“I would specifically like to know if I am your ‘client’ according to your records,” Charles D. Chalmers asked in a May 28, 1998, e-mail to Barrack, Rodos & Bacine, a Philadelphia law firm that specializes in filing securities fraud class actions. He didn’t get a yes or no answer. But meanwhile, Barrack Rodos was busy putting him forth as a “lead plaintiff” in a class action that settled without his knowledge, input or consent. At the time, Mr. Chalmers, a San Francisco lawyer, also had no idea what it meant to be a “lead plaintiff.” But he did some research on it that would cause trouble for Barrack Rodos and three other plaintiffs’ firms involved.
Mr. Chalmers’ experience sheds light on what happens in practice under the reforms to investor class actions that Congress enacted in December 1995 to target abuses by plaintiffs’ lawyers. And if his saga is any example, the law may not be working as Congress intended. Mr. Chalmers’ strange relationship with Barrack Rodos stems from his investment in Digital Lightwave Inc., a Clearwater, Fla., maker of test products for high-speed telecommunications networks. On Jan. 22, 1998, the company announced that it would restate revenues sharply downward, citing the “discovery of certain errors in the timing of revenue recognition and a review of accounting policies and procedures.” Second-quarter revenues for 1997 would be restated from $5.3 million to $2.7 million and third-quarter revenues from $8.3 million to $1.4 million, according to the press release.
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