Following on from a global study published earlier this year, a new report from GOAL Group, a European withholding tax and class action services provider, shows that between 2000 and 2007 UK Local Authority pension funds’ non-participation in US securities class actions resulted in over GBP 200m being left on the table. This is a wake-up call to the UK public sector pension funds that are currently foregoing their legal right to claim damages through the US courts – despite last year’s precedent of Avon Pension Fund being appointed lead plaintiff in the case against UK-listed GlaxoSmithKline. Corporate governance scandals such as Enron were the main instigator of class actions, but the mantle has now passed to the subprime mortgage market crisis. With average settlements sitting at some USD 54 million, and filings again on the rise, investors and fund managers should be claiming their slice of the pie.
The typical share portfolio of a large UK local authority pension fund has become strongly international some holding as much as 15% foreign shares and this is driving shareholders’ awareness that they could be left out of securities class actions in the US unless they take an active role in a lawsuit. However, it is a fact that keeping track of the opportunities to make a claim and the processes required to do so successfully, can be a complicated and daunting task and many investors bethat the cost and time involved is likely to outweigh the benefits. This is often a misapprehension, but perhaps explains why 25% of claims that could be filed by entitled parties are left unprocessed.
One pension fund that is an active participant in US class actions is West Midlands. “We have been involved in numerous class actions over the years, varying in size, including A.T. & T. Wireless, Cable & Wireless, Federal Home Loan and Royal Ahold NV. We have recovered over USD 500,000 to date,” says Fiona Hardle, assistant investment manager, equities and corporate governance, West Midlands Pension Fund. “The Fund supports good governance challenging companies that do not meet best practice, perceiving poor governance as a risk to its long-term financial interests. The Fund therefore submits class actions globally where it believes that it has suffered a financial loss through fraudulent or irresponsible corporate behaviour. Involvement in class actions is just one element of the Fund’s approach to responsible investing. All funds have the responsibility to ensure that they are actively fulfilling their fiduciary duty to shareholders and should encourage corporate management to behave honestly and responsibly. Participating in shareholder litigation, where appropriate, is an effective tool and has returned over half a million dollars to the Fund to date. All local authority pension funds should consider protecting their long-term interests.”
“It is the judgment of the legal profession that there is a clear duty of care for institutional investors to register claims on behalf of their clients, but our research shows that non-participation is costing investors dearly,” says Stephen Everard, managing director, GOAL Group. “UK Local Authority pension funds are slowly waking up to this and those are do not participate risk being left behind. A downturn in filings in 2006 raised the possibility that shareholder class actions were on the wane. The figures from 2007, however, give this the lie, as we have seen renewed vigour in the courts and an overall increase in filings over 2006. Although the Sarbanes-Oxley Act and European equivalents are undoubtedly suppressing the possibility of further Enrons and Parmalats, new factors have arisen in the financial and corporate markets where class actions are being used to try and claim compensation for shareholders and investors. We are currently seeing a surge of class action lawsuits inspired by the international credit crisis, the resolution of which will take anywhere between five and seven years. It is true that participating in a class action requires timely and accurate information about the relative merits and procedural processes, and time and resources to review and evaluate relevant settleprovisions. Investors must then cross-reference these outputs against extensive individual trading activity data and comand submit the often complex paperwork necessary to make a valid claim. But outsourced, automated services are available on the market to process class action claims without incurring high expense. It should be pointed out that some astute and responsible public sector pension funds are already using such services.”
In order to quantify the scale of losses to investor through non-registration in securities class action lawsuits, Goal Group combined its historical records of registration and settlement claims, with market data sources. A list of third party sources consulted is available on request. Please contact Mayflower PR (below) for a copy of the full GOAL report entitled “A Class Act?”.