Don’t sue the messenger
02 October 2013
Tania Dupoy of Goal Group gives insight into investor losses from a reclamation perspective—and how custodians can swerve their day in court
Image: Shutterstock
Goal Group, which offers class actions and tax reclamation services, has revealed in its latest update report that between 2000 and 2012, investor losses through non-participation in securities class actions rose to over $18 billion. Just over $4 billion of this un-reclaimed amount can be attributed to European investors.
Historically, non-participation in US securities class actions has cost investors and funds dearly. Between 2000 and 2007, Goal Group analysis showed that non-participation by European and other non-US investors was much higher than for US-domiciled investors. However, non-participation rates have radically improved outside of the US since 2007, with Goal Group’s analysis of its class actions knowledge base showing that global non-participation is now between 23 percent and 24 percent, with marginal differences between US and non-US eligible investors.
Nevertheless, a new worldwide trend is evident. Global class actions are moving away from the singular and relatively straightforward focus on a single jurisdiction—the US—to a multiple and complex series of legal systems throughout the world. As a result, custodians, trustees and fund managers may once again feel overwhelmed by the international monitoring, participation, claims and payments task. There is even a possibility, as securities class actions globalise, that non-participation rates could start to rise again. This is in light of some custodians limiting the scope of their class actions service to a selected group of countries.
The latest data also shows that although the volume of US securities class action settlements had fallen in 2012, settlement values had risen after a dip in 2011. The volume of filings in 2012 has been broadly maintained, despite the tailing off of credit crisis related cases. These findings suggest that filings and settlements are likely to show steady development across the rest of the decade.
Any level of non-participation presents fiduciaries (trustees, custodians, fund managers, etc) with a major legal headache, as experience in the US shows they may be sued if they do not ensure investors participate in class actions. Therefore, as fiduciary responsibility to ensure effective participation in relevant securities class actions and to recoup investors’ rightful returns is increasingly recognised. Responsible parties can no longer ignore the opportunity to claim international damages to which they are legally entitled. For example, many custody request for proposals from major pension funds now include these responsibilities as a requirement for a class action service. Many non-US legislatures require participants to register at the beginning of a case. Any level of non-participation presents fiduciaries with a potential legal risk; therefore it is a necessity that all those with such responsibility are familiar with securities class action legislation across the world.
Analysis has shown that the typical European share portfolio has become strongly international. The average weighting is currently at 60 percent in domestic shares and 40 percent in foreign shares. These weightings have highlighted to European shareholders (and responsible fiduciaries) that they could be left out of securities class actions in the US or in any other foreign legislature unless they take an active role in a lawsuit.
Keeping track of the opportunities to make a claim, and the processes required to do so successfully can be a complicated and daunting task however. Institutional investors have, in some cases, believed that the cost and time involved is likely to outweigh the benefits. Although this is often not true, it perhaps explains why 23-24 percent of claims that could be filed by entitled parties, are left unprocessed.
However, there are now specialist service providers that can automate the complex process of class action participation across international legislatures at a relatively low cost. The pressure of the process can be dramatically eased by such support. For example, specialist providers work on a global basis, covering class actions in all markets, while managing ongoing relationships with various legal firms worldwide and a network of paying agents.
Historically, non-participation in US securities class actions has cost investors and funds dearly. Between 2000 and 2007, Goal Group analysis showed that non-participation by European and other non-US investors was much higher than for US-domiciled investors. However, non-participation rates have radically improved outside of the US since 2007, with Goal Group’s analysis of its class actions knowledge base showing that global non-participation is now between 23 percent and 24 percent, with marginal differences between US and non-US eligible investors.
Nevertheless, a new worldwide trend is evident. Global class actions are moving away from the singular and relatively straightforward focus on a single jurisdiction—the US—to a multiple and complex series of legal systems throughout the world. As a result, custodians, trustees and fund managers may once again feel overwhelmed by the international monitoring, participation, claims and payments task. There is even a possibility, as securities class actions globalise, that non-participation rates could start to rise again. This is in light of some custodians limiting the scope of their class actions service to a selected group of countries.
The latest data also shows that although the volume of US securities class action settlements had fallen in 2012, settlement values had risen after a dip in 2011. The volume of filings in 2012 has been broadly maintained, despite the tailing off of credit crisis related cases. These findings suggest that filings and settlements are likely to show steady development across the rest of the decade.
Any level of non-participation presents fiduciaries (trustees, custodians, fund managers, etc) with a major legal headache, as experience in the US shows they may be sued if they do not ensure investors participate in class actions. Therefore, as fiduciary responsibility to ensure effective participation in relevant securities class actions and to recoup investors’ rightful returns is increasingly recognised. Responsible parties can no longer ignore the opportunity to claim international damages to which they are legally entitled. For example, many custody request for proposals from major pension funds now include these responsibilities as a requirement for a class action service. Many non-US legislatures require participants to register at the beginning of a case. Any level of non-participation presents fiduciaries with a potential legal risk; therefore it is a necessity that all those with such responsibility are familiar with securities class action legislation across the world.
Analysis has shown that the typical European share portfolio has become strongly international. The average weighting is currently at 60 percent in domestic shares and 40 percent in foreign shares. These weightings have highlighted to European shareholders (and responsible fiduciaries) that they could be left out of securities class actions in the US or in any other foreign legislature unless they take an active role in a lawsuit.
Keeping track of the opportunities to make a claim, and the processes required to do so successfully can be a complicated and daunting task however. Institutional investors have, in some cases, believed that the cost and time involved is likely to outweigh the benefits. Although this is often not true, it perhaps explains why 23-24 percent of claims that could be filed by entitled parties, are left unprocessed.
However, there are now specialist service providers that can automate the complex process of class action participation across international legislatures at a relatively low cost. The pressure of the process can be dramatically eased by such support. For example, specialist providers work on a global basis, covering class actions in all markets, while managing ongoing relationships with various legal firms worldwide and a network of paying agents.
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