 In his 2001 letter to Berkshire Hathaway shareholders, Warren Buffett said ". . . there is no shortage of egregious conduct . . . in corporate America. . .[T]hese business leaders view shareholders as patsies, not partners." Many portfolio managers, viewing their performance statistics, are feeling the same way. They and their investors have been left "holding the bag" while company management - and the bankers, lawyers and accountants who assist them - walk away with millions. Many institutional investors are now taking legal action, not only because of their fiduciary responsibilities to investors, but also to obtain meaningful financial recovery. The ownership of securities that were the object of fraud or manipulation gives the investor a hidden residual value - a claim against those who perpetrated the fraud. This claim represents real and quantifiable worth - dollars to the portfolio and incremental performance improvement to the portfolio manager. And importantly for investment professionals, this type of litigation can force real change in corporate governance practices. Changes that will require management to act in the shareholders' interests (rather than their own), that will demand independent oversight from directors, that will rein in executive compensation - benefiting investors well into the future. Federal securities laws have been on the books in the United States since the early 1930s, when Congress enacted legislation to protect investors from the type of fraud that accompanied the great stock market crash of 1929. These laws are intended to protect shareholders from losses suffered as a result of fraud on the part of public companies, their officers and directors, underwriters, auditors, and accountants. Securities class actions can involve many different types of fraud or misconduct, from corporate misstatements regarding a company's revenues, profits, or financial status, to improper accounting manipulations that serve to artificially inflate the price of a company's stock. When the fraud is uncovered, the stock price often plummets, causing investors to lose money. The Federal securities laws provide a means for investors to recover some or all of their losses when the losses are due to fraud.For the investor whose portfolio has suffered due to the malfeasance of corporate management, the expense of a protracted lawsuit involving hundreds of hours of legal time and an uncertain outcome is not a viable option. Cauley Bowman addresses this issue by working on a contingent-fee basis - legal fees and expenses are paid only from the ultimate settlement received. The investor maintains a high degree of influence on the course of the litigation, while actual demands on the client's time are minimized. |