The Florida State Board of Administration (FSBA), which manages $96 billion in retirement funds, has nearly 300 securities-fraud lawsuits pending against companies whose stock it has owned.
In most cases, the FSBA is claiming that management deception or other misbehavior drove down the price of the pension fund's shares and lowered the value of its investment, the Business Review reports.
But the agency also offers a moral rationale for its aggressive legal approach. "We have all seen an increasing number of corporate actions that border on criminal and sometimes are criminal," says FSBA executive director John T. "Tom" Herndon, the architect of the legal strategy. "Someone has to question the ethics of these business practices."
The Business Review says there are no statistics ranking the most active plaintiffs in shareholder fraud suits. But it cites experts in saying that the FSBA, a 217-employee agency that manages retirement funds for 750,000 state and county workers and retirees, leads the pack.
FSBA currently serves as lead plaintiff or co-lead plaintiff in eight different actions, and has filed its own private lawsuits against 14 other companies. Just in the last two months, FSBA has won lead status in securities fraud class actions against Dollar General Corp. in U.S. District Court in Nashville, Tenn., and against Critical Path Inc. in federal district court in San Francisco.
FSBA's legal approach has begun to draw criticism from judges, securities lawyers, and even insiders in the institutional investor community, according to the Business Review. Some question whether the time and effort involved in prosecuting all these cases has yielded a worthwhile return to beneficiaries.
"I am concerned with any frivolous litigation that in effect replaces productive employment and company profits with legal defense costs," says Russell Bjorkman, a member of the FSBA's six-member Investment Advisory Council and a former trustee and chairman of the Miami-Dade County police and firefighters' pension fund.
He plans to call for a review of the agency's litigation policy.
At least three times in the past two years, judges have turned down the agency's request to lead a suit on grounds that the FSBA already had exceeded the limits set by the 1995 Private Securities Litigation Reform Act.
In November 1999, Judge Donald Whyte of the U.S. District Court in San Francisco rejected the FSBA's petition to serve as lead plaintiff in a securities-fraud lawsuit against McKesson HBOC Inc.
Whyte dubbed the FSBA a "professional plaintiff."
The FSBA's litigation spree is more than a bit ironic, according to the Business Review, which notes that the agency's governing board is made up of three elected Republican officials Gov. Jeb Bush, state Treasurer Tom Gallagher and state Comptroller Bob Milligan, and that their party's most cherished goals has been to reduce the amount of securities-fraud litigation and other suits directed at businesses. Early in his term, the governor pushed through strong tort reform legislation.
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rida's public-employee pension system has become the most litigious institutional investor in the country, according to the Miami Daily Business Review.