Stock Options and Angry Pension Funds
The San Jose Mercury News reports a litigation backlash against thirteen Silicon Valley firms in connection with questions about their stock option programs. While arguably newsworthy, what is perhaps more telling is the role played by U.S. and foreign pensions.
Since the Private Securities Litigation Reform Act became federal law in 1995, the clout of these moneyed giants has not gone unnoticed. (There is even a blog by the name of The PSLRA Nugget.)
Several studies have tried to reconcile the intent of the law (i.e. to cede more clout to the investor tied to the largest financial stake) with outcomes in terms of fees, settlements, cases filed and so on.*
In their 2005 paper, Stephen J. Choi and colleagues write: "We find no systematic evidence that private institutional lead plaintiffs are associated with larger class recoveries. Public pension funds, on the other hand, are correlated with higher class recoveries as a fraction of the potential damage award in the post-PSLRA period. Our results are, however, consistent with the possibility that public pensions 'cherry pick' the actions in which they seek to become lead plaintiff, selecting only the cases with the largest potential damages and the strongest evidence of fraud. Further analysis is necessary to evaluate this possibility." (See "Institutions Matter The Impact of the Lead Plaintiff Provision of the Private Securities Litigation Reform Act" by Choi, Stephen J., Fisch, Jill E. and Pritchard, Adam C. April 15, 2005, NYU, Law and Economics Research Paper No. 04-08.)
According to the New York Stock Exchange Fact Book, U.S. pension funds now own about twenty-two cents of every dollar of issued corporate equity. Institutional investors (including pensions) own roughly fifty cents or one-half.
What does this mean?
Here's my humble take. As stated several times before, pension fiduciaries are in the spotlight as never before. Any investment-related loss is likely to trigger some type of response. Will it be surprising if it takes the form of litigation to recoup losses? Not really. Will it be a bad thing? Maybe. Maybe not. This is a complex question, one that cannot possibly be answered here.
More to come...
* To prevent a flood of cases migrating from federal to state courts as a result of the PSLRA, the Securities Litigation Uniform Standards Act of 1998 barred certain lawsuits from being filed in state courts. (Please be reminded that the author is not an attorney and urges readers to always seek counsel with respect to any legal question.)
Since the Private Securities Litigation Reform Act became federal law in 1995, the clout of these moneyed giants has not gone unnoticed. (There is even a blog by the name of The PSLRA Nugget.)
Several studies have tried to reconcile the intent of the law (i.e. to cede more clout to the investor tied to the largest financial stake) with outcomes in terms of fees, settlements, cases filed and so on.*
In their 2005 paper, Stephen J. Choi and colleagues write: "We find no systematic evidence that private institutional lead plaintiffs are associated with larger class recoveries. Public pension funds, on the other hand, are correlated with higher class recoveries as a fraction of the potential damage award in the post-PSLRA period. Our results are, however, consistent with the possibility that public pensions 'cherry pick' the actions in which they seek to become lead plaintiff, selecting only the cases with the largest potential damages and the strongest evidence of fraud. Further analysis is necessary to evaluate this possibility." (See "Institutions Matter The Impact of the Lead Plaintiff Provision of the Private Securities Litigation Reform Act" by Choi, Stephen J., Fisch, Jill E. and Pritchard, Adam C. April 15, 2005, NYU, Law and Economics Research Paper No. 04-08.)
According to the New York Stock Exchange Fact Book, U.S. pension funds now own about twenty-two cents of every dollar of issued corporate equity. Institutional investors (including pensions) own roughly fifty cents or one-half.
What does this mean?
Here's my humble take. As stated several times before, pension fiduciaries are in the spotlight as never before. Any investment-related loss is likely to trigger some type of response. Will it be surprising if it takes the form of litigation to recoup losses? Not really. Will it be a bad thing? Maybe. Maybe not. This is a complex question, one that cannot possibly be answered here.
More to come...
* To prevent a flood of cases migrating from federal to state courts as a result of the PSLRA, the Securities Litigation Uniform Standards Act of 1998 barred certain lawsuits from being filed in state courts. (Please be reminded that the author is not an attorney and urges readers to always seek counsel with respect to any legal question.)
