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Securities Litigation—You’ve Read the Headlines, but How Are Public Pension Funds and Trustees Affected?
Mark McNair
Kaplan, Fox & Kilsheimer LLC
Increases in corporate fraud will result in an increase in securities class action litigation by public pension funds, according to attorney Mark McNair. Class action securities litigation is important to pension funds, he said, because it helps put money back into the pockets of investors.
 A survey of recent litigation cases clearly shows that when a public pension plan or other institutional investor is the lead plaintiff, the result is generally larger fund recoveries and lower legal fees. McNair said his research also shows that public pension funds’ involvement also leads to quicker settlements.
McNair said that corporate fraud and securities litigation have affected pension fund trustees’ fiduciary responsibilities. Trustees, for example, must ensure that their pension plans receive all the funds to which they are entitled in a settlement. Today, settlements in excess of $10 million are commonplace. But McNair stressed that unless a fund files a claim, it will miss the opportunity to get a share of the settlement.
Despite passage of the Sarbanes-Oxley law, McNair believes the incidence of securities fraud will continue. Criminal penalties for corporate officers who file false financial statements and criminal prosecutions of corporate officers by state attorneys general have both increased, actions that will greatly help investors. “Guilty pleas and jail sentences will have a big impact on corporate reports,” McNair said.
Another trend to watch will be governance changes when a corporation gets into trouble. However, these changes won’t occur if individual investors complain, McNair said. They will occur if a pension fund pushes for change.
McNair said public pension funds can fulfill their fiduciary responsibilities and encourage positive change by taking several steps. First, funds can engage someone to monitor their portfolio so they will be aware of new fraud cases that have been filed and how their funds might be affected. Second, funds can become more aggressive in encouraging corporate governance reform. Third, they can become lead plaintiffs in class action litigation cases.
The firm of Kaplan, Fox & Kilsheimer has recovered more than $1.1 billion for clients in securities fraud cases. Prior to entering private practice, McNair was an attorney at the Securities and Exchange Commission and the Municipal Securities Rulemaking Board.
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