Pensions, Class Action Litigation and Oversight Role
Lest anyone think that pension plans are shrinking violets when it comes to corporate scandals, think again. During the recent two-day Institutional Investor Forum, public pension trustees learned about a variety of tools and techniques to preserve the capital invested in Corporate America. Topics ranged from hedge fund activism to settlement amounts and attorneys' fees, electronic discovery, the fiduciary mandate, investor recoveries in the case of bankruptcy and early detection of corporate fraud.
Billed as an educational event for fund trustees, administrators, executive directors, general counsel and other representatives of public funds, law firm Bernstein Litowitz Berger & Grossmann LLP has played host for a dozen years. Past speakers have included New York Attorney General Eliot Spitzer, New York Times financial columnist Gretchen Morgenson and SEC Commissioner Harvey Goldschmid.
Since the passage of the Private Securities Litigation Act in 1995, institutional investors continue to garner attention for their more active role in the class action process. Whether that has improved things is a point of debate.
In 2002, law professor Michael A. Perino published results of his examination of nearly 1,500 class action cases. In "Did the Private Securities Litigation Reform Act Work?", Perino questioned whether a greater number of filings reflected more corporate fraud or relaxed rules for filing.
More recently, Perino cited lower attorney fees as a result of public pension fund participation. (Click here to read "Markets and Monitors: The Impact of Competition and Experience on Attorneys' Fees in Securities Class Actions", St. John's Legal Studies Research Paper No. 06-0034, 2005.)
At a time when corporate scandals related to compensation loom large, pension trustees are unwilling to take a back seat. One questionable practice, option backdating, is causing real problems for some companies. As of late last week, the Wall Street Journal listed the investigative status of 115 organizations on its "Option Scorecard". In "Next Step in Stock Option Probes: 'Backdate' Lawsuits", reporter Amanda Bronstad, describes the billions of dollars at stake for pension fund plaintiffs. Many of the cases are filed as derivative suits, "allege breach of fiduciary duty and are filed by institutional shareholders on behalf of the company as a whole. They seek the return of the stock options."
No doubt we'll hear more about pension plaintiffs and class actions. Good, bad or indifferent, their size makes them real players, too big to ignore.
Note:
Legal professionals such as attorney Christopher J. Rillo write: "Backdating is not an illegal practice per se, provided that the disclosure, tax and accounting requirements are met. Companies have for legitimate reasons backdated stock options to provide additional incentive compensation to officers and employees. What has changed is that the disclosure, tax and accounting requirements were radically altered to require disclosure of back dating and additional taxation to both the grantor and the recipient." (Click here to read his September 2006 remarks as part of the symposium about D&O insurance.)
