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March 9, 2004

Institute for Legal Reform Calls for SEC Review of Law Firm

WASHINGTON, D.C. – The United States Chamber of Commerce’s Institute for Legal Reform asked the Securities and Exchange Commission to investigate certain short sellers and the Milberg Weiss law firm, following a recent California ruling that the firm’s clients appeared to have participated in a fraud on shareholders. The court ruling removed these short sellers as lead plaintiffs in a class action.

The California chief judge raised the question whether Milberg Weiss, lead counsel for the class, “actively participated in or provided advice to plaintiffs regarding their scheme to cause a fall in Terayon’s stock price … The court is extremely concerned by the lack of candor to the court by plaintiffs and lead counsel.”

“Lawyers who scheme to depress stock prices, followed by class action suits crying ‘foul’ are nothing more than highway robbers in pinstriped suits,” said Stanton D. Anderson, chief legal officer of the U.S. Chamber. “The Securities and Exchange Commission must ensure the questions raised by the court about the short sellers and Milberg Weiss are answered.”

The Chamber’s Institute for Legal Reform has written to SEC Chairman William H. Donaldson, asking for an investigation into whether the short sellers and Milberg Weiss have engaged in securities fraud.

In the California case, In re Terayon Communications Systems, Inc., Chief Judge Marilyn Hall Patel concluded that Milberg Weiss’ short-selling clients “appear to have participated, if not perpetrated, a fraud of their own on the market” and that Terayon’s shareholders “may find they have a claim” against them. Lead plaintiffs in securities class actions are required to represent the interests of all shareholders. According to the court, the evidence raised issues about Milberg Weiss’ knowledge of “actions which were allegedly intended to devalue Terayon stock.” The court found it “probable” that there was a conflict between Milberg Weiss and the remainder of the class.

“Illegally manipulating financial markets harms all investors and businesses and – if the speculation is true – deserves the SEC’s highest censure,” said Anderson.

The U.S. Chamber of Commerce Institute for Legal Reform seeks to promote civil justice reform and make America’s legal system simpler, fairer and faster for everyone.

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