LitigAiD – Services for institutional investors

In the wake of the rising Investment Stewardship discussion and the increasing significance of ESG principals for European asset managers, litigation will become a growing success and risk factor for asset managers. Litigation is an effective instrument to address mismanagement in portfolio companies, to increase the portfolio value and, hence, to account for appropriate compliance and fund governance. For asset managers this strategy may play an important role in distinguishing from passively administered funds, such as ETFs. Such active litigation strategy encounters reservations regarding costs and procedural risks; even more so in the U.S. However, those risks are manageable. Therefor, we offer customized services for investors in U.S. securities, which we outline below:

Class Actions in the U.S.  We obtain data of all class actions (and other collective actions such as MDLs) which are filed and certified in U.S. courts and monitor all relevant activities in connection with collective actions in the U.S. Class actions enable shareholders to easily recover damages and, thus, – from the asset management perspective – to refute any accusation of inaction in the sense of sound compliance and fund governance. Certainly, LitigAiD will assist  with the submission of claims as well as with the decision-making, whether an investor should become more actively involved in such litigation as a lead plaintiff. However, the financial outcome of such settlements is typically rather uninspiring for the individual claimant. Compared to the actual damages incurred, recovery regularly amounts to a low one-digit percentage. In our experience, investors may avail themselves of attractive alternatives, in particular where higher damages figures are in play.

Opt-out lawsuits in the U.S. In large damages scenarios, frequently an opt-out from class action combined with the pursuit of bilateral claims will the more interesting and lucrative alternative. The recovery potential is much higher as the plaintiffs pursue recovery of damages individually incurred rather than amorphous damages numbers of an entire (unspecified) class. Accordingly, this requires a more active role of the investors. However, in doing so, investors will benefit from the intense fact finding in the class action and will commonly focus rather on questions relating to damages causation at the specific investor level. Typically, in securities litigation this requires the investor to supply relevant trade data. At relevant damages levels, we have made very good experience with opt-out litigation and consider this strategy to be the silver bullet as a large recovery potential outweighs by far a comparably low risk and effort. For many U.S. plaintiff firms the class action is the more attractive form of litigation, as their recovery is higher than in bilateral actions (based on the overall larger damages amounts). They may, therefore, not mention a potential opt-out strategy to their client; or they may even be conflicted to advise on opt-out claim if they are already representing a lead plaintiff in the class.. To avail oneself effectively of that potential, it is, therefore, of utmost importance to monitor the market and to have access to a wider network of different law firms. We are in close contacts with relevant players in the U.S. litigation market and will learn first-hand early in the process of opt-out opportunities in connection with pending class actions. We are, thus, in a position to adivse on the optimal strategy at all times.  Typically, law firms take on opt-out cases on full contingency basis, so that cost risks are covered.

Other bilateral actions in the U.S.: Other bilateral actions are the exception since plaintiff firms will only offer contingency arrangement where large damages figures are in play. This may be the case, for example, if only a few investors in large funds or projects have been harmed and they would like to pursue claims individually or jointly.

Portfolio and Market Monitoring LitigAiD has developed a specific portfolio monitoring for institutional investors, who are often unaware of the opportunities for portfolio optimization by way of legal proceedings. Many legal disputes remain outside the public domain or are known only by a small universe of experts. Securities litigation cases are commonly settled with strict confidentiality undertakings. Against that backdrop, LitigAiD offers a monitoring of the entire portfolio by which each asset is reviewed and matched with our U.S. litigation data base and investor are notified about litigation opportunities. We review all publicly available dockets of federal and State courts and cooperate with the most reputable plaintiff firms to identify early in the process promising opt-out cases or bilateral actions. LitigAiD (in cooperation with its partner firms) provides each investor with a monthly portfolio-customized report which outlines all pending actions, class settlements and new litigation opportunities. The monitoring, hence, ensures and, accordingly, evidences that Asset Managers comply with their contractual and fiduciary duties towards their clients and be it only by monetizing claims in Class Action settlements. Aside from the paramount U.S. market, we also monitor other countries with relevant collective actions schemes, such as Germany, U.K., Canada and Australia. Instead of the gratuitous portfolio monitoring, LitigAiD is more than happy to inform you on a regular basis about individual opt-out opportunities.

Lawsuits in Germany – KapMuG US firms typically represent large US funds (often pension funds or retirement systems) and monitor negative trends in their global portfolio. That is the reason why more recently notable US plaintiff firms (in cooperation with German local counsels) have become more active in the European litigation market, for example in Germany with regard to KapMuG proceedings. From a cost risk perspective, it may well make sense for European investors to consider retaining such U.S. firms as well. These firms typically take on clients on a success fee (contingency) basis (i.e. without cost risk for the investor). Some of the larger U.S. firms are capable of financing such proceedings with their internal funds and are, thus, in a position to offer more competitive rates than professional litigation funders (which are regularly involved by German firms) which seek higher returns for their investors. That ultimately benefits the investor that is paying a lower contingency fee in case a recovery is made.