Public pensions take the reins as lead plaintiffs in securities class actions
Does cash rule all or is it duty to their customers that is driving pensions to take the lead in class action litigation? Last year, public pensions served as lead plaintiff in 49% of settled cases, while only 6% participated as a lead plaintiff in 2003. What’s to account for the increase? Historically, institutional investors have played an active role in class actions. A recent report from Cornerstone Research described how since 2006 more than half of the settlements in any given year have involved institutional investors as lead plaintiffs.
Cornerstone’s findings show that the presence of public pensions as lead plaintiffs can be associated with relatively high settlement amounts. The median “estimated damages” for settlements involving public pensions in 2012 was five times the median “estimated damages” figure for settlements without a public pension as lead plaintiff. “Estimated damages” can be described as a measure of shareholder losses that reflect the single most important factor in determining settlement amounts, according to Cornerstone, and is based on a modified version of a calculation method historically used by plaintiffs in securities class actions.
So, are pensions following the money? Public pensions are considered sophisticated investors that presumably choose to participate in large class action cases that may have the potential for mega-settlement pools and large potential recoveries. In instances where a public pension served as a lead plaintiff, research has shown a significant increase in settlement size. This may be an indication that public pensions possess greater bargaining power than other lead plaintiffs. Although, public pensions serve as lead plaintiff in many cases of different sizes, so perhaps pensions’ involvement in securities class actions is driven by a fiduciary duty to clients. Regardless of cause, this is an interesting trend to follow in the future.