Two of Arkansas’ largest retirement funds are looking for law firms to represent them in securities class-action lawsuits, which could mean huge paydays for the firms but not for the funds.
Twenty-three firms have submitted their bids to represent the Arkansas Public Employees Retirement System, and 22 of those survived the initial cut, said Jay Wills, deputy director of APERS.
Wills and two other attorneys are ranking the remaining firms, but the APERS board will make the hiring decision, Wills said. Firms could be selected at APERS’ Aug. 21 meeting, he said. “They all look pretty well-qualified to me, but it’s a board decision, not mine.”
The six law firms that currently have contracts with the $9 billion retirement fund are Bernstein Litowitz Berger & Grossmann of New York; Cohen Milstein Sellers & Toll of Washington; Kessler Topaz Meltzer & Check of Radnor, Pennsylvania; Nix Patterson & Roach of Daingerfield, Texas; Labaton Sucharow of New York; and Spector Roseman Kodroff & Willis of Philadelphia. Most of them were hired in 2013, the last time APERS issued a request for qualifications for outside legal counsel for securities litigation, class-action monitoring and advice.
Those firms reapplied when APERS released its RFQ earlier this year.
The Arkansas Teacher Retirement System also will soon release an RFQ for securities law firms, said Executive Director Clint Rhoden.
The firms now under contract with ATRS are Bernstein Litowitz, which has represented ATRS since 2007; Kaplan Fox & Kilsheimer of New York, since December 2008; Labaton Sucharow, since December 2008; and Kessler Topaz, since 2013.
The firms that had active cases for ATRS were allowed to extend their contracts for two years, Rhoden said. Nix Patterson’s contract ended June 30, but it could reapply for a contract with ATRS, which has assets of about $17.5 billion and 75,000 active members and 49,000 retirees.
Wills said the APERS board will decide how many firms to hire. “The board could hire them all if they wanted to,” Wills said. “The hiring arrangement does not cost us any money.”
A firm finds allegations of wrongdoing in investments held by APERS and brings them to the retirement fund, hoping to persuade APERS to be the named plaintiff in a class-action suit. If the suit succeeds, the law firm is awarded attorneys’ fees, Wills said.
Wills said he isn’t a “big fan” of the retirement fund being the named plaintiff in a class action. Being a named plaintiff means APERS would have to spend “significant amounts of staff time doing research for discovery and these things that sometimes we get compensated for and sometimes we don’t,” he said.
APERS usually gets as much money for being a class member as for being a lead plaintiff, Wills said.
It’s not uncommon for public pension funds to keep securities litigation firms on retainer, said Keith Brainard, research director at the Association of State Retirement Administrators of Washington. “It’s the normal way that business is conducted,” he said.
That model, however, has drawn scrutiny of the fees some firms have collected. In 2011, ATRS was the lead plaintiff in a class-action lawsuit against the financial services firm State Street Corp. of Boston. The case settled for $300 million in 2016 and Labaton Sucharow and other law firms received a total of about $75 million in attorneys’ fees from the settlement. Meanwhile, ATRS received around $300,000, Rod Graves, ATRS’ associate director of operations, told the Arkansas Democrat-Gazette in July 2018.
But ATRS’ Rhoden said he isn’t concerned about the attorneys’ fees. “To me, the success is anytime we reach a settlement and instill a little bit of integrity into the public securities arena, that’s a success in itself,” he said.
State Sen. Kim Hammer, R-Benton, introduced legislation earlier this year that would have allowed other law firms to bid on the securities work for the state’s retirement funds.
Hammer said he was concerned about the exclusive arrangements some firms had with retirement funds and wanted to open up the process for bids. “We need to keep it competitive and keep it honest,” Hammer said.
Hammer said he didn’t pursue the legislation because the retirement funds agreed to put the contracts for legal work out for bid. “I felt it best to give them a chance to work it out without us legislatively having to make them do it,” Hammer said. He warned, however, that the legislation could be refiled.
“But right now [the retirement funds] seem to be responsive,” Hammer said. “So I think some gentle nudging paid off.”