developments in securities litigation prepared for the atlantic connection conference 2013 maya...
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DEVELOPMENTS IN SECURITIES LITIGATION
Prepared for the Atlantic Connection
Conference 2013Maya 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
Notification Provided to Client
with Recommendation
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
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
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."
CONCLUSION:
DEAL!
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
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