DEVELOPMENTS IN SECURITIES
LITIGATION
Prepared for the Atlantic
Connection
Conference 2013
Maya Saxena
Every Dollar Counts
• Caribbean governments face challenges with
their economy
• A securities litigation policy may not raise new
capital but helps public pension funds
safeguard and maximize what they have
What Should A Monitoring Policy
Cover?
• How to maximize returns in filed securities
fraud cases
• Foreign securities litigation
• Ensuring proof of claim forms are timely
filed
• Auditing recoveries for accuracy
• Unusual activity: Mergers & Acquisitions
How Does It Work?
Data Received
from Custodian
Bank
Data Analyzed in
Real Time by
Case Analysis
Staff
Portfolio Monitoring is provided by law
firms or third party vendors. Many law
firms provide monitoring free of charge.
If a fund decides to act as a lead
plaintiff and chooses a law firm a
contingent fee is sought
Notification
Provided to Client
with
Recommendation
Part 1: Securities Litigation
There Is Real Fraud In The
Marketplace
Front page frauds like WorldCom,
Enron, Lehman Brothers,
Subprime mortgage situations
And lesser known
frauds: Aracruz,
Household Financial,
Dyadic International.
There are 175 cases
filed every year which
represent billions in
shareholder losses
Trading Data Is Constantly
Analyzed
Financial analysts employ tools such as “Bloomberg”
financial terminals and monitoring databases which provide
real-time data and client loss information
2012: Examples Of Securities
Fraud Cases
• JP Morgan: “secret hedge fund” - made a
wrong-way bet that led to the company’s
single biggest trading loss and at one point
wiped out as much as $51 billion in market
value
• Hewlett-Packard
• Facebook
Governmental Oversight?
What If My Fund Has A Loss?
Funds must be proactive to recover losses: can’t
rely on SEC or public enforcement
Lead Plaintiff Options
Portfolio Monitoring As A Component
Of A Fund’s Financial Recovery
• Public funds are better lead plaintiffs
• Settlements are significantly higher
• The 10 largest settlements in 2011 involved institutional
investors as lead plaintiffs, and ranged from $90 million
to $702 million
Source: Cornerstone Research
2010 Securities Litigation Analysis
Can Your Involvement
Maximize Plan Assets?
"Institutional Monitoring through Shareholder Litigation“: Journal of Financial Economics, Vol. 95, pp. 356-383, 2010
Securities Fraud Goes Global
• If a fund purchases foreign stock on a
foreign market, you cannot file suit in the
United States
• Morrison v. Australia Nat’l Bank
Foreign Securities Litigation
• Survey of public pension funds: Nearly
25% of assets are foreign stocks
• Generally Opt-in vs. U.S. class action
model
Settlements And Audits
•
•
•
•
$2.9 billion recovered in 2012
53 cases
Prepare and file timely proofs of claims
Prepare annual or quarterly reports to
check that amounts are correct
• Take credit for funds received
Part 2: Merger Litigation
What Do Fiduciaries Of Public Funds Need To
Know To Protect Plan Participants In Merger
Situations
• Is it a good deal for shareholders
• Corporate management does not always act in
the best interests of public shareholders
• Cases involve thwarting potential buyers by
improper defensive mechanisms
• Tender offer situations where majority
shareholders are trying to “go private” at prices
which are unfair to public minority shareholders
Microsoft/Yahoo - Deal Or No
Deal?
- Reaction by shareholders and analysts:
"This is totally insane," says Shareholder Value Management analyst Jeff
Embersits. "There’s no way Yahoo’s worth $44 billion. Period. [Yahoo
Management] should fall on their knees, kiss the ground and go home and
buy Porsches."
Microsoft/Yahoo Proposal
• What happens next?
• Yahoo rejects Microsoft offer despite the fact
that it was a 62% premium over stock price
What Was Happening Behind
The Scenes At Yahoo?
Police, Fire and General Retirement System of the City of Detroit
lawsuit:
• Board of Yahoo breached their fiduciary duties by refusing to
respond in good faith to Microsoft offer
• Adopted improper change of control employee severance plans
designed to improper costs for an acquirer
• Created over $2 billion in liabilities that an acquirer would have to
pay
RESULT: Claims are settled and improper change-in-control terms
are removed
IMPROPER MECHANISMS DESIGNED TO “ENTRENCH”
MANAGEMENT AT THE EXPENSE OF PUBLIC SHAREHOLDERS
ARE IMPROPER
COX RADIO TENDER
OFFER
Deal Or No Deal?
Cox Radio – Behind The
Scenes
• Coral Springs Police Pension Fund lawsuit – the
tender offer price is unfair and is too low,
undervalues the company
Cox Radio Settlement
• The lawsuit results in a 26% price increase
• $17 million of additional value for public shareholders
If Something Doesn’t Smell Right,
It Probably Isn’t
TPC Merger Litigation
• TPC eventually negotiated an increased
price of $45 per share, which resulted in
TPC’s shareholders receiving
approximately $79 million more in cash
for their TPC shares than under the
original offer
Summary: Protection Is Key
• Funds can take action to recover plan
assets
• All funds should have a mechanism in
place to make sure they are getting the
right information
• Monitoring is provided free of charge
Thank You!
Maya Saxena
2424 N. Federal Highway, Suite 257
Boca Raton, FL 33431
561-394-3399 x13
www.saxenawhite.com