The Role of Institutional Investors after the Securities Reform Act: Will Institutional Investors Act as Lead Plaintiff?

Securities Regulation Law Journal

Volumn 25, Issue 4, 1998, Pages 387-400

  Johnson, Dexter ^a  

^a Law Firm of Mallon and Johnson PC   (United States)

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EID: 0032358856     PISSN: 00979554     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (45)

1. Report to the President and the Congress on the First Year of Practice Under the Private Securities Litigation Reform Act of 1995 U.S. Securities and Exchange Commission, Office of the General Counsel, April 1997.
2. CALPERS Wins a Lead Role in Suit Over Grace's Severance Packages, The Wall Street Journal, Sept. 12, 1996, p.B8.
3. Pub. L. No. 104-67, 109 Stat. 737 (1995) (the Reform Act). The Reform Act effectively became law on Dec. 22, 1995, after completion of overrides by the U.S. House of Representatives and Senate of a presidential veto.
4. Conference Report on HR 1058, H. Rept. No. 104-369 (Nov. 28, 1995), '95-'96 CCH Dec.¶ 85,710.
5. See, Comments by Senator Bennett regarding lawyers use of professional plaintiffs, 141 Cong. Rec. S17943 (Dec. 5, 1995).
6. An enduring criticism of the "race to the courthouse" is that it results in multiple complaints being filed in rapid succession, often alleging the exact claims as the first claimed filed.
7. The Reform Act does not preclude groups of plaintiffs from aggregating their losses, which would allow them to have the largest financial loss or stake, so they may be appointed lead plaintiff. In re Cephalon Sec. Litig., Civil Action No. 96-CV-0633, Memorandum and Order, at 1 (ED Pa., Aug. 28, 1996).
8. Conference Report on HR 1058, H. Rept. No. 104-369 (Nov. 28, 1995), '95-'96 CCH Dec. ¶ 85,710.
9. A major source of criticism of securities class actions by the defense bar is that some class actions are filed by persons who are nothing more than stand-ins for plaintiffs' attorneys and who have only a nominal stake in the target company. These so-called "professional plaintiffs" have also been criticized for filing numerous securities fraud cases.
10. The notion that institutional investors are the most adequate plaintiffs or is the "real clients" in shareholder litigation is attributed in part a law review article that was referenced often during the congressional debates on the 1995 Reform Act. Elliot J. Weiss & John S. Beckerman, Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale LJ 2053 (1995).
11. §§ 27(a)(3)(B)(iii) of the Securities Act and 21D(a)(3)(B)(iii) of the Exchange Act. See also, HR Rep. 104-369, 104th Cong., (1st Sess. at 34); 141 Cong. Rec. H13699 (daily ed. Nov. 28, 1995) (Statement of Managers).
12. See Conference Committee Report at 5.
13. Securities Act § 27(a)(3)(A).
14. §§ 27(a)(3)(B)(v) of the Securities Act and 21D(a)(3)(B)(v) of the Exchange Act.
15. SEC Report at 45, note 201, citing Gluck v. Cellstar Corp., CA No. 3:96 Civ. 1353-R (ND Tex., complaint filed May 14, 1996) (Sate of Wisconsin Investment Board); Malin v. Ivax Corp., C. No. 96-1843-CIV-Moreno (SD Fla., complaint filed July 15, 1996) (Pennsylvania Employees Retirement System Pension Fund); Mark v. Fleming Cos., Civ. Act. No. CIV-96-0506-M (WD Okla., complaint filed Apr. 4, 1996) (City of Philadelphia, acting through its Board of Pensions and Retirement); In re Summit Technology Sec. Litig., Civ. Act. No. 96-11589-JLT (D. Mass., complaint filed Aug. 2, 1996) (Teachers' Retirement Sys. of La.); Teachers' Retirement Sys. of La. v. Micro Warehouse, Inc., Ca. No. 396CV02166 (D. Conn., complaint filed Oct. 25, 1996) (Teachers' Retirement Sys. of La. & Penn. Sch. Employees Retirement Sys. Pension Fund); In re Cephalon, Inc. Sec. Litig., Civ. Act. No. 96 CV-0633 (ED Pa., complaint filed Jan. 29, 1996) (Sands Point Partners, L.P.); Sweetwater Inv., Inc. v. Pepsi-Cola Puerto Rico Bottling Co., No. 96-8671-CIV-ZLOCH (SD Fla., N. Div., complaint filed Oct. 15, 1995) (Sweetwater Inv., Inc.); Chan v. OrthoLogic Corp., No. CIV 96-1514 PHX RCB (D. Ariz., complaint filed June 24, 1996) (City of Philadelphia).
16. SEC Report at 44.
17. See Margaret A. Jacobs and Edward Felsenthal, Securities Fraud Legislation May Spark New Litigation, Wall ST. J., Dec. 13, 1995, at B2.
18. The use of confidentiality and protective orders may alleviate some concerns about corporate holdings and other trading practices and information.
19. Civ. Act. No. 96 CV-0633 (ED Pa., complaint filed Jan. 29, 1996) (Sands Point Partners, L.P.).
