With all of the fallout from corporate, accounting and now mutual fund scandals pointing to possible lawsuits by pension and 401(k) plans seeking to recover losses, there is much discussion about whether, when and how ERISA plan fiduciaries must pursue recovery of losses for plan participants in possible lawsuits against the alleged wrongdoers. The Securities Litigation Watch (here) and the 10b-5 Daily (here) have both had discussions about the recent WorldCom decisions in which claims by public pension funds have been dismissed. An article at Law.com entitled “U.S. Judge Dismisses Several Claims in WorldCom Securities Class Action” (referred to at the Securities Law Beacon) states: “The federal judge overseeing securities litigation over accounting fraud at the former WorldCom Inc. has followed up tough criticism of the tactics of [a certain law firm] by dismissing several claims the plaintiff’s firm has brought on behalf of groups that have opted out of the class action.” In the decision–In State of Alaska Dept. of Revenue v. Ebbers, 2003 WL 22738546 (S.D.N.Y. Nov. 21, 2003)–the judge threw out claims brought by the State of Alaska Department of Revenue and the Alaska State Pension Investment Board, saying the claims were time-barred.
In a previous post entitled “Lessons for ERISA Plan Fiduciaries From a District Court Case, Part II,” I noted that there is much for ERISA plan fiduciaries to be wary of in contemplating individual and class action lawsuits on behalf of plan participants. The aforementioned decision is a case which illustrates how not getting the proper advice and how not taking action in a timely fashion can end up with institutional investors losing out entirely from any recovery. The court notes:
Plaintiffs who choose, as is their right, to pursue separate litigation may not enjoy the benefits of that separate litigation without bearing its burdens. One of the burdens plaintiffs bear is the obligation to commence their actions within the applicable statute of limitations . . .Having chosen to pursue an individual action prior to a decision on class certification, the Alaska Plaintiffs are not protected by the American Pipe tolling doctrine. Since they failed to amend their pleading with the period provided by Section 13, the Alaska Plaintiffs’ claims against the Additional Underwriter Defendants and the Individual Defendants are time-barred and dismissed with prejudice.
In another twist to the story, the Securities Litigation Watch in this post links to this letter by lead plaintiff’s counsel in the In re WorldCom, Inc. Securities Litigation in which he argues that Individual Action plaintiffs whose claims will be dismissed as being time-barred (like the Alaska claims) should instead be allowed to participate in the Class Action instead of having their claims dismissed with prejudice as to the Class Action:
[T]here is a significant risk that the Individual Action plaintiffs who filed cases . . . may not have understood the risks associated with filing that action, including that such action could be time-barred. Indeed, the Court has already determined that counsel to certain Individual Action plaintiffs engaged in an active campaign to solicit plaintiffs to file individual actions by inducing confusion and misunderstanding regarding the benefits of an individual action and by derogating the class action option. . . This is further reason for fashioning an outcome which refrains from punishing these otherwise innocent investors for a decision that may have been the product of a misguided solicitation campaign.
On a related issue, the Securities Litigation Watch also has this article: “Puncturing the Myths of Opting Out.”
Also, the Securities Law Beacon refers to this press release–“WorldCom Investors and Employees Choose Arbitration Over Class Action“–in which it is announced that a law firm is “pursuing claims in excess of $50 million against Salomon Smith Barney, on behalf of present and former WorldCom investors and employees whose portfolios were concentrated in WorldCom stock and who do not wish to participate in any class actions.” The press release points to some helpful information for those institutional investors weighing litigation options against brokerage firms. You can access some information entitled “Understanding the Securities Arbitration Process” as well as “Securities Class Action Lawsuits Against Wall Street Brokerages vs. Securities Arbitration Claims: A Study to Determine the Appropriate Path for Securities Dispute Resolution.“