Institutional Investor Frequently Asked Questions

Q: How should an institutional investor decide whether to serve as a lead plaintiff?

A: The only sensible way to make an informed decision is through an established screening and evaluation process that identifies instances where such action may be appropriate and determines whether, in fact, such action is appropriate given the facts and circumstances of a given case. The screening and evaluation can be performed in-house, by an outside service, or by a qualified law firm such as SFMS. In 1998, the U.S. Secretary of Labor opined that pension funds had an affirmative dutyas fiduciaries to determine whether plan participants can benefit by pursuing a lawsuit. An appropriate monitoring and evaluation system assists institutional investors in meeting these important obligations, providing trustees and other fiduciaries with the information necessary to render an informed decision.

Q: Are there instances when an institutional investor should pursue individual as opposed to class action litigation?

A: Yes. It is important that an institutional investor evaluate each potential case and determine whether it should be pursued on an individual or class action basis. Although serving as a lead plaintiff in a class action often creates significant leverage, there may be instances where it simply makes more sense for the client to pursue an individual action.

Q: Why would a relatively small institutional investor seek appointment as a lead plaintiff?

A: Certain funds may never seek lead plaintiff status in a securities fraud class action. There are several reasons, however, that smaller institutions should consider taking a lead role in securities litigation. First, as a result of different investment strategies pursued by many institutions, smaller funds often have invested in securities that their larger counterparts never purchased. In these instances, smaller institutions can serve as an effective force in important securities and other corporate governance litigation. Second, there are times when larger institutions with significant losses may choose not to serve as lead plaintiff because they are already involved in a number of lawsuits or based upon unique circumstances related to the institution's investment losses. In such instances, smaller institutions have a unique opportunity to enforce their rights and take a lead role. Third, although the size of an institution's losses is an important factor in determining lead plaintiff status, it is not necessarily the only one. Therefore, even small funds should set up a mechanism to screen cases before ruling out active participation in a securities lawsuit.

Q: What can an institution do to protect itself even if it chooses not to become a lead plaintiff?

A: Even if an institution is not a lead plaintiff, it can easily exert influence in the case. For example, if the fund effectively monitors securities litigation, it can take action to protect its rights by serving as a class representative or, where appropriate, objecting to any action, including a proposed settlement, if the terms are inappropriate or ineffective. In addition, by monitoring such litigation, the institution can "opt out" or exclude itself from a class action to pursue an individual lawsuit if it deems such action appropriate. Finally, at a minimum, by monitoring litigation, a fund can ensure that it participates in the benefits of any settlement or judgment - a right that it might not otherwise enforce.

Q: What are the fees and costs of serving as a lead plaintiff?