Shareholder Lawsuits
State and local government pension plans have been the most active investors filing class-action shareholder lawsuits, followed by money managers and union pension funds. Meanwhile, Georgia’s two biggest pensions have never initiated such a lawsuit, although they do collect some of the money when cases are settled. Below are tallies from the largest settlements ever, mostly since 2006, broken down by the lead plaintiff.
Lead plaintiff ………………..Total settlements by plaintiff*
University of California………$13.9 billion
Money managers…………….. $7.9 billion
Union pensions……………… $6.6 billion
New York……………………… $5.9 billion
Louisiana……………………… $5.9 billion
Individuals/others…………. $5.0 billion
California…………………….. $4.4 billion
Ontario……………………….. $3.0 billion
Ohio…………………………… $2.7 billion
Minnesota…………………… $2.7 billion
New Jersey …………………..$2.3 billion
New Mexico…………………. $1.8 billion
Colorado……………………… $1.4 billion
Michigan…………………….. $1.1 billion
Mississippi……………………$970 million
Alabama…………………….. $805 million
Chicago………………………. $645 million
Alameda County…………… $641 million
Florida……………………….. $627 million
Orange County, CA……… $627 million
Pennsylvania…………………$627 million
*Totals are based on Institutional Shareholder Service’s compilations of the 100 largest settlements of shareholder class-action lawsuits. Many cases have multiple plaintiffs, so the overall settlement may be included in more than one plantiff’s total.
Sources: Institutional Shareholder Services, staff calculations
Georgia’s Share of Class-Action Settlements
The two largest Georgia pension plans have collected millions of dollars from settlements of class-action lawsuits against companies they invested in. The pension plans, however, didn’t file such lawsuits themselves.
Fiscal year*…..Class-Action Income for Teachers Retirement System…..Employees’ Retirement System
2007……………………… $3.0 million…………………………………………………………………. $1.7 million
2008……………………… $7.9 million…………………………………………………………………. $3.1 million
2009……………………. $27.9 million…………………………………………………………………. $12.8 million
2010…………………….. $11.5 million…………………………………………………………………… $4.4 million
2011………………………. $7.7 million ……………………………………………………………………$3.5 million
2012……………………… $2.5 million……………………………………………………………………. $0.8 million
2013 (YTD)……………. $2.5 million……………………………………………………………………. $1.5 million
* Totals are for fiscal years ending June 30
Sources: Teachers Retirement System and Employees’ Retirement System
After losing $11 billion during the near meltdown on Wall Street in 2007-2009, you might expect that Georgia’s two largest public pension plans would have filed at least one of the hundreds of shareholder lawsuits attempting to recover losses from corporate wrongdoers.
You’d be wrong.
Georgia’s Teachers Retirement System and Employees’ Retirement System, with roughly $68 billion in assets, haven’t filed or taken the lead on any shareholder class-action lawsuits — on any issue — preferring instead to take a back seat to often much smaller public pensions from other states.
Top officials at the two Georgia plans say it doesn’t matter that they don’t initiate lawsuits as a lead plaintiff, because they can still file monetary claims when a settlement is reached with the lead plantiffs from other states.
But proponents of such lawsuits say sitting on the sidelines ignores the value of becoming a lead plaintiff, which is to rein in corporate abuses. Since 2007, shareholders have filed nearly 1,100 class-action lawsuits. Most allege that shareholders lost money because companies used fraudulent accounting practices or made misleading statements about their actions or prospects.
Advocates say public pension funds have a duty to their beneficiaries to consider serving as lead plaintiffs, where they have more influence on the lawsuits — and may collect bigger settlements.
Moreover, Congress re-wrote the law in 1995 to push large, sophisticated shareholders such as pension funds to take a lead in such lawsuits. Lawmakers figured that the shareholders with the largest losses — typically pension funds — would do a better job of picking lawyers, negotiating lower legal fees and pushing for better settlements than small investors.
