If shares of stock...are sold or transferred by a
taxpayer who purchased or acquired lots of stock on
different dates or at different prices, and the lot
from which the stock was sold or transferred cannot be
adequately identified, the stock sold or transferred
cannot be adequately identified, the stock sold or
transferred shall be charged against the earliest of
such lots purchased or acquired in order to determine
the cost or other basis of such stock.

But the reasons for that treatment for income tax purposes are
readily apparent: In light of the long-term trend of increasing
values in stocks, plus the facts (1) that FIFO rather than LIFO
therefore typically increases the measurement of currently
recordable gains and (2) that stocks held until death get a
stepped-up basis while at the same time escaping income taxation
entirely, what other approach might be expected from taxing
authorities who are properly interested in maximizing the
benefits to the fisc?

By contrast, what this opinion has just referred to as real-
world considerations mandate the opposite treatment in
identifying what gains or losses have been sustained during a
specified period when prices have been artificially inflated by
some securities law violation. Consider an Investor A with
accumulated holdings of 10,000 shares of XYZ Corporation that
were acquired when everything was on the up and up in terms of
corporate disclosures, and that represent the investor's long-
term commitment to the company's prospects. Assume further that

unknown to Investor A but during what later turns out to bea


And although this added factor would not have carried any weight
in the absence of those special circumstances, it is also worth
noting that the same issue is potentially--and most likely
actually--encountered in most if not all lawsuits brought under
the Act. Accordingly this follow-up opinion will speak to the
basic flaws in the cited article's treatment and will reconfirm
this Court's view of the soundness of the approach that it took
in the Opinion.

It is entirely appropriate that the article's author chose,
as he did, to illustrate his analysis by speaking of green and
red apples, for one possible consequence of working with apples
may be the production of applesauce--as Webster's Third New Int'l
Dictionary (unabridged) 104 defines that product:

an insincere expression of opinion: an assertion that

is patently absurd and usu. phrased in exaggerated

terms: BUNK, BALONEY (I know applesauce when I hear

it--Ring Lardner).

Just so here, for any real-world analysis of how investors have
fared in terms of their transactions in a security during a
specified period necessarily first matches their in and out
transactions during that period, and hence calls for LIFO rather
than FIFO treatment.

There is of course a perfectly respectable place for the use
of FIFO in measuring the economic results from stock transactions
in other contexts. Thus Reg. §1.1012-1(c) (1) provides for

internal revenue purposes:


plaintiffs' class period--a time when the nondisclosure of
adverse information caused the stock price to be too high in
terms of real value--Investor A both buys and sells an aggregate
of 5,000 shares of XYZ stock in various transactions before the
stock price later falls out of bed, and that such class-period
transactions leave Investor A neither out of pocket nor in pocket
when the expenditures for and the proceeds of those transactions
are aggregated.

Is there any real question that Investor A, who has thus
retained the same long-term stake in XYZ that preceded the class
period, has sustained neither gain nor loss from the transactions

during the class period? To sharpen the issue even further, is

there any question that Investor A is in an economic position
identical to that of Investor B, someone who also held 10,000
shares of XYZ before the beginning of what later proved to be the
class period, and who didn't trade at all during the class
period? Or is there any question that both Investor A and
Investor B are in the identical economic position as Investor C,
a person who held no XYZ shares before the class period and whose
purchases and sales during the class period, each aggregating
5,000 shares, also resulted in a wash in terms of the dollars
involved?

Little wonder, then, that an opinion such as In re Olsten

Corp. Sec. Litig., 3 F.Supp.2d 286, 295 (E.D. N.Y. 1998) (emphasis


Mable Order Form {b4/97)

United States District Court, Northern District of Illinois

vane Magistrate Judge Milton I. Shadur “than Anigned Judge

CASE NUMBER 01 C2110 DATE 4/26/2004
CASE In Re: Comdisco Securities Litigation
TITLE

[in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

of the motion being presented.}

qd)

analysis that it had set out more briefly in the Opinion.

| {For further detail see order attached to the original minute order.]

MOTION:

DOCKET ENTRY:

qd) Oo Filed motion of [ use listing in “Motion” box above.]

(2) Q Brief in support of motion due

@) Qa Answer brief to motion due . Reply to answer brief due__.

(4) Oo Ruling/Hearing on setfor____at

(5) oO Status hearing[held/continued to) {set for/re-set for]on___setfor___—at_@_—.

6) o Pretrial conference{held/continued to] (set for/re-set for]on__—_setfor__-_—sat__.

