Holding the Rating Companies to Account: LAPFF 2013

Dan Drosman from the USA Class Action law firm, Robbins Geller Rudman & Dowd spoke about
suing Rating companies after the 2008 Financial Crisis debacle.

At first it was thought that heads would roll in the big rating firms who had listed loads of companies as being super safe triple AAA only for them to go bust.

It had been claimed by agencies beforehand that if they rated a company as "AAA" this meant that the company could survive a "great depression" or even world wars. Some in the event never even lasted a month.

Rating agencies had claimed that under the USA constitution 1st amendment they could not be sued since they only ever gave "comment" which was protected as free speech. Dan was a former Federal Prosecutor and he was able to win an early civil court judgement that "fraud" was not protected by a free speech defence.  He was able to pursue a class action case against S&P and Moody over clients who had lost hundreds of millions of dollars in an British based AAA rated company. 

The allegation was that pre-2008 the agencies knew that the companies they were rating AAA had no historical data to justify such a rating. They would quote "stick their finger up in the air" to make up a rating in order to keep market share and also earn huge personal bonuses.

Eventually the rating agencies settled the case before it went to court. The details of the settlement is confidential but press reports of the time reported it was worth $227 million.

The USA government is currently suing the rating agencies.

Personally, I think it is clear that there are serious and substantiated allegations that senior Executives at these agencies knowingly profited from dishonest fraudulent activities. I hope the UK Serious Fraud Office (SFO) will be holding these Executives to account for these allegations sometime very soon.

If not, why not?

Class Action and Pensions funds

Last week I attended a presentation by US Law firm Robbins Geller Rudman & Dowd LLP on "Class Action".

In the US it is possible for British Pension funds to take part in "no win no fee" civil legal action in the Courts if they have suffered loss due to fraud.

So if a Pension fund invested in a company quoted on the US stock exchange and due to fraud they suffered a loss (the share price crashes) then they can sue that company without paying any costs or damages if they lose.  The lawyers take all the risk and of course they share in the rewards.

This law firm has so far claimed back for shareholders $80 billion. They recovered $7.2 Billion from the Enron debacle alone .

They openly admit that they like to act on behalf of Pension funds since it makes them more credible with the Courts (e.g. pensioners, widows and orphans) than retail clients.

More has been paid out by companies in compensation by companies than in fines by Courts or Regulators. Large compensation payments also tend to improve overall Corporate governance since it is those companies who act in an irresponsible manner who pay out the most. They have also pursued the ill gotten gains of crooked senior executives and made them pay personal compensation.

There has been problems in the past about corruption due to the huge amounts of money involved (see my post from 2008 here).  We also tend to be terribly British about "going to law" and have a well founded cultural fear of UK justice such as Jarndyce v Jarndyce.

Yet I cannot really see a downside to exploring this option for any pension fund. Obviously trustees should take advice from their advisers about who they use and how much of a success fee is claimed but since they do not face any financial risk - what do they have to lose? If your fund has suffered loss due to financial fraud then you have a clear duty as a trustee to seek compensation.

(the painting above is not something you would see in any US "no win no fee" legal literature but is based on the iconic photograph of the Red Army planting the Soviet flag on the roof of the Nazi German Reichstag in Berlin 1945. Now that is what I call "Class Action")

PIRC Corporate Governance & Responsible Investment Journalism Awards 2013

On Wednesday evening I went to the PIRC awards at the Design Museum on the south bank of London.

The winning journalists were Tom Bergin from Reuters (2nd left) who won the Corporate Governance Award for stories on tax dodging by Google. 

While Rob Davies (3rd from left) from the Daily Mail won the SRI award for his work on polluting mining giant Glencore (now who would think there was good in the Daily Mail?).

I suppose that I should ask PIRC MD, Alan MacDougall (on right of photo) why there isn't an award for CG or RI Blogging?  Or is this a contradiction in terms? :)  Must ask Tom P (who was poorly last week and missed the event).