Sometimes lead plantiffs don’t get a larger payment in settlements, but sometimes they do, said Scott Fuqua, director of litigation at the New Mexico attorney general’s office, which has been a lead plaintiff in several shareholder lawsuits. The suits included four that resulted in almost $1.8 billion in settlements since 2007.
If there weren’t any extra benefits to serving as lead plaintiff, Fuqua said, “you’d never have anyone as lead plaintiff.”
But top officials at Georgia’s two largest pension plans say they have collected millions of dollars from their portion of settlements from those lawsuits — the same as if they had filed the lawsuits themselves.
“Considering that you’re going to reap the same reward from being a member of the [lawsuit settlement], why would you do that?” said Jeff Ezell, executive director of the TRS, with $53.5 billion in assets.
Serving an active role in such lawsuits would take time from what the pension plan’s staff is “supposed to be doing,” which is overseeing investments, added Jim Potvin, who heads the Employees’ Retirement System of Georgia. The $14.8 billion pension plan covers most state employees and retirees.
Since mid-2006, TRS and ERS have collected $90.7 million from hundreds of class-action settlement checks. Income from legal settlements ranged from checks as small as $11.99 to a $13.8 million payment from Enron Corp. litigation — one of several multimillion-dollar payments the two pension plans got from Enron lawsuits after its scandal-plagued bankruptcy in 2001.
Pension plans that do actively pursue such lawsuits view it as a duty to the pension plan’s members. It also can be an investment that sometimes does pay off in larger rewards, which can reduce employer and employee contributions over time.
Among the 100 largest settlements of shareholder lawsuits, 66 were led by public pension funds or other government agencies. The most active states, in terms of the total value of lawsuit settlements, were California, New York, Louisiana, Ohio, Minnesota, New Jersey and New Mexico, according to data from Institutional Shareholders Services, a Rockville, MD, firm that advises institutional investors on shareholder votes, lawsuits and other corporate governance issues.
“There is a philosophical bend. We tend to see more of the funds that pursue lawsuits from blue states than red states,” said James D. Cox, a Duke University law professor who studies shareholder lawsuits. Also, some pension plan officials believe they can double or triple their loss recovery by being a lead plaintiff, he noted in a 2006 study. But others conclude that it’s cheaper to let someone else go through the legal hassles.
“It comes down to a cost-benefit analysis,” Cox said.
Often, relatively small pension plans get in the act. City and county pension plans in Jacksonville, Birmingham and Pompano Beach have been lead plaintiffs in shareholder lawsuits that ended with $100 million-plus settlements. A class action against Maxim Integrated Products by DeKalb and Cobb counties’ and Mississippi’s employee pension plans ended with a $173 million settlement in 2010. The pensions sued the California semiconductor maker after the Securities and Exchange Commission accused the company in 2006 of fraudulent accounting and awarding back-dated options to executives.
After the 2007-2009 financial crisis, the pension fund from the red state of Mississippi also led a lawsuit against Bank of America, claiming that its Merrill Lynch unit had duped investors into buying shoddy mortgage-backed securities. It resulted in a $315 million settlement that was finalized last year.
In all, five lawsuits led by Mississippi’s pension plan have resulted in $970 million in settlements for shareholders since 2009, according to ISS data.
New York’s state and city employee pension fund-led shareholder lawsuits have resulted in seven of the 100 largest final settlements so far, totaling $5.9 billion, according to ISS.
Tempted by such big numbers, Georgia’s pension plans almost took the plunge once, said Ezell, at TRS.
After the 2001 collapse of Enron, TRS and ERS jockeyed for the lead plaintiff role in the shareholder lawsuit, estimating that they had lost $127 million. But the judge picked the University of California to represent shareholders in the class action. It resulted in the largest-ever settlement for such a lawsuit — $7.2 billion.
“That was the only time we have sought to be a lead plaintiff,” said Ezell.
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