Securities Litigation
The following is intended to provide a general description of the procedures
used by the State of Wisconsin Investment Board (SWIB) in evaluating and
managing securities class action claims as an asset of the trust funds.
While SWIB acknowledges that it may have a fiduciary duty to pursue legal action
to recover on a claim, it also takes into consideration that most (if not all)
of these claims will be prosecuted by the class action bar whether or not SWIB
takes an active role.
SWIB Securities Class Action Procedures
General Principles
SWIB acknowledges that is has a fiduciary duty to take reasonable actions to
collect on legal claims held as a trust fund asset. A process for identifying,
filing and collecting on class action claims shall be maintained by legal staff
in accordance with these procedures. The process is intended to identify
situations where the expected additional return or benefits from playing an
active role in prosecuting a claim rises to the level that merits investment and
legal staff jointly conducting a cost-benefit analysis of pursuing a proactive
litigation strategy. The process contemplates that input from relevant
investment staff will be obtained prior to initiation of any SWIB legal action
that impacts portfolio holdings or strategy.
Initial Case Evaluation
Where it appears that SWIB’s damage claim in a public market corporate fraud
case exceeds $20 million, internal legal staff shall perform an initial case
evaluation. This evaluation should include analysis of:
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whether the
company appears to have engaged in fraud or other serious illegal conduct;
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whether SWIB has any investment position that could be disadvantaged by the
litigation;
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legal vulnerabilities of the case;
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potential sources of
recovery;
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expected discovery demands and distraction of investment staff
from their primary function if SWIB became involved in litigation;
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whether
the case is likely to be effectively prosecuted without SWIB’s active
participation;
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how much could be added to SWIB’s bottom line by a proactive
strategy;
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alternative means of obtaining similar results and
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any other
relevant considerations.
Where legal staff concludes that active SWIB involvement in the litigation is expected to produce increased
returns or benefits that substantially outweigh the associated costs, including
the lost opportunity costs from staff time devoted to litigation, the chief
legal counsel shall convene an evaluation meeting with the executive director
(or the executive director’s designee) and the chief investment officer and portfolio
manager(s). The legal staff’s case evaluation shall be reviewed, with
additional factors potentially being identified by the participants for
consideration.
Final Recommendation
If the executive director (or designee), the CIO and the chief legal counsel
unanimously concur that the benefits of engaging in a proactive litigation
strategy substantially outweigh the associated costs or otherwise merit
additional consideration, the chief legal counsel may retain outside case review
counsel to further evaluate merits of the case and SWIB’s options for pursuing
efforts to realize on its legal claims. Outside counsel’s report shall be
presented to and reviewed by the evaluation meeting participants.
Unanimous approval of the executive director, the CIO and chief legal counsel is
required to authorize any action to initiate, join, make an appearance in or
submit a filing in any public market corporate fraud litigation. Nevertheless,
in cases where SWIB is not lead plaintiff, the chief legal counsel may object to
excessive legal fees, support another institutional lead plaintiff candidate, or
concur in a legal position taken by the lead plaintiff by filing document with
the relevant court or otherwise. Where there is not the required unanimous
approval, the executive director, the CIO or the chief legal counsel may bring
the matter to the Board for its consideration. The Board may approve litigation
regardless of evaluation meeting action.
Board Reports and Approvals
The executive director shall report to the Board on each evaluation meeting
outcome, and Trustees must be informed prior to implementation of any approved
action. Whenever SWIB’s legal claim exceeds $50 million, Board approval is
required to initiate or voluntarily join any litigation, whether it is in the
public or private markets. The filing of or active participation of SWIB in
appraisal, merger challenge or other non-fraud corporate governance litigation
shall require both review through the evaluation meeting process and Board
approval.