1. Changing Tides: Supreme Court Decisions and Securities Class Action Lawsuits

2. Singin’ The PL Blues MODERATOR: Denise Amantea, Esq., Partner, Woodruff Sawyer & Company PANELISTS: Stephen Choi, Ph.D., JD, Murray and Kathleen Bring Professor of Law, New York University School of Law Patrick Coughlin, Esq., Partner, Coughlin Stoia Geller Rudman & Robbins LLP Todd David, Esq., Partner, Alston & Bird LLP Jane E. Keller, Esq., Senior Vice President & Chief Claims Officer, The Navigators Group, Inc. Cynthia Zollinger, President & Chief Executive Officer, Cornerstone Research

3. Agenda Recent Supreme Court Decisions  Stoneridge  Dura Pharmaceuticals  Tellabs Impact of These Decisions Statistics Changing Tides

4. Stoneridge (decided 1/2008) Charter – Provided digital cable converter (set top) boxes to customers; Scientific-Atlanta and Motorola supplied the boxes; Charter to miss projected cash flow numbers by $15- 20 million; Charter overpaid by $20 a box - overpayment returned by purchasing advertising; Wash to Motorola and Scientific-Atlanta; Motorola and Scientific-Atlanta allegedly entered transactions and backdated contracts.

5. Stoneridge Supreme Court – Motorola’s and Scientific-Atlanta’s allegedly deceptive acts, which were not disclosed to the market, too remote to satisfy reliance; It was Charter, not Scientific-Atlanta or Motorola that allegedly filed fraudulent financial statements; Nothing Scientific-Atlanta or Motorola did made it necessary for Charter to record the transactions as it reported its financial results to the public.

6. Stoneridge Impact: Rejected Plaintiff’s attempt to create private right of action for aiding and abetting; Really strengthened or extended Central Bank – in Central Bank there had been no allegation of false or deceptive conduct by the Bank; Stoneridge – there were such allegations here – participation in the transaction alone is not enough to establish liability.

7. Dura Pharmaceuticals (decided 4/2005) Alleged misrepresentations about readiness of a new asthmatic spray device; Investors sue alleging stock was purchased at inflated prices; Supreme Court – inflation allegation alone is not enough. Investors have to tie economic loss to the misrepresentations.

8. Dura Pharmaceuticals Impact: Arguably did not change the law meaningfully. Basically followed law already on the books in 2 nd, 7 th, and 11 th Circuits, but made it clear to district courts that failure to allege loss causation adequately justified dismissal; Commentators thought Supreme Court might reconsider fraud-on-the-market doctrine adopted in Basic v. Levinson.

9. Dura Pharmaceuticals Fifth Circuit – Oscar/Belo – At the class certification stage investors have to prove loss causation by a preponderance of the evidence before fraud-on-the-market “reliance” presumption kicks in.

10. Tellabs (decided 6/2007) Manufacturer of specialized fiber optic equipment – demand for core product misrepresented; 7 th Circuit – facts “from which, if true, a reasonable person could infer that the defendant acted with the requisite intent.” Supreme Court – 7 th Circuit standard not high enough. Court rejects toughest standard in 9 th and 6 th Circuits - Plaintiffs are entitled only to most plausible of competing inferences.

11. Tellabs Supreme Court – “Only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Impact? Debatable.

12. Impact of Tellabs on Class Actions Reasonable 3 rd & 7 th Circuits Equally Plausible “at least as compelling” 2 nd, 5 th, 8 th, 10 th & 11 th Circuits Preponderance 1 st, 4 th, 6 th & 9 th Circuits How to Handle Competing Inferences? WeakTougher Tellabs 27% of Lawsuits in our sample from the 9 th Circuit * From Choi & Pritchard (2009)

13. Data Sample 2003 to mid-2007 (right before Tellabs) Dismissal decisions both pre- and post-Tellabs Rule 10b-5 Class Actions

14. Statistical Tests 1.Probability of dismissal 2.How long to get dismissal 3.Incidence of low- value settlements -Other Claims -Case Strength -Firm Size -High Tech Firms -FDA-related claims -Confidential Witnesses -Motive Variables -Lead plaintiff -Lead Counsel TestsControls

15. 1. Probability of Scienter-Based Dismissal +28.9% -19.2% Pre-TellabsPost-Tellabs Ninth Circuit v. All Other Circuits

16. 2. No. of Dismissal Decisions until Dismissal +0.3 +1.8 Pre-TellabsPost-Tellabs Ninth Circuit v. All Other Circuits

17. 3. Low Value Settlements -19.4% +0.03% Ninth Circuit Pre-TellabsPost-Tellabs +55.4% -15.6% “Reasonable” Circuits All Others v. All Others v.

