Securities Litigation September 2016 LAPERS Educational Conference

1. Securities LitigationSeptember 2016LAPERS Educational Conference

2. Tony Gelderman Counsel Mr. Gelderman heads the firm's Louisiana office and is responsible for the firm's institutional investor and client outreach.  He is a frequent speaker at U.S. and European investor conferences and has written numerous articles on securities litigation and asset protection. Mr. Gelderman served as Chief of Staff and General Counsel to the Treasurer of the State of Louisiana, (1992-1996) and prior to that served as General Counsel to the Louisiana Department of the Treasury (1989-1992).  Earlier in Mr. Gelderman's career, he served as law clerk to U.S. District Judge Charles Schwartz, Jr., Eastern District of Louisiana (1986-1987). He is a 1986 graduate of Tulane Law School. Privileged and Confidential Attorney Work Product

3. Why Are Public Pension Funds Involved in Securities Litigation? Privileged and Confidential Attorney Work Product

4. …because Congress encouraged it. • The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) sought to: • Eliminate the “race to the courthouse” • Reduce the number of frivolous lawsuits • Build a sensible mechanism for assigning control of important and complex cases Privileged and Confidential Attorney Work Product

5. …because Congress encouraged it. • The PSLRA: • Designed the LP process • Created a 60 Day Window to Move for Lead Plaintiff • Imposes a Discovery Stay • Heightens Pleading Standards • Was expressly designed to increase institutional investor participation • Has unique Lead Plaintiff provisions based on the “largest financial interest” which allows a large investor to “take over” a securities case based on its perceived interest in seeing the case to fruition. Privileged and Confidential Attorney Work Product

6. …and it worked… Since the PSLRA, institutional investor –primarily public pension plans–participation has increased from leading less than 3% of filed class actions in 1996 to more than 60% in 2012. Privileged and Confidential Attorney Work Product

7. The simple fact is… • Corporate fraud, mismanagement, self-dealing and other breaches of fiduciary duty reduce investor confidence in the markets which dampens the value of your holdings. Privileged and Confidential Attorney Work Product

8. Securities Class Actions are Powerful Privileged and Confidential Attorney Work Product

9. The federal securities laws allow investors the right to recover losses suffered on the open market as a result of fraud. • The federal securities laws also allow recovery of losses from negligence in initial or secondary public offerings. Privileged and Confidential Attorney Work Product

10. Typically fraudulent statements about the condition of the company designed to artificially inflate the value of the security is what gives rise to a recoverable claim • The time such fraudulent statements are in the marketplace constitutes the “class period” • Members of the class, ie., those persons who bought securities during the period of fraudulent statements are allowed, under federal law, to recover damages that occurred from buying stocks or bonds at artificially inflated prices. Privileged and Confidential Attorney Work Product

11. “Private securities litigation is an indispensable tool with which defrauded investors can recover their losses, a matter crucial to the integrity of domestic capital markets.” Justice Ruth Bader Ginsberg Privileged and Confidential Attorney Work Product

12. What has the PSLRA wrought? Privileged and Confidential Attorney Work Product

13. Because of the PSLRA, countless securities fraud cases have been successfully litigated, returning more than $110 billion to investors. Privileged and Confidential Attorney Work Product

14. Since 1995… 89% of the top 100 recoveries in securities class actions – more than $60 billion – were obtained by an institutional investor lead plaintiff – most often a public pension plan or group of public pension plans. These recoveries are orders of magnitude larger than what was typically achieved before the involvement of institutional investors. Privileged and Confidential Attorney Work Product

15. Why Have Public Pension Funds Been Attracted to Securities Litigation? Privileged and Confidential Attorney Work Product

16. This is an important question given that securities litigation is not a mandatory or required activity for a pension plan such as investing or distributing benefits. Privileged and Confidential Attorney Work Product

17. Public Pension Plans are Super Fiduciaries In my personal view… • Public pension plans are run by and supervised by public employees. • Public employees in their regular professional careers are imbued with the legal responsibility of protecting and serving the public. • Therefore, when public employees put on their fiduciary hat at the pension plan, they are essentially, in my view, a “double” or “super” fiduciary. • This is why, in my opinion, public pension plans believe in policing the markets more so than their private pension fund counterparts and other institutional investors. Privileged and Confidential Attorney Work Product

