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10 Years Removed from Cox & Thomas: A Survey of the Claims Filing Landscape for U.S. and Non-U.S. Securities Litigation Recoveries

November 5, 2015

According to NERA Economic Consulting, between 2010 and 2014 alone, $26.8 billion dollars in securities class action settlement and judgment proceeds were made available to investors. In recent Bulletin articles, we have examined the claims administration process in securities class action settlements — the most important step of the process for institutional investors (when not actively litigating a case and serving as a fiduciary for the class) with regard to securities fraud class actions. This has included a review of the systems and best practices that institutional investors have implemented for recovering settlement proceeds, as well as the issues investors face in the complex claims administration process. As Q4 2015 approaches, we survey the current claims administration landscape, take a look at some recent, notable developments, and provide an overview of how the global institutional investor community is navigating this challenging and important area.

As has been widely cited for years within the shareholder litigation community, in 2005, Professors James D. Cox and Randall S. Thomas released a groundbreaking paper in the Stanford Law Review entitled, “Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Class Action Settlements.” In their study, Professors Cox and Thomas compared the list of shareholders who traded stock in various companies during a class period with the list of institutions who filed claims in a securities fraud settlement concerning the same company and the same class period. The results were astounding– on average only twenty eight percent (28%) of eligible institutional investors filed claims in settlements. Institutional investors owe a fiduciary duty to their plan participants to take reasonable steps to recover monies owed to their funds. Yet despite this fiduciary duty, the amounts of money at stake, and an ever-increasing array of options of services available to help institutional investors recover settlement dollars, claims filing participation rates remain low. A decade has passed and the claims filing participation rates are still not much better than they were in 2005. In fact, current estimates compiled from statistics from NERA Economic Consulting and Cornerstone Research suggest that only thirty five percent (35%) of eligible institutional investors file claims in U.S. settlements. The low U.S. claims filing rates and changes in the legal and regulatory landscape (including the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank Ltd., which now requires investors to pursue a recovery outside the United States for securities fraud losses stemming from shares traded on non-U.S. markets) mean that institutional investors are still leaving billions of dollars on the table. With numerous options available for claims filing services, why is so much money still going unclaimed?

There are essentially three options available to institutional investors seeking outside assistance with the claims filing process relating to U.S. securities class action settlements: 1) contracting with their custodial bank to file claims, 2) retaining a third-party claims filing service, or 3) retaining a law firm to assist with monitoring and claims filing. While all three are viable options to assist institutional investors with the claims administration process, they each present certain considerations.


Most U.S. based institutional investors utilize their custodial bank to file claims. Investors outside the U.S. appear less likely to utilize their custodial bank although it is unclear whether that is because their custodians are typically based outside the U.S. and do not offer the service, whether investors outside the U.S. are still unaware of how the U.S. class action system operates (and consequently are still unaware of their eligibility to file claims), or some other reason that may explain non-U.S. investors’ general reluctance to participate in securities class action settlements via their custodial bank. There are certainly many advantages to using a custodial bank for claims filing, including the custodian’s access to relevant transaction data. Utilizing custodians for claims filing, however, can also present certain challenges.

• Custodians process a large volume of claims and as a result, may miss key requirements on particular claim forms. For example, we have observed instances where a custodian did not realize that a particular securities class action settlement allowed investors to make claims for both purchases and holdings within a given class period. Accordingly, the custodian filed a claim only for the purchases and consequently the shareholder did not recover for their holdings that stemmed from pre-class period purchases. Further, in settlements related to particularly complicated cases that involve a number of companies and securities, there have been instances where custodians have missed filing claims for one or more eligible securities.

• When investors switch from one custodian to another and a class period in a case spans the time of the custodial transition, the custodians may not be aware of the investors’ eligibility to file a claim or may each have insufficient data to file a complete claim.

• Some custodians are now outsourcing the claims filing service to third party administrators, which present other considerations (see Claims Filing by Third Party below for further discussion).

