EUROPE - Europe's institutional investors are losing out on billions of euros in compensation from class action suits, according to a lawyer involved in the area.
They may be entitled to the cash as a result of losing money on their investments in firms that artificially inflated their share price. Part of the problem is poor timing and a lack of willingness to get involved on the part of the investor.
"The message to European institutional investors is make sure they protect their interests at the start of a class action so that they will receive a recovery at the conclusion of the class action," said Eric Belfi, attorney at law with Murray Frank & Sailer, a New York-based law firm which is visiting Munich today to explain the importance of class actions to German institutional investors.
Belfi cites a case in the US where US investors filed a class action against Daimler Chrysler in 2002 and won $300m.
The court refused to include non-US investors in the case because no one had come forward to represent them and the $300m recovery was shared only by US investors.
"Some US plaintiffs do not want the Europeans to get involved because the compensation has to be shared among more claimants," Belfi explained.
“On the other hand, companies want all plaintiffs to be involved so that they can achieve a final resolution of all claims."
So why is it that Europeans are so backward in coming forward? "The average European does not have the same level of knowledge of what is going on in the corporate world as the average American because they don't invest as much on an individual basis," Belfi explained.
"So Europeans are being left out."
There is a further issue of investors missing out on compensation simply because they fail to complete the required paperwork. "Of $5bn of settlements in 2004 $1bn went unclaimed," Belfi said.
Total settlements doubled last year. "By extrapolating those figures I estimate that $2bn was left unclaimed last year," said Belfi. "This year we are already well on the way to exceeding last year's total settlements."
He adds: "Worldwide, 70% of institutions are not submitting their claim forms. In the US this figure is more like 50-60% so outside the US the figure may be as high as 80-90%."
So the question arises as to whether it is a fiduciary duty for a pension fund to get involved in class actions. "I think it is," said Belfi.
"If a pension fund or anyone who manages money on behalf of another is not doing everything possible to maximize assets and returns, in the US at least that is a breach of fiduciary duty."
He adds: "If members start suing the pension funds, the pension funds will have to become more active in pursuing claims. Last year in the US for example, 50 mutual fund firms were sued for not filling out their compensation claim form."
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