Why are class actions

undertaken?

It is done mainly because, in all

fairness, you cannot know everything

as an investor. If you have

been deceived as an investor and,

as a result, have suffered a loss

then the question presents itself

whether you may qualify for compensation.

What is the effect of this?

It can mount up but it is always

about fractions of the actual damage.

If, in the case of a scandal,

complete compensation was

under discussion, this would

again conjure up problems. There

would be a risk of the company in

question going bankrupt. This

would not be in the interests of all

those thousands of investors who

have invested money in such a

company. That is why, with class

actions, we speak of distribution

damage.

Very large damage is distributed

among many investors. The

compensation paid by the company

to its former shareholders

will be at the expense of this

company's value and its present

shareholders.

This is why opponents of the

class actions system speak of a

present you have, in fact, paid for

yourself and also that it is mainly

lawyers who will profit from this.

This has an element of truth but

we should also realise that the former

shareholders are not the

same as the present ones.

Yet ABP does participate in

class actions.

We cannot change the legal system

of the US. In that jurisdiction

we are increasingly entitled to

compensation, which is sometimes

called ‘blood money'. The

compensation ABP is entitled to is

there for the taking. If we do not

take it, our share will be distributed

among the other plaintiffs

who do take the trouble to get it.

Class actions provide us with

two things: a financial indemnification

for the damage and also a

precautionary element as a

weapon against future malfeasance.

The American security laws have

known the system for a long time.

Since the much-discussed

accounting scandals that emerged

in 2001 and 2002, class actions

have expanded enormously.

Before that time there were also

legal actions, of course, but at a

smaller scale.

In those years we regularly

received various forms to fill in.

We did not often participate as it

involved a lot of work against a

very scant possible return. Meanwhile,

class actions have seen an

explosive growth and also the

amounts of money involved.

How does the class action

procedure work?

If a company listed on the American

stock exchange has overstepped

the mark, resulting in a

loss for the investors, the victims

report to the American judge as a

group. He can combine the claims

into a ‘class', a communal action.

For every participant this may

result in the allowance of a compensation

by a verdict or a settlement.

First, the legal costs are

deducted from this compensation.

The remaining part will be

divided in proportion over the

victims.

Since ABP has sizeable blocks of

shares in very many companies,

this may involve large sums.

Isn't this a complicated and

therefore costly procedure?

This is not necessarily so. Usually

the victim who has suffered most

is most likely to be appointed by

the judge as lead plaintiff - if they

apply for it. He will do the work

and this indeed involves great

efforts.

The rest of the ‘class' merely

needs to wait to apply to the

claim administrator once a settlement

or judgment had been

reached.

As we have considerable investments

in quite a few companies,

it is sometimes obvious that

ABP is a candidate to become lead

plaintiff.

In practice a large institutional

investor like ABP may be taken

more seriously as lead plaintiff by

the judge than an investor who

dances to the tune of some

lawyer's office.

What about the consequences

of recent scandals?

Since 2001 it has often been a

matter of hundreds of millions of

dollars. For the plaintiff it has

become quite rewarding to start

proceedings.

How many class actions is

ABP involved in now?

About 250.

Why have class actions

reached almost epidemic

proportions ?

Fraud and deception have always

existed. But the fact that its occurrence

is without parallel undoubtedly

has to do with remuneration

schemes that have the wrong

incentives, the short-term thinking

you see all around you and all

sorts of other modern stimuli to

encourage greed.

We try to identify these risks but

we cannot rule out all of them. Do

not forget this is usually about

very clever deception that you

will only get to know afterwards.

A good deceiver will not be running

around waving a flag.

It is a good thing to realise that

things will go wrong sooner if

there are insufficiently critical

and active minds in a company.

If you get an organisation that

regards critical minds as a threat

and eliminates them, the chances

of deception and fraud will be

considerably bigger.

A reliable company always has

good checks and balances. There

should also be a sound, realistic

strategy, which is quite clear

about essential matters.

A good supervisory board will

keep a close track of what is being

said and done by the top people

of the company.

Is it possible to withdraw

from a class action during the

procedure?

If you have been dealing in the

shares concerned during the socalled

class period, you will automatically

take part in the class

action. If you do not wish to, you

will have to take action: get out or,

in the jargon, ‘opt out'. We have

chosen to opt out and start our own

proceedings with Quest, AOL Time

Warner, Bristol Myers and now also

with AIG and Merck. It has to do, of

course, with the efforts you have to

put in, the costs you will have to

make against the sum of a possible

compensation. If we have suffered a

loss of more than $20m we will

considering opting out.

Why doesn't ABP Investments

automatically consider selling

the shares of a company that

has been fraudulent and

deceiving?

This is usually not advisable

because it often involves companies

that are essentially sound

enterprises and stand a good

chance in their markets. There has

only been some cheating by certain

people, usually at the top.

Then you will see, particularly in

the US, that the perpetrators are

deposed and severely punished.

Sometimes they are given a prison

sentence of 30 years. The company

will make a clean sweep.

Sometimes it also involves an

incidental matter. Philips, Shell,

Ahold have all been convicted or

have come to a settlement but this

does not mean that, as a company,

they will always remain uninteresting

to the investor.

Why, if the pursuit of transparency

is paramount, doesn't

ABP put all class actions on

the internet?

At the moment we only put those

matters on www.abp.nl if we have a

special purpose - if we are lead

plaintiff or choose to opt out. There

are also many issues which do not

attract much attention. Not everything

is worthwhile. The sums can

vary enormously.

By way of illustration: so far we

have received compensations varying

from $7m up to $20m. All our

security analysts are obviously

acquainted with important matters,

which may have essential consequences

for the value of the company.

The underlying American legal

system is also an expensive system.

The rake-off of the lawyers who

play an important part in it is considerable.

One should not forget,

though, that they also have to work

very hard for it. One class action

with great financial interests may

on balance be cheaper than hundreds

of procedures - on basically

the same subject - with a relatively

small financial interests.

And if the lawsuit does not lead to

anything, the lawyer will not

receive anything either: no cure, no

fee. Yet I would not mind if a

cheaper remedy could be found.

How do you see the future of

class actions?

Their impact will increase in the

Netherlands. Companies and

investors are active on the same

pitch - the international and financial

markets.

For someone investing in Shell it

should not make any difference

whether he buys the same share in

Amsterdam, London or New York.

This should also apply if a company

in the US is found liable for compensation.

This should not exclusively

fall to American investors as

used to happen, for instance with

Philips.

I think this is wrong. It is just logical

that all duped investors all over

the world should receive a pro rata

share of the compensation. This is,

for instance, how it happened with

Ahold and this is how it should be

with future compensations. The

tendency is there.

This interview first appeared in ABP

World

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