• Some custodians are unable to offer detailed or customized claims reporting that informs investors of what claims were filed (or when a claim was not filed, the reason(s) why).

• Inability of custodians to answer questions about a particular claim or to provide legal advice.

• Inability of custodians to provide assistance with recovering losses related to securities purchased on non-U.S. markets (see Special Considerations for Seeking Recoveries Outside the U.S. below for further discussion). In fact, many custodians will send notifications to investors alerting them to the fact that they purchased securities in the relevant non-U.S. company without regard to whether the investor has losses or is otherwise eligible to participate in the non-U.S. jurisdiction action.


A number of third-party claims filing services have cropped up in recent years, presenting investors with an ever-increasing number of claims filing options. However, not all third-party filers are equal in terms of the depth and quality of services they provide.

• Third-party claims filing services tend to be the most expensive claims filing option available to investors — charging, on average, 20-30% of a claim recovery in exchange for their services.

• Some third-party servicers cater more to retail investors and are not as accustomed to handling institutional investor claims. This can be particularly problematic when an institutional investor manages more than one fund and would need to file multiple claims in one settlement.

• The third-party claims administrator market is rather fluid and companies frequently go out of business, merge, and either acquire or are acquired by other companies.

• Many third-party claims filing services have professional investor ownership and the company may ultimately be most concerned with their core practice of maximizing their return on investment.

• Other third-party claims filing services are a small part of a larger company that primarily offers services or goods unrelated to securities class actions or the legal field generally. A number of these servicers provide marketing or investment advisory services and may attempt to sell ancillary products or services.

• Although some third-party filers tout their ability to assist investors with non-U.S. recoveries, they are often unable to do more than provide investors with contact information for the attorneys in the local jurisdiction who are pursuing the case. Additionally, they are unable to inform investors about the shareholder litigation legal structure in a particular jurisdiction, or advise them as to the risks involved in the case, the costs they may incur in pursuing the action, and whether it ultimately makes sense for investors to participate (see Special Considerations for Seeking Recoveries Outside the U.S. on page 14 for further discussion).


Unlike custodial banks and third-party filers, law firms have the ability to file accurate claims forms on behalf of institutional investors, as well as provide legal advice on securities cases worldwide (a particular benefit to institutional investors for cases that are unique or require more active participation, such as cases in non-U.S. jurisdictions that require investors to opt-in.) Engaging a law firm can also allow an investor the option to take a more active role, including seeking lead plaintiff appointment or choosing to opt-out of a particular case should the investor’s losses merit doing so. Further, because law firms are involved in the prosecution of securities class action claims, they may be in a stronger position to understand what is required on a particular claim form and should be able to avoid making some of the mistakes sometimes seen in claims filed by custodians and third-party filers. Law firms are also better equipped to provide customized and more detailed reporting regarding claim recoveries.

As law firms in the securities litigation field provide portfolio monitoring services at no cost, an investor looking to engage a law firm for claims administration assistance should similarly expect their fund will not incur a cost for a law firm to file claims, nor concede any portion of their recovery in securities class action settlements as payment to the law firm. But while retaining a law firm to file claims and monitor can be beneficial to an investor, using a law firm for these services may also present a unique set of challenges.

• Some institutional investors may have policies that require them to generally only seek to recover money from securities class action settlements as a passive class member rather than by serving as the lead plaintiff or assuming a more active role. Engaging a law firm that prosecutes securities fraud cases may be seen to be somewhat at odds with such a policy.

• Not all law firms are created equal and some may offer greater depth and quality of services than others – both in terms of claims filing accuracy as well as substantive reporting to the investor.


