Paul R. Hubbert, Chair
Sarah Swindle, Vice Chair
State State Police Public Judicial
Bob Riley, Chair
John H. Wilkerson, Jr., Vice Chair
THE RETIREMENT SYSTEMS OF ALABAMA
David G. Bronner, CEO
Marcus H. Reynolds, Jr., Deputy
November 20, 2008
Mr. Robert Shattuck
3812 Spring Valley Circle
Birmingham, Alabama 35223
RE: Middlesex County Retirement System Class Action
Dear Mr. Shattuck:
Your letter of November 14, 2008, to Dr. David Bronner regarding the
participation of governmental retirement systems in class action securities fraud cases has
been referred to me. I understand, and share to some degree, your concern but I think
that your analysis is missing something very important. Both corporate fraud and class
action lawsuit abuse have existed in this country for many years. In recent years
governmental retirement plans have become active in class action security fraud cases to
prevent the abuse of which you complain as well as to police the marketplace.
In 1995 Congress enacted the Private Securities Litigation Reform Act of 1995
(PSLRA) giving institutional investors priority in the selection of lead plaintiff in class
action security fraud cases. Prior to that the first plaintiff to the courthouse was named
lead plaintiff and that plaintiff might be an individual with no interest in the case other
than receiving kickbacks from a plaintiff's law firm for allowing it to use his name as
plaintiff. Congress believed that institutional investors would be more responsible lead
plaintiffs and events since the enactment of the Reform Act have proven that belief to be
Even so, public pension plans do not rush to the courthouse to be lead plaintiffs.
Many, if not most, of the larger public pension plans in the United States follow a
procedure similar to that adopted by RSA several years ago. When a securities fraud case
is filed we check to see if we suffered losses due to the alleged misconduct and whether
the extent of our losses is such that we might be considered by the court to be a proper
lead plaintiff. We check to see if any other public pension plans will seek lead plaintiff
status and whether they will be represented by a responsible, competent law firm. If
there is a responsible lead plaintiff represented by a responsible law firm we consider that
we and the class will be well represented. If there is not another responsible lead plaintiff
represented by a responsible law firm, than we may feel it is our duty to represent the
class, if we qualify to do so and if it is a meritorious law suit. If we choose to seek lead
plaintiff status and if we are selected as lead plaintiff, we control the litigation and, we
control settlement negotiations, not the lawyers.
As lead plaintiffs, public pension plans have selected more responsible law firms
to represent the class, have negotiated significantly lower attorney's fees, and have
exercised more control over the case, taking into consideration many factors, including
the need to reform corporate conduct to protect the integrity of the market place and the
continuing health of the defendant corporation. Public pension plans, as lead plaintiffs,
have sought remedies in addition to monetary damages, to compensate both former and
current stockholders of the company who have lost money due to corporate fraud, such as
management reform, while helping to prevent such future misconduct that would damage
the corporation and stock holders and have sought to eradicate fraudulent market
practices that affect the financial markets. Monetary damages are, of course, often paid
by the defendant's insurance company.
Public pension plans have also sought to hold liable the individuals responsible
for the fraud and other companies that aid and abet securities fraud. Recent court rulings
have made it more difficult to hold aiders and abettors accountable and indemnity
agreements make it difficult to recover against the individual corporate executive who
has defrauded both the company and its stockholders.
Even when a public pension plan is not the lead plaintiff in a securities fraud case
public pension plans have often appeared in court and objected to attorneys fees
requested in securities fraud cases and have been successful in reducing the fee actually
awarded by the court ..
It is not a perfect system but better, far better, than it was before public pension
plans began to take an active role in this type litigation. In accepting the role of lead
plaintiff in a class action lawsuit the public pension plans are simply being good citizens.
I hope and trust that this gives you a better understanding of the role of public
pension plans in security fraud litigation. If you have any further questions I would be
happy to discuss this issue with you.
William T. Stephens
Sent: 11/23/2008 7:54:26 A.M. Central Standard Time
Subj: For William Stephens re Middlesex County Retirement System Class Action
For William Stephens re Middlesex County Retirement System Class Action
Dear Mr. Stephens,
Thank you very, very much for your reply letter dated November 20, 2008. I would greatly like to discuss this topic further with you, but I am not sure how much time you are willing to spend.
Our entire society, including The Retirement Systems of Alabama, has a significant interest in reducing corporate fraud and misconduct, including such as occurred in the above class action.
I contend that the plaintiffs' lawyers undermine this societal objective. My argumentation about this is set out at this link Does the Law Undermine Business Ethics? .
If you would care to take the time to read my argumentation and comment on it, I would be very interested in what you have to say.
On the other hand, I will understand it that is asking too much.