Still Having Trouble Getting Your
Money Back? You're Not Alone
By Jonathan R. Davidson, guest columnist
Over the last decade, we have checked in periodically on the state of claims administration in securities class actions for United States public pension funds. At every turn, we have seen challenges confront the public pension community, making it harder to recover their respective share of proceeds from these cases. From difficulty maintaining historical data necessary to perfect a claim form, to the proliferation of cases being litigated around the globe post-Morrison v. National Australia Bank, claims administration continues to be a thorny issue for public pension funds. This article will examine what is happening in today, review current issues for investors, and provide some best-practice suggestions
The Current State of Claims Administration
According to NERA Economic Consulting, between 2005 and 2016, over $62 billion dollars in securities class action proceeds were made available to investors. While public pension funds have a fiduciary duty to take reasonable steps to recover these funds, claims filing participation remain strikingly low. Recent estimates suggest only about 35 percent of eligible institutional investors file claims in U.S. settlements.
Recent Issues Causing Grief for Public Pension Funds
To add to the challenging claims administration process, new issues have arisen to further muddy the water.
Change of Custodian
Custodial change can give rise to an overlooked issue in the claims administration process. When a class period in a securities case spans the time of the custodial transition, the former custodian and the new custodian might each have insufficient data to file a complete claim on the client’s behalf. When this happens, and two claim forms are submitted (one by each custodian), the claims are frequently rejected by the claims administrator as deficient. If these deficiencies are not remedied (which we believe is almost always the case), the result can be a significant lost opportunity for the pension fund.
Former Custodians No Longer Filing Claims
Many custodians are simply getting out of the claims filing business altogether for former clients (or charging fees for this service). This presents public pension funds with a difficult choice. If a fund has all of their transaction history in-house, they might be able to work with their current custodian to construct a claim form which requires both older and newer transaction history. If the institution does not have the old transaction data, they are at the mercy of the former custodian – either pay a fee to have them file or give up a percentage of the recovery. Neither scenario is particularly attractive and gives rise to the risk of failure to recovery proceeds.
Current Custodians Outsourcing Claims Filing
Some custodial banks are now outsourcing claims filing responsibilities to third-party filers, which begs the question: was this disclosed to the Board? We have seen multiple instances where a public fund was not aware their custodian was not handling the claims filing process in-house. While the end result may not prove harmful, at a minimum, public funds should know which vendor is doing this work. Further, we have observed significant differences in the accuracy of claim filing by paid third-party filers – making this potentially more than a simple disclosure problem, and an issue which could result in the failure to recover.
What Can Public Pension Funds Do To Improve?
The claims administration process continues to evolve. So must the processes that public pension funds have in place. A few suggestions:
- Discuss how much money you have received from securities class action settlements/judgments? What claims have been submitted and are awaiting distribution? Did you miss out on submitting a claim for a U.S. case? Were you not able to participate in the recovery of a non-U.S. jurisdiction settlement because you never registered for it?
- Conduct a historical and on-going audit of your custodial bank/third-party filer to check their claims filing accuracy. If missed claims are identified, immediately contact the claims administrator to see if you can submit a late claim/remedy a deficient one. This can often be done as long as settlement proceeds have not been distributed.
- To avoid an issue when changing custodians, consider including a provision in all custodial agreements to ensure your transaction data is returned at the end of the contractual relationship.
Claims administration will never be Agenda Item #1 at your Board meeting -- public pension funds simply have more important issues to deal with in running their plans. That being said, with the truly global nature of securities litigation in this post-Morrison world, public pension funds should continue to be vigilant in this area. The significant proceeds generated from securities class action settlements/judgments are an asset owed to you – do what you can to ensure you are getting it back.
About the Author
|Jonathan R. Davidson|
Jonathan R. Davidson, a partner of the Kessler Topaz Meltzer & Check, LLP, concentrates his practice in the area of shareholder litigation. Davidon currently consults with institutional investors from around the world, including public pension funds at the state, county and municipal level, as well as Taft-Hartley funds across all trades, with regard to their investment rights and responsibilities.
Davidson assists clients in evaluating and analyzing opportunities to take an active role in shareholder litigation. With an increasingly complex shareholder litigation landscape that includes securities class actions, shareholder derivative actions and takeover actions, opt-outs and direct actions, non-U.S. jurisdiction opt-in actions, and fiduciary actions, he is frequently called upon by his clients to help ensure they are taking an active role when their involvement can make a difference, promote corporate accountability, and to ensure they are not leaving money on the table.