Courts Clarify Road Map For Investment Managers To Lead Securities Cases

Courts Clarify Road Map For Investment Managers To Lead Securities Cases - 2/24/2009

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Courts Clarify Road Map For Investment Managers To Lead Securities Cases
Jeffrey A. Barrack

The Legal Intelligencer. February 24, 2009
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EXCERPT: Investment managers who handle retirement accounts are regulated under the Employee Retirement Income Security Act and the Investment Advisers Act of 1940. Under ERISA, an investment manager is defined as 'any fiduciary... who has the power to manage, acquire, or dispose of any asset of a plan.' Pursuant to ERISA, a fiduciary's duties are to protect the assets of the plan for the plan beneficiaries. Some individual and institutional investors have sought to authorize their asset managers to assert federal securities claims on their behalf. In the years since Congress passed the Private Securities Litigation Reform Act of 1995, or PSLRA, investment managers acting on behalf of their clients have increasingly sought appointment as lead plaintiffs. While the issue of whether an investment manager has standing to bring a federal claim on behalf of its clients has been hotly contested, district courts have generally ruled that an investment manager is adequate to represent the interests of a class in securities litigation where the investment manager either obtained the power of attorney or may be deemed the attorney-in-fact authorized to bring such claims. The W.R. Huff Asset Management Co. v. Deloitte & Touche decision from the 2nd U.S. Circuit Court of Appeals in December provides clarity to the contested principles governing the circumstances in which an investment manager may assert claims on behalf of its clients under the federal securities laws. The 2nd Circuit, relying in part on a recent Supreme Court decision in Sprint Communications v. APCC Services, provided clear guidance, by identifying the prerequisites necessary for an investment manager to lead a federal securities class action. The 2nd Circuit ruled that an investment manager may not properly assert federal securities claims on behalf of its clients where it does not have a valid assignment of its clients' claims.

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