18. Public pension plan fiduciaries have seen first hand how they are helping to deter future misconduct in the market by pursuing meritorious securities litigation. Privileged and Confidential Attorney Work Product

19. Public Pension Plans Know They Improve the Outcome of Securities Cases • Research consistently shows that institutional investors--primarily public pension plans--achieve higher settlements and with lower overall legal fees than individual investors. • Public pension fund lead plaintiffs are also more likely to pursue and obtain corporate governance reforms as part of securities settlements. Privileged and Confidential Attorney Work Product

20. Public Pension Plans Have Been Essential in Seeking Redress from the Misdeeds Leading up to the Credit Crisis • Many public investors suffered major trading losses in the credit crisis. • Not a single top Wall Street executive has been convicted of criminal charges relating to the credit crisis. • Institutional investors have still pursued securities fraud claims on their own – including cases against mortgage originators and banks for misstatements about the quality of mortgages and mortgage-backed securities (“MBS”). Privileged and Confidential Attorney Work Product

21. Institutional plaintiffs, primarily public pension plans, have recovered well over $10 billion dollars from mortgage-backed securities crisis cases. Privileged and Confidential Attorney Work Product

22. What Role Has Louisiana Played in Securities Litigation? Privileged and Confidential Attorney Work Product

23. Since 1995, Louisiana Public Pension Funds have served in a lead or co-lead plaintiff role in 55cases and have recovered nearly $9 billion on behalf of various classes of investors. Privileged and Confidential Attorney Work Product

24. Top Ten Louisiana Fund Recoveries Privileged and Confidential Attorney Work Product

25. Corporate Governance Wins by Louisiana Louisiana Public Pension Funds have prosecuted seminal cases establishing precedents which have increased market transparency, recovered billions in increased consideration in mergers & acquisitions, held wrongdoers accountable, and changed corporate business practices for the better. Some examples include: • El Paso - $110 million recovery for El Paso Corporation shareholders (one of the highest in Delaware Chancery history) arising from Kinder Morgan’s high-profile acquisition of El Paso. Goldman Sachs was forced to relinquish a $20 million advisory fee for ignoring blatant conflicts of interest. The Court harshly rebuked Goldman for its conduct and its rulings echoed throughout the business community and media. • Pfizer - Landmark settlement obtained in case arising out of allegations that Pfizer illegally marketed its prescription drugs. The settlement established a new Regulatory and Compliance Committee on the Pfizer Board supported by a dedicated $75 million fund, a provision viewed by experts as a potential industry standard for similar highly regulated public companies. • Caremark - Groundbreaking court ruling obtained granting statutory appraisal rights to Caremark’s shareholders, ordering Caremark’s Board to disclose previously withheld information, and enjoining a shareholder vote on a merger offer from CVS Corporation. CVS was ultimately forced to raise its offer, equal to more than $3.3 billion in additional consideration. • UnitedHealth – The largest derivative and stock options backdating recovery of all time, $920 million “claw-back” of restitution payments obtained from UnitedHealth Group, Inc.’s former officers and directors is heralded by The New York Times: "investors everywhere should applaud the deal... it sets a standard of behavior for other companies and boards when performance pay is later shown to have been based on ephemeral earnings." Privileged and Confidential Attorney Work Product

26. What Are the Actual Mechanics in Recovering Assets? Privileged and Confidential Attorney Work Product

27. Three General Options for Recovering Assets Pursue a Lead Plaintiff appointment in a class case File an individual action Passively monitor 26 Privileged and Confidential Attorney Work Product

28. First Option…Lead Plaintiff in a Securities Class Action • Pros: • Extensive corporate governance changes • Lower attorneys’ fees through institutional investor leadership • Less individualized discovery • Institutional investor leadership typically results in higher recoveries for the class • Cons: • No claims against aiders and abettors • No additional compensation serving as Lead Plaintiff 27 Privileged and Confidential Attorney Work Product