20. 1933 Act, § 27(a)(3)(B)(v), 1995 USCCAN (109 Stat.) 737,740; 1934 Act, § 21D(a)(3)(B)(v), 1995 USCCAN (109 Stat.) 735, 745.
21. Teachers' Retirement Sys. of La. v. Micro Warehouse, Inc., Ca. No. 396CV02166 (D. Conn.) (Two individual plaintiffs represented by traditional plain-tiffs' law firms challenged Teachers' Retirement System of Louisiana & Pennsyl-vania School Employees Retirement System Pension Fund role as lead plaintiff).
22. Joseph A. Grundfest and Michael A. Perino, "The Pentium Papers: A Case Study of Collective Institutional Investor Activism in Litigation," 38 Ariz. L. Rev., 559, 602.
23. Case No. 396 CV-02166 (D. Conn. Complaint Filed October 25, 1996).
24. Sections 27(a)(4) (Securities Act) and 21D(a)(4) (Exchange Act).
25. Securities Litigation Reformed? Securities & Commodities Regulation, Vol. 29, No. 4 (February 28, 1996).
26. Weiss & Beckerman, supra note 9 at 2124.
27. §§ 77z-1(a)(3)(A), 78u-4(a)(3)(A).
28. HR Conf. Rep. No. 369, 104th Cong., 1st Sess. 32 (1995), reprinted in 1996 USCCAN 679, 731. 141 Cong. Rec. 59115 (daily ed. June 27, 1995).
29. HR Conf. Rep. No. 369, 104th Cong., 1st Sess. 32 (1995), reprinted in 1996 USCCAN 679, 731. 141 Cong. Rec. 59115 (daily ed. June 27, 1995).
30. Weiss & Beckerman, supra note 9 at 2112-2120 (1995). See also, Keith Johnson, "Deployment of Institutions in the Securities Class Actions War," 38 Ariz. L. Rev. 627, 632 (1996). Johnson is the Assistant General Counsel for the State of Wisconsin Investment Board, the ninth largest public pension fund in the U.S., which manages $45 billion in public employee retirement funds and other public monies for the Wisconsin Retirement System.
31. Weiss & Beckerman, supra note 9 at 2112-2120 (1995). See also, Keith Johnson, "Deployment of Institutions in the Securities Class Actions War," 38 Ariz. L. Rev. 627, 632 (1996). Johnson is the Assistant General Counsel for the State of Wisconsin Investment Board, the ninth largest public pension fund in the U.S., which manages $45 billion in public employee retirement funds and other public monies for the Wisconsin Retirement System.
32. 29 USC § 1001 et seq. (1994).
33. 15 USC 801 et seq. (1994).
34. See Investment Advisers Act of 1940, Section 206. SEC v. Capital Gains Research Bureau, Inc., 375 US 180 (1963), In re Arlene W. Hughes, 27 SEC34-4048 (1948).
35. See Walter Reiman, Richard A. Rosen, Steven B. Rosenfeld and Robert S. Smith, "The Private Securities Litigation Reform Act of 1995: A User's Guide," 24 Sec. Reg. LJ 117, 131 (1996).
36. Restatement (Second) of Trusts § 177 (1959). The Comment to the Restatement advises the following consideration when considering potential claims: It is not the duty of the trustee to bring an action to enforce a claim which is a part of the trust property if it is reasonable not to bring such an action, owing to the probable expense involved in the action or to the probability that the action would be unsuccessful or that if successful the claim would be uncollectible owing to the insolvency of the defendant or otherwise. Id. § 177 cmt. c.
37. Harvey Pitt, "Promises Made, Promises Kept: Practical Implications of the Securities Litigation Reform Act," Prac. L. Inst. (1996).
38. Weiss & Beckerman, supra note 10, at 2123.
39. For a consideration of cost-benefit variables of institutional investor activism see, Robert C. Pozen, "Institutional Investors: The Reluctant Activists," Jan.-Feb. 1994 Harv. Bus. Rev. 140.
40. See, Harvey Pitt and Dixie L. Johnson, "Securities Law: (subtitled), Litigation Role Changes for Institutional Investors," Nat' 1LJ, Apr. 1, 1996, BR; Joeseph A. Grundfest and Michael A. Perino, "The Pentium Papers: A Case Study of Collective Institutional Investor Activism in Litigation," 38 Ariz. L. Rev. 559 (1996).
41. See, Harvey Pitt and Dixie L. Johnson, "Securities Law: (subtitled), Litigation Role Changes for Institutional Investors," Nat' 1LJ, Apr. 1, 1996, BR; Joeseph A. Grundfest and Michael A. Perino, "The Pentium Papers: A Case Study of Collective Institutional Investor Activism in Litigation," 38 Ariz. L. Rev. 559 (1996).
42. SEC Report at 47.
43. Weiser v. Grace, Index No. 106285/95 (Supreme Court of the State of New York, New York County, Sept. 3, 1996).
44. In re California Micro Devices Sec. Litig., Case No. C-94-2817-VRW, ND Cal. (Order dated Feb. 12, 1996) (pre-Reform Act case). See Keith Johnson, "In-stitutional Investors and Securities Class Action Reform: A Report from the Trenches," The Corp. Governance Advisor, Jan./Feb. 1997.
45. Case No. C-94-2817-VRW (ND Cal. Feb. 2, 1996).