With the passage of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), Congress intended to strengthen the securities litigation system and to ensure that the underlying goals of that system – the prevention of fraud by corporate insiders, the compensation of investors who are victimized by corporate fraud, and the protection of the U.S. capital markets – could be achieved. In passing the PSLRA, Congress made it clear that “[p]rivate securities litigation is an indispensable tool with which defrauded investors can recover their losses. .. .” Congress saw the increased role of institutional investors as an essential component of the statute.
Since the passage of the PSLRA, institutional passivity has given way to active participation. Numerous public and private institutional investors have served as lead plaintiffs in securities class action litigation, obtaining substantial recoveries for all shareholders. According to Cornerstone Research, more than 65% of all post-PSLRA settlements in 2009 involved an institutional investor as lead plaintiff, the highest percentage to date among post – PSLRA settlements. In contrast, between 1991 and 1994, the number of settlements involving an institutional investor was less than 20%. More importantly, according to Cornerstone Research, the total value of cases settled and average settlement amount have increased since the passage of the PSLRA. The rise in average recoveries is directly related to the increased level of institutional investor participation in securities litigation.
The Benefits of Active Participation in Securities Litigation
The attorneys at Bernstein Liebhard understand that our institutional clients have fiduciary obligations to their beneficiaries, and, where applicable, to the taxpayers who fund their administrative operations. We are sensitive to the needs and priorities of our institutional clients. For this reason, we are selective about the cases we recommend for active participation. We recommend participation only in cases in which our client has suffered a material loss, and in which its involvement is likely to make a difference for its beneficiaries as well as the class. This formula enables our institutional investors to obtain the many benefits associated with serving as lead plaintiffs, including:
- Early notification of investment losses that may be the result of fraud or corporate wrongdoing.
- Detailed findings of our investigations and recommendations concerning potential litigation.
- Quarterly reports that include an analysis of litigation that impacts each client’s investment portfolio and lists all important deadlines such as, lead plaintiff deadlines and class action claim form deadlines.
- Assistance with claim form filings in class actions in which our clients participate as class members.
- Full, private, and secure access to the particular client’s investment portfolio information through our monitoring system over the Internet.
- increasing the net monetary value of any settlement or jury verdict;
- increasing the long-term value of the shares in the company being sued, which enhances the funds’ portfolio;
- deterring wrongful corporate conduct, which undermines the integrity of the financial markets;
- participating in strategic decisions that affect the ultimate disposition of the case;
- achieving changes in corporate governance; and
- reducing attorney’s fees in securities class action litigation.
When a situation arises that may merit active institutional participation, we analyze the factual and legal bases for action, possible courses to take (such as filing a motion to become lead plaintiff; joining another institution in a lead plaintiff motion; monitoring the case for more active participation (or opting out) at a later date; or filing an individual claim). Importantly, we discuss potential discovery issues, including the anticipated time burdens on the client in a particular case.
Bernstein Liebhard has built a national reputation on the quality of work that it performs, the quality of the service that it renders, and the guidance it provides. Serving as a lead plaintiff in securities litigation allows an institutional client to supervise the litigation, be involved in important strategic decisions and maximize the potential recovery for itself and the class it represents.
For more information about any of the services we provide our institutional clients, please contact Stephanie M. Beige.