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.
Conclusion
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.
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