18. Key Take-Away Points Filings up in 2008… Credit crisis-related issues Disclosure losses above average in 2008 Most cases settle for less than $20 million, But mega-cases comprise majority of settlement dollars but likely lower in 2009 — a recurring theme

19. Filings Up in 2008 But Likely Down in 2009 Filings Up in 2008 But Likely Down in 2009 CAF Index TM – Number of Class Action Filings 1997 – 2009 YTD © 2009 by Cornerstone Research www.cornerstone.com

20. Credit Crisis-Related Cases Have Been Prevalent Credit Crisis-Related Cases Have Been Prevalent CAF Index TM – Semiannual Number of Class Action Filings 1997 – 2009 YTD © 2009 by Cornerstone Research www.cornerstone.com

21. DDL Increased Significantly in 2007 H2 But Declined in 2009 H1 Disclosure Dollar Loss: 6 Month Periods 1997 H1 – 2009 H1 Dollars in Billions © 2009 by Cornerstone Research www.cornerstone.com

22. Maximum Dollar Loss: 6 Month Periods 1997 H1 – 2009 H1 Dollars in Billions Market Capitalization Declines Have Been Above Average Market Capitalization Declines Have Been Above Average © 2009 by Cornerstone Research www.cornerstone.com

23. S&P 500 Securities Litigation Heat Maps TM Percent of Companies Subject to New Filings* In 2008 32% of Financial Firms in S&P 500 Were Sued In 2008 32% of Financial Firms in S&P 500 Were Sued © 2009 by Cornerstone Research www.cornerstone.com

24. Federal Judicial Circuits Percentage of Suits Filed by Circuit: 1999 – Sept 2009 Circuit Percentage of Suits 14.7% 234.4% * 37.3% 43.8% 56.2% 64.1% 74.4% 83.6% 920.4% 103.0% 117.7% DC0.5% *Includes IPO allocation cases.

25. Section 11 Claims in 23% of Filings © 2009 by Cornerstone Research www.cornerstone.com Percentage of Total Filings with Section 11 Claims 2002 – 2008

26. Total Settlement Dollars 2004 H1 – 2009 H1 $0.5 $3.0 $1.4 $8.6 $13.6 $4.7 $2.1 $5.2 $0.8 $2.3 $1.9 1H 20042H 20041H 20052H 20051H 20062H 20061H 20072H 20071H 20082H 20081H 2009 WorldCom Enron Tyco Note: Settlement dollars adjusted for inflation; 2009 dollar equivalent figures shown. Half-year designation based on settlement hearing date. N = 39 N = 71 N = 53 N = 66N = 37 N = 55 N = 56N = 54N = 48N = 50N = 56 Dollars in Billions © 2009 by Cornerstone Research www.cornerstone.com

27. Settlement Summary Statistics 2009 H1 Settlements Through 2008 Minimum$0.4million$0.1million Median$6.9million$7.4million Average$34.1million$55.5million Maximum$925.5million$7.7billion Total Amount$1.9billion$57.1billion Note: Settlement dollars adjusted for inflation; 2009 dollar equivalent figures shown. © 2009 by Cornerstone Research www.cornerstone.com

28. Distribution of Settlement Amounts Dollars in Millions Almost 80% of Cases Settle for Less Than $20 Million Almost 80% of Cases Settle for Less Than $20 Million 40.2% 61.5% 78.8% 89.4% 93.9% 97.4% 100.0% Under $5 Under $10 Under $20 Under $50 Under $100 Under $300 All Settlements © 2009 by Cornerstone Research www.cornerstone.com

29. Mega-Settlements Comprise a Significant Portion of Total Settlement Dollars Settlements in Excess of $100 Million (“Mega-Settlements”) Dollars in Millions 4% 6% 15% 8% 6% 50% 66% 53% 42% 95% 79% 57% 4% 41% 20012002200320042005200620072008 % of Settlements in Excess of $100 Million % of all Settlement Dollars Associated with Settlements in Excess of $100 Million © 2009 by Cornerstone Research www.cornerstone.com

30. Dispositions by Year Suit Filed – Excluding IPO Allocation Cases

31. Percentage of Cases Dismissed or Withdrawn: Time from Filing of Suit to Resolution – The First Five Years and Beyond NOTE: Based on 507 dismissed or withdrawn cases filed from 1999 – September 2009.

32. Changing Tides Are there identifiable claim trends emerging subsequent to these rulings? Are there changes in program structures? Have underwriters altered their risk selection appetite? Are there specific policy terms & conditions that have been modified as a result of these cases. Has pricing been affected?

33. Many thanks to … Denise Amantea Stephen Choi Pat Coughlin Todd David Jane Keller Cynthia Zollinger