(7) oD Trial[set for/re-set for]on___at

(8) Q {Bench/Jury trial] [Hearing] held/continuedto__—_at

(9) QO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) (OLocatRule 41.1 OFRCP41(a\(1) 0 FRCP41(a)(2).

Qo [Other docket entry] | Enter Memorandum Order. In sum, this Court accordingly adheres to the

No notices required, advised in open court.

No notices required. umber of notices

Document
Number

SO

wo | Notices mailed by judge’s staff. APR
Notified counsel by telephone. 26 2004
Docketing to mail notices. -
Mail AO 450 form, docket initials
Copy to judge/magistrate judge.
4126/2004
ray Go ag rn date mailed notice.
‘eurzoom SOM Be cud hae
SN deputy’s ov
initials
Date/time received in 7 _
central Clerk’s Office mailing deputy initials

oa



added) (cited in Opinion at 945-46) speaks of “the number of net
shares purchased during the class period” in identifying the
“losses during the class period.” Unable to deal rationally with
that obvious reference to the matching of transactions during the
class period, the author of the pro-FIFO article instead attempts
an invalid sleight-of-hand distinction--immediately before
entering into his invalid red apple-green apple simile--that “you
cannot know the number of net shares purchased until you know
which shares are considered as being in the net.”

Simply put, the article's attempted criticism of the use of
LIFO in determining the identity of the “most adequate plaintiff’
under the Act impermissibly ignores the obvious fact that with
every securities class action having to identify a class period,
the focal point of inquiry must begin (for standing purposes and
otherwise) with purchases or sales--or both--during that class
period. And in turn that focus calls for a primary concentration
on class period transactions, which is consistent with LIFO
rather than FIFO treatment. Regrettably the cited article, like
the source from which it drew its Fee-Fi-Fo-Fum title, is no
better than a fairy tale. In sum, this Court accordingly adheres

to the analysis that it had set out more briefly in the Opinion.

~
'

Milton I. Shadur

Senior United States District Judge

Date: April 26, 2004


IN THE UNITED STATES DISTRICT COURT 26x
FOR THE NORTHERN DISTRICT OF ILLINOIS Og
EASTERN DIVISION

In re

COMDISCO SECURITIES LITIGATION No. 01 C 2110

MEMORANDUM OPINION

During the course of the previously scheduled status hearing
held in this securities class action earlier this week, counsel
for the lead plaintiff appointed by this Court under the Private
Securities Litigation Reform Act (“Act”)--see the June 27, 2001
opinion reported at 150 F.Supp.2d 943 (“Opinion”), as well as the
earlier opinions in this case referred to there--drew to this
Court's attention an article by Fred Burnside, Fee-Fi-Fo-Fum:

Why the Rejection of FIFO Is...Not Smart, 2 Class Action Litig.

Report (BNA) 786 (2001), that criticized this Court's adoption of
a LIFO rather than FIFO method in determining an investor's
losses during the class period for purposes of identifying the
“most adequate plaintiff” as called for by the Act. Under
ordinary circumstances this Court would simply leave it at
that--after all, criticism of judicial endeavors comes with the
territory, and this Court has always been mindful of the teaching
of Craig v. Harney, 331 U.S. 367, 376 (1947), which is just as
valid today as when it was first written and which applies with
equal force to less trenchant criticism and to nonpunitive

judicial responses:


This was strong language, intemperate language, and, we
assume, an unfair criticism. But a judge may not hold
in contempt one “who ventures to publish anything that
tends to make him unpopular or to belittle him....”

See Craig v. Hecht, 263 U.S. 255, 281, 44 S.Ct. 103,
108, 68 L.Ed. 293, Mr. Justice Holmes dissenting. The
vehemence of the language used is not alone the measure
of the power to punish for contempt. The fires which
it kindles must constitute an imminent, not merely a
likely, threat to the administration of justice. The
danger must not be remote or even probable; it must
immediately imperil.

* * *

But the law of contempt is not made for the protection

of judges who may be sensitive to the winds of public

opinion. Judges are supposed to be men of fortitude,

able to thrive in a hardy climate.’

But two special circumstances call for different treatment
here:

1. For one thing, class counsel has previously
apprised this Court of some serious personal problems that
may affect the present class representative's ability to
continue in that status, so that this Court's application of
the Act's requirements may well be brought into question
once again in this action.

2. Another look at Opinion at 945-46 in light of the
Burnside article suggests that this Court may not have

elaborated sufficiently in the Opinion as to why the

methodology it chose was the correct one.

1 [Footnote by this Court] Indeed, this Court has always
kept a copy of Justice Douglas' just-quoted language at hand on
the bench.