As has been discussed widely within the shareholder community, in recent years the legal and regulatory landscape related to shareholder rights has changed drastically. In 2010, the U.S. Supreme Court issued a landmark opinion in Morrison v. National Australia Bank Ltd., which foreclosed the ability of shareholders to litigate in the U.S. in order to recover for losses stemming from securities purchased on non-U.S. markets. In the aftermath of Morrison, there has been a pronounced increase in securities fraud-related litigation in jurisdictions around the world – with over 100 cases now pending in 13 countries outside the United States. As a result, investors must now evaluate their options for recovery of losses related to securities purchased on non-U.S. markets.

Recovering funds outside the United States can be much more challenging because investors often need to take proactive steps to “opt-in” and actively participate in a case in order to have a chance at any recovery. Each non-U.S. jurisdiction operates differently and for investors, there may be risks associated in joining litigation. For example, many jurisdictions outside the U.S. are “loser pays” jurisdictions and investors who pursue litigation in that jurisdiction could end up being held responsible for paying the defendants’ attorney fees and court costs if the litigation is unsuccessful. Evaluating shareholder litigation outside the U.S. and adequately weighing all the options can be time consuming for investors.

When it comes to seeking assistance with the often arduous process of recovering money outside the U.S., there are fewer service provider options available to institutional investors. Many custodians are unwilling and/or unable to handle non-U.S. claims and will instead merely notify an investor of a case, that may or may not impact them, exists. Like custodians, some third-party claims filing services are also unable to assist investors with non-U.S. claims. Other third-parties purport to offer services related to non-U.S. litigation, however, their services may be limited to informing investors about the case and providing the contact information for the litigation funder or local counsel pursuing the claim in that jurisdiction. With the exception of claims in Canada (which is an opt-out jurisdiction that operates much like the U.S.) and some cases in Australia (when the action proceeds as an opt-out), third-party filers are not able to act on an investor’s behalf and register the investor to participate in a given claim because doing so would impact shareholders’ substantive rights and require a power of attorney. Further, neither third-party filers nor custodians are equipped to advise investors of alternative options available to them or help them choose the best course of action for a particular case. For example, there have been several recent instances of parallel litigation – that is, litigation concerning the same company and the same legal and factual issues proceeding in two or more jurisdictions. Neither a third-party filer nor a custodial bank is able to provide legal guidance to investors in determining which of two or more parallel actions may be their best option.

By any objective standard, law firms actively engaged in the global shareholder litigation field offer the most comprehensive services to investors when it comes to pursuing claims outside the U.S. A law firm that is experienced in prosecuting shareholder litigation in non-U.S. jurisdictions and that devotes resources to researching and following legal developments around the globe can assist shareholders in evaluating the merits of a non-U.S. case, help investors understand their avenues to potential recovery, advise them of the risks and benefits, and can ultimately assist an investor in joining any litigation as well as help with the claims administration process should there be a positive result in the action.


Without question, it has been a roller-coaster ride in the shareholder litigation world since Professors Cox and Thomas released their initial research on claims administration. Shareholders have achieved landmark settlements in cases stemming from the tech bubble and the financial crisis. A number of challenges to investor rights were contested before the U.S. Supreme Court – some, like Morrison, which have significantly altered the shareholder litigation landscape, and others, such as Halliburton Co. v. Erica P. John Fund, Inc., where shareholders were fortunate to prevail and their rights with respect to securities class actions were left largely intact. Despite all the challenges and modifications to shareholder rights and securities fraud litigation, shareholder claims filing rates remain largely unchanged.

We have observed the global institutional investor community take significant strides in the wake of Morrison to put proper systems in place to track and manage the non-U.S. jurisdiction shareholder litigation impacting their portfolios. Similarly, we have seen institutional investors, particularly U.S. investors, take steps to shore-up their claims filing practice for U.S. actions. Our hope is for this trend to continue, and that institutional investors will continue to lean on their service providers for more detailed reporting in this area to help them verify their members’ money is not being left on the table. And ultimately, that the next ten years will reveal a marked increase in participation rates for the institutional investor community in securities class action recoveries.

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