29. Second Option…File Individual Action • Pros: • You will be able to “chart your own course” • You may be able to get to trial faster than the class action • Your recovery may be larger than the recovery in the class action • You may have more success asserting claims against secondary actors, like lawyers and bankers, who aided and abetted the fraud • Cons: • Discovery – personnel may be subject to discovery 28 Privileged and Confidential Attorney Work Product

30. Third Option…Passively Monitor* • Pros: • Not subject to depositions or discovery • No time commitment or expenses • Will share in recovery, if any, pro-rata, with other class members* • Cons: • No control over litigation • If Lead Plaintiff is not a strong institutional investor with outstanding counsel, class members are likely to receive only “pennies on the dollar” • Is Appropriate When: • Loss is small • You believe another sophisticated fund will serve as Lead Plaintiff • Claim is problematic • * Must have robust claims filing process in place to ensure recovery. 29 Privileged and Confidential Attorney Work Product

31. What Are the Best Practices for Public Pension Plans in Securities Litigation? Privileged and Confidential Attorney Work Product

32. Recommended Approaches for Internal Review of Securities Litigation • Adopt a Securities Litigation Policy • Establish internal thresholds for active participation in class and individual actions • Establish topical and/or corporate governance considerations for active participation in class and individual actions • Select designated and experienced securities litigation counsel(s) • Establish electronic or case-by-case monitoring of potential cases by counsel 31 Privileged and Confidential Attorney Work Product

33. Excerpts from a Sample Securities Litigation Policy* • Interests in securities litigation matters shall be managed as assets of the Fund with the goal of enhancing the long term value of the Fund. • If the calculated loss of the potential claim exceeds a specified amount, the General Counsel will evaluate the potential claim and make a recommendation to the Executive Director. • Board will analyze potential damages and recovery, factual and legal merits, severity of wrongdoing, and possibility of governance reforms. • If the Executive Director decides to seek lead plaintiff status or opt out of the class action, the General Counsel shall solicit litigation plans and fee proposals from select outside trial counsel with expertise and experience. * Taken from an actual $100B fund’s policy Privileged and Confidential Attorney Work Product

34. What are the Headwinds Facing Securities Litigation? Privileged and Confidential Attorney Work Product

35. Public Investors Face Numerous Challenges When Seeking to Hold Corporate Wrongdoers Accountable • Public investors face attacks from all fronts: • Courts – The Supreme Court and other courts across the country are steadily scaling back investors’ rights. • Public Companies – Corporate America is aggressively fighting to limit investors’ rights to bring securities class actions, as well as lawsuits of any kind. • Federal Regulators – initiatives pay lip service to investor protection, but regulators lack resources and do not walk the walk. Privileged and Confidential Attorney Work Product

36. Corporations are Fighting to Limit Investor Rights • Corporate defendants are more aggressive than ever in attempting to limit investors’ ability to recover losses due to fraud in a securities class action – every stage is a full-fledged battle. • Corporations are also increasingly unwilling to restate their inaccurate financial results, which makes accounting cases more difficult. • Corporations are also amending their bylaws to include exclusive forum bylaws and mandatory arbitration provisions. • Corporations are strategically timing negative news announcements to complicate investors’ ability to show that trading losses are caused by fraud. Privileged and Confidential Attorney Work Product

37. The SEC Refuses to Facilitate Investor Recoveries • For decades, when the SEC leveled charges of fraud, a fine was paid and there was no admission of guilt – so-called “no admit settlements.” • But in June 2013, the SEC announced it will require guilty admissions when it wants to send a “tough, deterrent message.” Within months, the SEC extracted its first admissions from Harbinger Capital for market manipulation and J.P. Morgan in the “London Whale” case. • So far the fine print in settlement documents allows the admitting defendants to take contrary “legal or factual positions in litigation or other legal proceedings,” including in securities class actions. Its too soon to tell if the SEC is seriousabout sending a truly “tough, deterrent message.” Privileged and Confidential Attorney Work Product

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