Arkansas Teachers Sue Company Directors for Risk Taking
According to business vox populist Gretchen Morgenson, a Los Angeles federal judge plans to hold mortgage company executives accountable by allowing a lawsuit to proceed. In "Judge Says Countrywide Officers Must Face Suit by Shareholders" (New York Times, May 15, 2008), Morgenson quotes Christa Clark, chief attorney for lead plaintiff, Arkansas Teacher Retirement System, as urging institutional investors to recognize a "duty to seek recourse when a company's directors engage in practices that are not in the best interests of shareholders."
It is impossible to know all facts at this stage, let alone guilt. Only ensuing testimony will shed light on whether Countrywide's CEO and about a dozen directors and officers are deemed culpable. According to the complaint (not yet included in the national judiciary's repository), those described as in the know were allegedly liquidating their personal holdings while making "misleading" public statements about the financial health of the company.
Two things are notable about this case. First, it is yet another indication of the power of institutional investors, in the aftermath of the passage of the Private Securities Litigation Reform Act of 1995. Second, questions remain about whether, and to what extent, other boards will find themselves defending suspicious practices. The outcome of this lawsuit portends greater focus on who should be held responsible for financial practices. So far, the outcome is mixed with respect to the sub-prime blame game.
The Fire & Police Pension Association of Colorado ("FPPAC"), Louisiana Municipal Police Employees Retirement System ("LAMPERS"), Central Laborers Pension Fund, and the Mississippi Public Employees Retirement System ("MPERS") are listed as additional plaintiffs.
