In fact, two-thirds of all cases with public pension funds as lead plaintiffs have been filed in the past three years, according to Steven Skalak, lead partner in PricewaterhouseCoopers (PWC)’ corporate investigations practice, Dow Jones reported. While asserting that the growth trend may not continue at the current rate, Skalak said “the feature of pension funds as lead plaintiffs won’t be going away.”
According to a PricewaterhouseCoopers study, 18 cases had public pension funds as lead plaintiffs in 1999 while the number rose to 19 in 2000 and to 31 and 56 in 2001 and 2002, respectively. “There’s been quite a remarkable increase, and the plaintiffs’ bar has come to appreciate that pension funds are a good source of clients,” said Skalak.
The phenomenon of pensions taking the litigation lead grew swiftly after the California Public Employees’ Retirement System (CalPERS) and the New York State Retirement Fund announced a record $2.8-billion settlement with Cendant in 1999, the study concluded. The multibillion award was more than 10 times larger than the previous record settlement.
The real impetus for the trend, however, came in 1995 when the federal Private Securities Litigation Reform Act became law. Intended to curb abusive practices in securities class actions, the law mandates that judges name as lead plaintiff the entity with the biggest financial interest in a class-action suit.
“The intent of the 1995 reform act was to get larger and more serious plaintiffs involved in these cases,” Skalak told Dow Jones. “I don’t think anyone foresaw that pension funds would come to the fore as they have. Everyone expected it would more likely be other large institutional investors such as mutual funds.”
Skalak attributed the rise of the pension-fund plaintiff to funds’ broad investment in large US companies, which have suffered accounting troubles that have lead to financial restatements and investor litigation. But pensions have also been involved because of their concern with corporate governance issues, he said.
The pension-fund push into class-action suits is also a factor in changes to trends in settlement litigation. Bigger settlements are emerging when funds serve as lead plaintiffs, the study said.
Since 1995, more than 50 class actions with public pension-fund plaintiffs have been settled with average settlement of greater than $87 million, as compared with the $13 million won in class-action suits without pensions as lead plaintiffs. In 2003, 16 settlements averaging more than $113 million were reached in cases where a public pension fund headed the plaintiffs’ team. The awards were more than 15 times the $7.5 million average settlement reached in 2003, when the lead plaintiff wasn’t a public pension.
2003 examples of this trend included a $517 million award against Lucent Technologies, with Teamsters Local 175 & 505 D&P Pension Trust Fund as lead plaintiff, and a $300 million award against DaimlerChrysler AG, with the Florida State Board of Administration, the Denver Employees’ Retirement Plan, the Policemen’s Annuity and Benefit Fund of Chicago and the Chicago Municipal Retirement System as lead plaintiffs, according to PricewaterhouseCoopers.