Pension Funds File High Court Brief in Securities Fraud Case

December 3, 2004 ( - Five of the nation's largest public pension funds have filed a friend-of-the-court brief with the US Supreme Court arguing that a level of legal proof called for in a case before the high court unduly restricts securities fraud suits.

The legal brief, filed in Dura v. Broudo scheduled for oral arguments in January, centers on what kind of proof plaintiffs will be required to mount to prove a connection between an act of investment fraud and a subsequent decline in the investment’s value.The funds note that they “have lost billions of dollars in investments where the prices were inflated through accounting fraud, market manipulation and other means.”

Filing the brief were:

  • The California Public Employees Retirement System (CALPERS)
  • The City of New York Pension Funds
  • The California State Teachers’ Retirement System(CSTRS)
  • Los AngelesCounty Employee Retirement Association(LACERA)
  • The New York State Common Retirement Fundand New York Stateand Local Retirement Systems

“While the Public Pension Funds recognize that the federal securities laws are not a form of ‘insurance’ to protect investors against market-based declines in the price of securities and that companies should not be liable for declines in their stock prices that do not result from their fraudulent and improper conduct, the Funds are vitally concerned that the legal regime governing securities fraud litigation allows investors who have been harmed to recover from those entities that have engaged in fraud,” the funds’ brief argued. “At the same time, as significant investors in thousands of corporations and business entities that never have been touched with so much of a taint of fraud, the Public Pension Funds have a strong interest in ensuring that the rules governing securities litigation do not unfairly harm companies that have not engaged in wrong-doing.”

The case before the high court is an appeal from the US 9 th Circuit of Appeals, which had reversed an earlier trial ruling. That lower court decision dismissed a fraud case brought by a group of investors for failing to prove that a drop in the price of Dura stock could be attributed to the company’s cover-ups over a government decision not to approve one of its products.

“As investors, the pension systems have an interest in ensuring that corporations that have not committed fraud are not harmed by unfair securities litigation,” said attorneyJay Eisenhofer, whose law firm filed the funds’ brief. ” However, if the court adopts too strict a standard in causation as a result of Dura, it could prevent shareholders from pursuing even the most egregious of frauds.  The court needs to walk a fine line, so it does not choke off legitimate claims.”