(Reuters) - The battle between two law firms vying to lead a shareholder lawsuit against Boeing over its 737 MAX planes escalated in court on Friday, with one accusing the other of engaging in a campaign of “harassment” and “intimidation.”
Kahn Swick & Foti represents a Nevada family that claims to have invested $40 million in Boeing stock and lost nearly $5 million when Boeing’s share price fell by $34 billion within two weeks of the March 10 crash of an Ethiopian Airlines 737 MAX.
Bernstein Litowitz Berger & Grossmann, for its part, says the family’s assertion is “implausible.” It reached that conclusion after firm investigators staked out the Nevada family’s homes and peppered their friends and coworkers with phone calls.
According to Bernstein Litowitz’s brief, people who know the Nevada family - a retiree who lives half of the year in Shanghai, an office worker in the state’s pest control bureau, and a casino employee who moonlights for a pest control company – “expressed disbelief” about the family’s claim to have invested more than $40 million in Boeing stock.
The family’s lawyers, meanwhile, accused Bernstein Litowitz of trying to scare off the Nevada family in order to clear the way for its client, the Mississippi Public Employees’ Retirement System. Kahn Swick & Foti argued in its brief that Bernstein Litowitz and MissPERS are so desperate to run the Boeing case that they hired investigators “to harass and stalk” their rival lead plaintiff candidates.
Bernstein Litowitz partner Gerald Silk and Kahn Swick partner Ramzi Abadou both declined to provide statements responding to the other’s allegations.
Kahn Swick clients Kathleen Wang and Kenneth Wang Jr, did not respond to emails requesting comment. Boeing lawyers from Kirkland & Ellis also did not respond to requests for comment.
In selecting lead plaintiffs for shareholder class actions, judges usually look first at the magnitude of an investor’s losses. With the biggest losses of any of the five investors that asked to lead the Boeing case, the Wangs currently have an edge.
MissPERS has said it lost about $2.5 million in its Boeing stake, the second largest claimed loss.
It’s not at all unusual for law firms to fight over whose client will win appointment to lead shareholder class actions. The investor selected as a lead plaintiff typically picks the lawyers who will serve as lead counsel. Those lawyers, in turn, are entitled to the lion’s share of court-awarded fees if the case settles. Boeing lost tens of billions of dollars in market capitalization after its 737 MAX planes were grounded, making it an attractive target for shareholder litigation.
The Boeing leadership fight, however, is unusual - both in the magnitude of the losses claimed by the Nevada family and the ferocity of Bernstein Litowitz’s investigation of the family’s claims.
Kahn Swick’s clients - Kenneth and Kathleen Wang and their adult son, Kenneth Wang Jr - certified in a filing in federal court in Chicago that they purchased more than $40 million in Boeing stock in the months preceding the Ethiopian Airlines crash and the grounding of 737 MAX planes. Wang family members sometimes purchased millions of dollars’ worth of shares in a single day. The family alleges that the value of its stake dropped by $4.7 million as the market responded to bad news about the 737 MAX jets.
Bernstein Litowitz says the Wangs’ certification does not indicate sales of Boeing shares – an “unusual” trading pattern, given the magnitude of the Wangs’ investment. According to Bernstein Litowitz’s analysis, the Wangs claim to have bought more Boeing shares and lost more money than Charles Schwab, TD Asset Management and Oppenheimer, which collectively manage billions of dollars.
Despite Bernstein Litowitz’s suspicions about the Wangs’ trading, the firm initially attempted to team up with the family, suggesting that the Wangs and MissPERS move jointly to lead the Boeing case.(Several other investors, including a Canadian pension fund, have also asked to be appointed lead plaintiffs, though none have losses as large as either the Wangs or MissPERS.)
When Kahn Swick and the Wangs turned down Bernstein Litowitz’s invitation to join forces, Kahn Swick said Bernstein Litowitz brought in a team of investigators to vet the Wangs’ claims. Investigators ran down the Wangs’ financial records in the U.S. and China, which isn’t out of the ordinary in securities class actions.
But according to Kahn Swick’s filings, Bernstein didn’t stop there. Investigators hired by the firm parked outside the Wang residences and made “repeated phone calls to their business associates, work colleagues, friends and neighbors,” probing for information about how the apparently modest family could have amassed a $40 million investment in Boeing. Bernstein investigators called Kenny Wang’s boss at the pest control company and his girlfriend’s sister. They even, according to Kahn Swick, entered the home of one of Kathleen Wang’s neighbors for an interview in person.
Kahn Swick filed a motion to curtail Bernstein Litowitz’s investigation. Judge Tharp denied that motion on July 3, ruling that both sides should have an opportunity to address the propriety of the investigation. The Wangs’ lawyers also went to Nevada state court to ask for an order of protection against Bernstein Litowitz investigators. That motion is scheduled for a hearing next week.
Bernstein Litowitz suggested in the brief it filed Friday that the investigation vindicated its suspicions about the Wangs’ reported Boeing investment. Kathleen and Kenneth Wang, Sr, appear to have no property except for a home valued at about $685,000 and two cars worth about $30,000. Kenneth Wang Jr has a $385,000 house and two cars, the firm said. He and his mother both appear to earn about $60,000 a year at their jobs, according to the brief.
The owner of the pest control company where the son is employed, who describes himself as a longtime family friend, told Bernstein investigators there was no way the Wangs had invested $40 million. He described the Wangs as “regular working people” and called the assertion that they had tens of millions of dollars in investments “wrong” and “a lie,” according to the Bernstein brief.
Bernstein said that in a case as important as the Boeing shareholder litigation, Judge Tharp cannot appoint lead investors with a cloud over their heads. Kahn Swick responded that if the judge has questions about the Wangs’ trades, the family will show the judge backup documents detailing the transactions, even though such backup is not necessary under the guidelines for securities suits.
The other investors bidding to lead the case seem to be hoping Judge Tharp decides that both the Wangs and MissPERS are too compromised to represent all Boeing investors. The next round of briefs is due on Aug. 2. Stay tuned.
Reporting by Alison Frankel
The views expressed in this article are not those of Reuters News.