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 litigation and certain other class action or related claims as an asset of the trust funds.
While SWIB acknowledges that it has a fiduciary duty to take reasonable actions to collect on legal claims held as a trust fund asset, SWIB also takes into consideration that most (if not all) of these securities-related claims will be prosecuted by the class action bar whether or not SWIB takes an active role, including as lead plaintiff.
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 as lead or derivative plaintiff or through other litigation strategy 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 legal action that impacts SWIB portfolio holdings or strategy.
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Initial Case Evaluation
Where SWIB’s claimed or likely damages in a case are expected to exceed one and a half basis points of the aggregate assets of the Wisconsin Retirement System (WRS), internal legal staff shall perform an initial case evaluation, including consultation with external counsel where appropriate. Where the claimed or likely damages are expected to be below one and a half basis points of aggregate WRS assets, internal legal staff may perform an initial case evaluation, including consultation with external counsel. Case evaluations should include analysis of:
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whether the company is alleged to have engaged in fraud or other serious illegal conduct;
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whether SWIB has any investment position, strategy, or relationship that could be materially disadvantaged by its participation or non-participation in the litigation, as determined by the impacted investment management staff and legal staff;
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likelihood of a successful recovery of funds for SWIB over the anticipated recovery under then-current market conditions through a passive approach to litigation absent SWIB’s active participation;
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expected demands and distraction of investment management staff from their primary function if SWIB became involved in protracted litigation;
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external fees or expenses that may be incurred as a result of a more active approach;
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the impact to SWIB’s reputation or brand;
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alternative means of obtaining similar results;
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and any other relevant considerations (e.g., target company has a significant presence in Wisconsin).
Nothing in these procedures prevents legal staff from investigating and recommending cases where it may be necessary to intervene, opt out, or take action to protect SWIB’s interest in a case (e.g., to protect a claim when a statute of limitations or statute of repose is at issue; corporate governance via derivative action). Where legal staff concludes that active SWIB involvement in the litigation is expected to produce increased returns or benefits that outweigh the associated costs, including the lost opportunity costs from staff time devoted to litigation, the chief legal counsel (or designee) may formally retain outside counsel to further evaluate the merits of the case and SWIB’s options for pursuing efforts to realize on its legal claims.
Opting into collective actions outside of the United States is considered passive participation, for purposes of these procedures, since SWIB would otherwise be excluded from the class were it not to opt in. For purposes of these procedures, “active participation” is the filing of a complaint or notice of claim and not, for example, engaging in pre-suit discussions or negotiations, entering tolling agreements, or motion practice required to preserve SWIB’s rights for future active participation.
Final Recommendation, Claim Pursuit, and Board Reporting
When the conclusion of the initial case evaluation is to pursue active litigation governed by these procedures, legal staff shall present its recommendation to be reviewed by the Evaluation Team. The legal staff’s case evaluation shall be reviewed, with additional factors potentially being identified by the participants for consideration. With the approval of a majority of the Evaluation Team, SWIB shall pursue the claim, subject to Board approvals, set forth below. For all actions approved under this policy, legal staff, in consultation with the executive director/chief investment officer (or designee), shall have the authority to prosecute, settle, or abandon claims if, in their evaluation, the chosen course of action is consistent with SWIB's fiduciary obligations. SWIB's chief legal counsel (or designee) shall report to the Board periodically on ongoing litigation where SWIB has taken an active role.
The Evaluation Team shall include: The Executive Director/Chief Investment Officer or Deputy Executive Director/Chief Administrative Officer, the relevant portfolio managers and asset class heads, and the chief legal counsel.
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Board Approvals
Board approval is required prior to SWIB’s active participation in securities or other class action litigation:
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If the claimed or likely damages are expected to exceed five basis points of aggregate WRS assets; or
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If the defendant is a Wisconsin-domiciled company or entity.
Board approval is not required prior to SWIB’s active participation in litigation not covered by the foregoing. The chief legal counsel shall provide updates to the Board on any litigation where SWIB has taken an active approach as defined in these procedures.
SWIB Staff and the Board shall review this policy periodically and suggest revisions when appropriate.