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Kessler Topaz – Is the U.S. Closing the Courtroom Doors to Shareholder Litigation?



This article is sponsored by Kessler Topaz Meltzer & Check, LLP.

Since the passage of the Private Securities Litigation Reform Act of 1995, in which the U.S. Congress provided incentives for institutional investors to lead securities class actions, institutional investors have had a remarkable impact on the shareholder litigation landscape. Large institutional investors have successfully used shareholder litigation to recover investment losses, deter corporations from wrongdoing, enforce corporate disclosure requirements, and incentivize companies to adopt corporate social responsibility policies. As of the end of 2012, 88 out of the top 100 settlements, stemming from securities fraud litigation, involved an institutional investor as a lead plaintiff. Recent and pending cases in the U.S. courts, however, have limited shareholders’ right to seek judicial redress for corporate fraud and the resulting investment losses. Between 2010 and 2013, the U.S. Supreme Court issued decisions that fundamentally altered shareholders’ rights to judicial review. These decisions have made it more difficult for public pension funds to recover for their members.

  • In the 2013 decision in Comcast v. Behrend, the U.S. Supreme Court issued a landmark opinion which strengthened the requirement that a class cannot be certified without in-depth analysis and a conclusion that issues and facts that are common to all class members predominate over individual issues and facts. Under Comcast, in order for a class to be certified, plaintiffs must now ensure that both causation and damages can be adjudicated on a class wide basis. Although Comcast was an anti-trust case, it has implications for all class actions.
  • In the 2010 Supreme Court decision in Janus Capital Group Inc. v. First Derivative Traders, the court held that plaintiffs must meet a higher burden of proof when pleading that an individual or entity is responsible for the fraudulent or misleading statements of others. For the purposes of the Securities Exchange Act of 1934 Rule 10b-5 claims (Rule 10b-5 makes it “unlawful for any person…[t]o make an untrue statement of material fact or to omit to state a material fact necessary in order to make the statements made…not misleading”), only the maker of a statement can be liable and a maker is the person with ultimate authority over the statement and not necessarily one who merely prepares or publishes a statement on behalf of another. As a result of this ruling, plaintiffs must now prove that the person or entity who made a false or misleading statement had “ultimate authority,” that is control over both content and the manner of communication of a false or misleading statement.
  • In the 2010 Supreme Court decision in Morrison v. National Australian Bank, the Court closed the door to U.S. courtrooms to investors who purchase securities on non-U.S. exchanges.Investors must now evaluate a number of factors in determining whether to pursue litigation outside the United States.

In addition to the recent decisions, the Supreme Court is currently reviewing a case involving Halliburton Co., which calls the “fraud-on-the-market” theory into question and has the potential to upend twenty-five years of jurisprudence. The “fraud-on-the market” theory is a long accepted theory of liability in a securities fraud case in which a plaintiff need not prove their individual reliance on a defendant’s fraudulent statement and reliance is instead presumed because the statements (and ultimate corrections) impact the price of a given security. If the Supreme Court overturns the “fraud-on-the-market” theory, it will be much more difficult for aggrieved shareholders to recover investment losses through a class action.

It is not just decisions by the U.S. Supreme Court that threaten the ability of shareholders to seek justice. Publicly traded companies are now inserting forced arbitration clauses into corporate bylaws and investment-advisor contracts (which often also contain class action waivers) in order to bypass judicial oversight of the companies’ compliance with federal securities laws.

Given all the recent and pending changes to the shareholder litigation landscape, it’s important for institutional investors to be aware of both new legal developments and the actions that they can take to prevent a further erosion of shareholder rights.

Since 1987, Kessler Topaz has specialized in the prosecution of securities class actions and has grown into one of the most successful shareholder litigation firms in the field.Kessler Topaz is committed to not only serving as legal counsel to its clients, but also to being an educator on all issues related to shareholder activism and asset protection and recovery. To learn more about our Firm, our services, and the investor education opportunities we offer, please visit

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The Slings and Arrows of Passive Fortune



This article is sponsored by S&P DJI.

If a tale were to be written regaling us with the popular exploits of the modern day active manager in his quest for alpha across the many peaks and valleys of the financial world, passive investment would likely feature prominently in the telling. Passively managed assets have grown tremendously since their introduction in the 1970s to command some 20% of the U.S. stock’s market total-float adjusted capitalization, drawing a deluge of criticism in recent years from proponents of a more traditional, active approach who charge indexers with all manner of supposed ills – from encouraging collusive behavior and exacerbating pricing inefficiencies, to indifference on matters of corporate governance.

