An interesting article by Ted Siedle for the Benchmark Companies–“Invasion of the Class Action Securities Lawyers“–states that lawyers who represent large pension plans are being paid hefty referral fees by securities class action law firms which in some cases are not being disclosed to the client. The securities firms, according to the article, are seeking to secure lucrative lead counsel status in cases the firms seek to bring. The article reports that “[w]hile ten years ago you’d hardly find a lawyer in the crowd at a pension conference, today pension conferees are subject to an “invasion of the securities class action lawyers” because that is where securities lawyers build the relationships to attain lead counsel status in some of these cases. The article goes on to make the point that when lawyers are advising pension boards about whether to participate in a securities class action lawsuit and when those lawyers advising the board then receive referral fees from the securities lawyers, this is not impartial advice and the financial interest should be disclosed to the client. The article warns that those making decisions for pensions plans “should take the time to become knowledgeable about the hidden financial incentives that may motivate their advisers so they can make informed decisions.”
This is the first that I have heard of such arrangements. However, a speaker I heard at an ERISA fiduciary conference stated that when securities firms do not attain lead counsel status in a securities class action law suit, some are then filing ERISA lawsuits instead on behalf of plan participants.
David Giacalone at EthicalEsq. this summer had a great discussion of fee arrangements in the ERISA lawsuits being filed on behalf of participants in 401(k) plans who have lost money from investments and discussed ethical considerations in connection with those fee arrangements. It would be great to hear what he has to say about the fee arrangements discussed here today.