Publicly traded companies are cautioned by history not to attract the ire of state pension funds. BP and other companies whose problems have harmed investors, and who are repeatedly learning how litigious these public funds are.
Last week the New York State Common Retirement Fund joined four Ohio public pension funds in a suit against BP. They complained that BP's securities traded at inflated prices while the company released "false and misleading statements" related to its ability to respond to the Gulf oil spill.
The attorney general's office in Ohio estimates the five public funds collectively lost more than $200 million from their transactions in BP common stock and American depositary shares from June 30, 2005 to June 1, 2010.
"Ohio public employees and retirees are among the thousands of investors harmed by the alleged misconduct of BP," said Ohio Attorney General Richard Cordray in a statement. "As lead plaintiff, we will vigorously represent all shareholders, and will seek compensation for the losses suffered as a result of what we believe was securities fraud."
Public pension funds are known to hold large amounts of money on behalf of a range of state and municipal employees.
"Many pension funds are very large and can have large holdings in a single company," said Luke Green, vice president of Securities Class Action Services. "There's a liquidity problem. It can be difficult to sell shares on news a company is heading for financial or legal trouble."
Green said public pension funds can face more scrutiny from investors than mutual funds and hedge funds, and therefore are more likely to be willing to invest the extra costs and effort in a lawsuit if they experience investment losses.
"They have additional incentive to pursue funds lost to fraud or malfeasance. They also have a desire to demonstrate commitment to their hard working fiduciaries," Green said.
"They want to invest in investments that are safe," said Marie Quashnock, an attorney with Berman DeValerio, a law firm in San Francisco. Berman DeValerio represents the California Public Employees' Retirement System, CalPERS, in its suit against Moody's, Fitch and S&P rating agencies. The suit claims the agencies gave positive ratings to structured investment vehicles exposed in the subprime mortgage market and led to CalPERS' heavy investment losses.
"Usually these cases are settled, instead of going to trial," said Barry Burr, editor at the newspaper, Pensions & Investments.
Billions Paid out in Pension Lawsuits
Maryland's state public pension fund is claiming damages from Toyota for not disclosing its acceleration defects that led to the automaker's massive recall. Maryland State Retirement and Pension System is estimating $18 million in damages based on its investment in Toyota, according to the Baltimore Sun. The fund has about 400,000 participants including current and former state employees, teachers, state police, judges, law enforcement officers, correctional officers and legislators.
"The Toyota case and the BP case are somewhat in a similar category – they're almost like product liability cases or consumer redress," said Green. "That's a different kind of case than an accounting fraud case where you're trying to cover up inventory buildup or a similar issue."
Green said it is too early to tell whether there will be settlements with BP and Toyota.
The Stanford Law School Securities Class Action Clearinghouse, in cooperation with Cornerstone Research, said the largest settlement of state pension lawsuits filed since 2007 involved Merrill Lynch & Co., Inc. The financial company allegedly misrepresented and omitted facts related to its exposure to subprime lending markets.
The following companies, which have denied wrongdoing, had the largest dollar amounts settled with state pension funds since 2007.
Tyco International, Ltd.
Total settlement: $3.2 billion
Most recent settlement year: 2007. Filed in 2002.
Lead plaintiffs: Louisiana State Employees Retirement, Plumbers & Pipefitters National Pension Fund, Teachers' Retirement System of Louisiana, United Association Office Employees Pension Plan, United Association of Local Union Officers & Employees Pension, United Association General Officers Pension Plan, and Voyageur Asset Management
Tyco, the electronics and manufacturing company, allegedly made false and misleading public statements and omitted material information about its finances.
McKesson HBOC Inc.
Total settlement: $1.04 billion
Most recent settlement year: 2008. Filed in 1999.
Lead plaintiffs: New York State Common Retirement Fund
The litigation alleged that McKesson HBOC, a healthcare IT company, reported fraudulent revenues, income and assets.
United Health Group, Inc.
Total settlement: $925.5 million
Most recent settlement year: 2009. Filed in 2006.
Lead plaintiff: California Public Employees' Retirement System
The managed-care company, based in Minnetonka, Minn. was accused of stock options backdating -
Total settlement: $804.5 million
Most recent settlement year: 2010. Filed in 1998.
Lead plaintiffs: Central States Pension Fund, Southeast and Southwest Area Pension Fund, Educational Retirement Board of New Mexico, New Mexico State Investment Council, Retirement Systems of Alabama, Michigan Retirement Systems
The plaintiffs accused HealthSouth, an inpatient healthcare provider, of accounting fraud. Xerox Corp.
Total settlement: $750 million
Most recent settlement year: 2009. Filed in 2000.
Lead plaintiff: Louisiana State Employees Retirement System
The Louisiana pension fund claimed Xerox misled investors by intentionally overstating earnings through five annual reporting periods, according to the claims administrator, Gilardi & Co. The suit also claimed that while Xerox was reporting allegedly artificially inflated earnings, individuals working for KPMG, the accounting firm for Xerox, sold Xerox securities at "artificially inflated prices" for about $50 million.
List compiled from Securities Class Action Services' "Top 100 Settlements Quarterly Report." September 30, 2010.