EUROPE - Non-US investors failed to claim around $3.7bn (€2.4bn) of monies resulting from securities fraud legal actions in the last four years, according to DRRT.

The law firm, part of Diaz Reus, said the total settlements of court cases involving securities fraud is $44bn since 1996, of which more than $20bn was paid out in 2006/07.

Alexander Reus, compliance consultant and loss recovery expert at DRRT, told delegates at the Pension Fund Investment World Nordic 2008 conference 200 cases were settled in 2007, while 300 new cases have already been filed in the US in 2008.

He pointed out, however, while 80% of all cases involve European securities, and 15% of all cases are against non-US companies, $3.7bn of settlement monies have gone unclaimed by non-US investors between 2003-2007.

In addition, Reus claimed there is a less than 40% participation rate in legal cases, while around 65% of institutional investors "do not pursue the available monies", and less than 25% of all European investors make an effort to claim the money. 

But he warned delegates "securities fraud is being addressed and it's not going to go away" so the fund management and legal departments in a pension fund "must co-operate" as it has a "fiduciary duty" to monitor what's going on and "to do something about it".

As he pointed out any money which is not claimed is shared out among the active investors, resulting in these institutions receiving 250% of their allocated compensation.

DRRT admitted since 2007 non-US investors, including pension funds, are playing a more active role in litigation, as demonstrated by the UK-based Lothian Pension Fund recently taking lead plaintiff status in a case against BP over misleading statements relating to the Prudhoe Bay oil leaks (See earlier IPE story: Lothian takes co-lead against BP)

However, Reus suggested pension funds should consider the possibility of generating more "legal alpha" through an opt-out or direct private action which could result in a loss recovery ratio  - the level of damages to be compensated - of 25-40% compared to 5-10% as a member of a large class action.

That said, he pointed out there have recently been two legal victories for European institutional investors - against Royal Dutch Shell and Converium/SCOR - which are being pursued through the legal system in the Netherlands on the behalf of European investors, as non-US investors were excluded from the US litigation. (See earlier IPE story: Shell class action set for November hearing)

In these instances, the Shell case resulted in a total settlement thought to be valued at more than $500m, while SCOR, formerly known as Converium, settled cases in both the US and the Netherlands for a combined total of €75m in the first quarter of 2008.

As a result, Reus highlighted recent legal actions that have been filed and/or settled against European companies, such as Parmalat, UBS, Ericsson and Credit Suisse, and suggested this could signal the "next wave of European cases".  (See earlier IPE articles: Parmalat ends Hermes suit following fresh settlement; Lothian takes the lead and sues Ericsson)

But he warned while pension funds are "better informed" than they had been, "there is still a lot of ignorance in the market, there is still a lot of apathy in the market and that needs to change if you want to benefit from this legal alpha".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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