It all started back in December 2005, when Prof. James D. Cox (Duke) and Randall S. Thomas (Vanderbilt) posited, in their latest article on the failure of institutional investors to file claim forms in securities class action settlements, Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Class Action Settlements, that they could:

find no recorded case where a bank, mutual fund, or insurance company has served as a lead plaintiff in a securities class action.

A few months later, I blogged on the issue, here, here, and here, and noted that there were a number of instances where private institutional investors had indeed served as lead plaintiffs in securities litigation.

Prof. Cox and Thomas then posted a draft of their latest paper, An Empirical Analysis Of Institutional Investors' Impact as Lead Plaintiffs in Securities Fraud Class Actions, where they repeated their earlier conclusion:

we find no recorded case where a bank, mutual fund or insurance company has served as a lead plaintiff in a securities class action.

Then, Prof. Stephen J. Choi (New York University School of Law) and Robert B. Thompson (Vanderbilt University School of Law) authored a paper, Securities Litigation and Its Lawyers: Changes During the First Decade After PSLRA that reiterated the myth, stating:

There has been a substantial increase in participation of public pension firms, a group that includes well-known public employees' funds such as Calpers, NYCERS and funds related to various unions. At the same time, there has not been any substantial involvement by private investors, such as mutual funds, banks, and insurance companies.

Recently, Prof. Charlie Silver (University of Texas School of Law) and an economist, Sam Dinkin, published a draft paper, Incentivizing Institutional Investors to Serve as Lead Plaintiffs in Securities Fraud Class Actions, that cites to the same Cox / Thomas myth, as part of the underlying premise for the need to incentivize private institutional investors. They do go on to try and make some sense of the conflicting information out in the marketplace now with respect to private institutional investor involvement in securities class actions. The paper has some thought provoking proposals, and I fear that the repetition of the myth in the very first paragraph may take something away from the discussion that I hope their paper stimulates. Indeed, at a later date, we'll dive into the underlying proposals.

OK, listen up Academia. For the last time, private institutional investors (mutual funds, banks, and insurance companies) do seek to serve as lead plaintiffs.

Here are a few examples.

Mutual Funds:

In the Lucent Technologies (NYSE: ALU) securities class action, two mutual funds, The Parnassus Fund and the Parnassus Income Trust/Equity Income Fund were appointed as co-lead plaintiffs. The Lucent securities litigation is the ninth largest securities class action settlement of all time according to data from my team at ISS' Securities Class Action Services.

Insurance Companies:

In the Laidlaw (NYSE: LI) bondholder class action, four insurance companies, John Hancock Life Insurance Co, New York Life, Insurance Co, American General Annuity Insurance Company, and Variable Annuity Life Insurance Co., were appointed as co-lead plaintiffs.

Banks:

In the Honeywell International (NYSE: HON), securities class action, which settled in 2004 for $100 million, Jefferson State Bank, was appointed as co-lead plaintiff.

You've been warned...

Tuesday, March 7, 2006