Florida Fund Squeezes Investments

January 2, 2002 (PLANSPONSOR.com) - Public pension funds are becoming increasingly aggressive on the securities litigation front - with the Florida State Board of Administration (FSBA) at the forefront of many of these suits.

While the California Public Employees Retirement System (CalPERS) has served as the lead plaintiff in two class-action securities lawsuits, and the Wisconsin State Board of Investments has done so in four cases, as of early October, Florida was

  • the lead or co-lead plaintiff in eight cases,
  • was seeking the lead in a ninth,
  • was pursuing 11 private cases, and
  • was planning three more

It also was a class member in more than 250 additional class-action lawsuits in which it was not an active plaintiff.

On December 21, the $94 billion Florida fund announced its intention to file as lead plaintiff in a class-action suit against beleagured energy-trader Enron.

Critical Assessment

The trend is not without its critics. Russell Bjorkman, a member of the Investment Advisory Council of the FSBA, argues that, where legitimate securities fraud has occurred, those responsible should be brought to justice in criminal, not civil, courts. He plans to call for a review of the agency’s litigation policy.

He adds that he favors CalPERS’ approach to encouraging good corporate governance. Although CalPERS occasionally participates in class-action shareholder lawsuits, and sometimes even assumes the role of lead plaintiff, its more typical approach to dealing with problem investments is to meet with the company to encourage different behaviors and, in some cases, to seek representation on the company’s board.

“The opposite approach is used by Florida,” Bjorkman says. “They have no interaction with companies. They buy stocks and, if they go down, they look for a scapegoat.”

As for Florida, Tom Herndon, executive director of the FSBA, makes no apologies for his organization’s litigious bent.  “We’re not interested in putting companies out of business, and we’re not trying to force them into bankruptcy, but we are interested when a company misstates its books for two or more quarters and the officers sell a couple of million shares two days before they restate their results. We go after those situations and try to recover a fair amount for our participants. We think it is our responsibility.”