Bruce Carton at the Securities Litigation Watch has been blogging for months about how as many as two-thirds of institutional investors continue to leave millions of dollars on the table by failing to complete the basic tasks of monitoring and filing claims in securities class action settlements. (Access his posts on the topic here, here, here, and most recently here.) He links to an article here entitled “Leaving Money on the Table: Do Institutional Investors Fail To File Claims in Securities Class Actions?” (by James D. Cox and Randall S. Thomas) which discusses the ERISA fiduciary implications of failing to file claims in securities class action settlements:
The fiduciary duty embodied in ERISA can be traced to the common law of trusts and therefore embodies the obligation to preserve and maintain fund assets. It is on this foundation that Professors Weiss and Beckerman extrapolate an obligation for fund managers to consider initiating suit where necessary to protect, maintain, or reclaim fund property that is the subject of their trust. Pursuit, however, is not mandated if the manager’s decision not to act is reasonably based. . .. . .(T)o the extent there are nontrivial costs to an institution from petitioning to become a lead plaintiff, not to mention the uncertainty of whether the institution will be selected, these costs may weigh more heavily than the expected benefits to the institution from the suit, not to mention its participation in the suit. Thus, though the private pension fund’s managers may theoretically face liability for imprudently assessing whether to serve as a lead plaintiff for a securities class action claim, there would be many potential justifications for them to assume a posture of rational apathy. However, with respect to failing to submit a claim to an administrator in a settled action for proven losses, we think there would be far fewer instances in which apathy would be a reasonable response to its fiduciary obligations.
Also, Professors Thomas and Cox have written a more recent article which you can access–“Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Class Action Settlements.” The article presents data which the authors state “provides an inescapable and startling conclusion” that “financial institutions with significant provable losses fail at an alarming rate, approximately 70 percent, to submit their claims in settled securities class actions.” They go on to state that “not only are their losses significant, but the sums of money they likely would share in are both in the aggregate, and on an average individual fund basis, not trivial.”
Read more about the the ERISA implications for fiduciaries settling claims in previous posts: