laws [in Britain] and they’re not being enforced”.

From the new London office, the firm will take on a wide range of cases across the corporate spectrum. He reels them off: “We’re looking at competition, cartel enforcement, human rights, employment, investor rights and environmental issues.”

He is already understood to be lining up huge British-based class-action lawsuits based on cases under way in the US. The airlines — under investigation for fixing the prices of long-haul flights and cargo shipments — may be the first in his sights. In America his firm, Cohen, Milstein, Hausfeld & Toll, has launched claims for compensation for victims of the alleged collusion involving Virgin and British Airways.

Will this be fought in the British courts as well? “It’s got to have both components, yes,” he said.

Similarly, he is pursuing a $200 billion (£104 billion) damages claim in the US on behalf of tens of millions of smokers who may have been incorrectly led to believe that “low-tar” and “light” cigarettes were less damaging than the regular strength alternatives.

In Britain, class-action cases traditionally have a terrible “ambulance chaser” reputation and have largely proved unsuccessful. However, Hausfeld believes this is about to change. British and European governments are now consulting on far-reaching changes to enable consumers and investors to hold more companies to account in court.

In particular, the DTI will shortly rule on whether claimants have to opt in to a case in a class-action suit, as is the current system, or whether anyone who fits the definition of the class is automatically included unless they opt out. A similar move in the 1960s in America sparked the rise in mass actions.

It is shareholder litigation — where shareholders sue a company’s management for share-price movement caused by alleged illegal or improper activity — that unnerves boardrooms most.

“Deutsche Telekom, Parmalat, Royal Dutch Shell, they have shown that corporate fraud is not only endemic in the US,” said Hausfeld. “When the fraud comes out, and you have a movement of market price when the revelations come out, shareholders need restitution.”

As class actions evolve in Britain, so too have the financing of the expensive cases. These new multi-billion-pound claims can be financed by hedge funds and others seeking to profit from the legal costs involved. For example, Insolvency Management (IM), which was founded by insolvency expert Chris Morris, uses money from high-net-worth individuals to bank-roll cases and share the proceeds from the litigation. IM, which includes former London Olympics chief Barbara Cassani among its investors, is currently bringing a £90m negligence claim against accountant Moore Stephens over its role in auditing collapsed trading company Stone & Rolls.

Pensions funds are also getting involved. An American case against BP’s management, including outgoing chairman Lord Browne, is being funded by the London Pensions Fund Authority, which represents 73,000 London council workers and pensioners.

Hausfeld insists that he will not be going after the level of damages that have made headlines in America. “We advise clients who contact us that we don’t look for double or treble damages. We seek complete restitution — the present value plus interest.”

There is a big “but”, though. “The only exception is when there is recidivism — aggravating circumstances. If you’ve done something once, then that’s one thing. If you’ve done something three, four, five times, then that’s different.” Hausfeld is softly spoken and looks younger than his 61 years. He prefers talking about the more populist environmental and human-rights cases. He talks at some length about a case that seeks to hold businesses responsible for aiding and abetting the apartheid regime in South Africa, listing, among other crimes, genocide, extrajudicial killing, torture and sexual assault. IBM and ICL stand accused of assisting the regime, alongside oil companies and car manufacturers, which provided armoured vehicles.

He grew up in a left-leaning Jewish family in Brooklyn, New York, and left his first job in a leading corporate law firm six months after law school having been told it “didn’t need any Ralph Naders”, a reference to the veteran consumer champion.

He becomes animated talking about the case that still dominates his career, the lengthy battle with the Swiss banks over Nazi gold looted from Holocaust victims. The Swiss banks eventually settled in 1998, paying the survivors $1.25 billion. “It was very emotional, principally because you have such divergent views. The Swiss were purely mechanical and economically orientated, and the victims were the subject of a banking system that encouraged the investment of their money and then denied the return, as well as knowingly participating with the Nazi government, laundering looted assets and financing concentration camps.”

The fight with the Swiss banks was, to some degree, personal. As the Nazis invaded Poland in 1939, Hausfeld’s father, Walter, fled to the US. Walter’s brother, Michael David, stayed behind. Shortly after the invasion, the young men in the town were rounded up and shot. Walter named his son after the lost brother.

Hausfeld is well aware that the City is not likely to embrace him and that his type of law is treated with cynicism here. For certain people, his arrival constitutes “very bad news” and he acknowledges that some UK law firms have been “less than welcoming”. He does not seem concerned. He smiles briefly: “You’ve got some wonderful laws, but you’ve got some serious problems.”

http://business.timesonline.co.uk/tol/business/law/article1496294.ece

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