But are passive assets and their purveyors really the threat to markets that active management makes them out to be? Or are the problems attributed to their rise merely a reflection of the market forces all participants must face? These are the questions posed by Anu Ganti and Craig Lazzara at S&P Dow Jones Indices (S&P DJI) in their new paper, titled “The Slings and Arrows of Passive Fortune,” which seeks to unravel some of the most pervasive myths surrounding the growing role of index funds, highlight the immense value they bring to asset owners, and posits a future of asymmetric equilibrium between the old and the new that puts each in their proper place based on relative – rather than absolute – performance.

Nobody – including the paper’s authors – denies that index-based investment has made life more challenging for active managers, who count alpha as their very lifeblood; but so too would it be foolish to argue its advancement as one of the most important developments in modern financial history is without merit, or somehow Thucydidean in nature. If anything, active management can and should expect its portion of the pie (which, it must be pointed out, constitutes the majority of assets by a wide margin) to remain subject to nibbles from their passive counterparts – nibbles that may, with time, diminish. The market always has room for more players at the table, after all, and we all play by its rules.

As Director and Managing Director of index investment strategy team at S&P DJI, Ganti and Lazzara provide research and commentary on the firm’s entire product set – covering U.S. and global equities, commodities, fixed income, and economic indices. Both are chartered financial analysts and regular contributors to Indexology, S&P DJI’s appropriately named blog covering developments in the world of indexing.

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Battea: 2017 Securities Class Action Industry Lookback and Observations



This article is sponsored by Battea.

Source: Battea

There has been incredible growth in securities and antitrust class action litigations and settlements, particularly as they have unfolded in 2016 and 2017. The number of new cases and settlements from traditional securities litigation to antitrust rate rigging, spread inflation and other forms of collusion are at an all time high and shows no signs of slowing down.

With several multi-billion dollar litigations related to Libor, Euribor and Tibor rates, and spread manipulations, the securities, foreign exchange and antitrust class and collective actions litigation space rose exponentially in 2017.

View Whitepaper Here

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The Future of Operations: Simplify, Innovate and Transform



This article is sponsored by Broadridge.

Now that the pain of the global financial crisis and subsequent regulations are starting to fade from view, the asset management industry is facing new challenges that will transform the business. Firms must be nimble enough to support this evolution. That means not only redesigning operations, but also adopting new technologies that can be used for innovation in-house and with the help of partners.

In active management, the industry has created more complex products to generate alpha, while the growth of passive management, spurred by fintech competition, is compressing fees. At the same time, expansion into new markets has added costs. Facing these challenges will require serious improvements to back- and middle-office operations — an overhaul of everything from data validation to trade reconciliation.

For this type of transformation, experts say, it’s not enough to improve the steps in a process. Financial institutions need to eliminate steps. Specifically, executive members of the Asset Management Group of the Securities Industry and Financial Markets Association (SIFMA) say that leading firms should:

Work collaboratively. Firms should collaborate to solve common problems; use associations to identify and promote best practices; and partner with service providers, utilities and regulators to tap their specialized skills and mutualize non-differentiating functions.

Tackle common pain points. Many of the industry’s biggest challenges come from a lack of standardized processes: Standardizing data is the top challenge and sets a foundation to accelerate change.

Leverage transformational technology. Cloud computing, artificial intelligence, and distributed ledger technology can be transformational over the coming three, five or 10 years — but investing now is vital.

Assess, accept and mitigate risks. During times of large transformational change, it should be understood that risks are higher. This traditionally risk-adverse industry must balance the need for bold change against the fear of producing subpar outcomes.

This paper asks how asset managers can move beyond incremental improvements, like shaving costs from processes like post-trade settlement, regulatory compliance and reconciliation, to reimagining how operations are handled. Based on discussions with executives from leading asset management, buy-side, and sell-side firms, as well as service providers, it assesses the drivers for change and the challenges and opportunities ahead, and discusses what actions the industry must take to reach its desired future state.

The long-term vision of how asset management operations should change is best summed up by one word: Simplify.

To learn more about “The Future of Operations” for the asset management industry, download the white paper from Broadridge and the SIFMA Asset Management Group.

To learn more about Broadridge’s solutions for the asset management industry, please visit

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