FROM: Barbara Hannah, Chief Counsel
SUBJECT: Investments Policy No. 008 (Securities and Antitrust Litigation Policy)
RECOMMENDATION:
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Recommend that the Board approve and adopt updates to Investments Policy No. 008 (Securities and Antitrust Litigation Policy).
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BACKGROUND:
General Policy No. 005 requires periodic review of SBCERA Board policies and indicates that such review shall be conducted every three years. Accordingly, SBCERA staff completed its review of Investments Policy No. 008, which was last approved by the Board on October 3, 2024.
Securities litigation monitoring is an important component of SBCERA’s responsibility to protect SBCERA’s investment assets. As an institutional investor, SBCERA may be eligible to recover losses resulting from securities fraud, antitrust violations, or other misconduct affecting securities in which it has invested. Since these claims may be subject to statutes of limitation, class action filing deadlines, opt-out deadlines, and other procedural requirements, timely and comprehensive monitoring is essential to identify potential claims, preserve SBCERA’s rights, and ensure that SBCERA can evaluate whether participation in a particular matter is warranted and in its best interests.
SBCERA historically has utilized separate service providers for securities litigation monitoring and claims filing, including SBCERA’s custodial bank and law firms. SBCERA’s custodial bank previously performed claims filing services, but has moved away from providing those services directly and now relies on a third-party service provider to perform this function. Rather than maintaining separate arrangements for securities litigation monitoring and claims filing, with the custodial bank relying on a third-party service provider and SBCERA’s existing panel of Financial Recovery Technology (FRT) and law firms providing monitoring services, staff determined that expanding FRT’s scope of services to include claims filing would be more efficient and cost effective approach.
FRT now provides SBCERA with an expanded, integrated scope of securities litigation monitoring and claims filing services. This includes identifying potential claims, monitoring litigation and filing deadlines, tracking potential recoveries, calculating potential investment losses. The expanded scope is particularly important because certain services fall outside those traditionally provided by securities litigation law firms. For example, submitting claims arising from antitrust litigation may involve complex administrative processes and detailed calculations to substantiate investment losses for the claim. Similarly, monitoring international securities litigation requires securities litigation requires identifying proceedings across multiple jurisdictions and evaluating eligibility to participate through opt-in, opt-out, or other procedural mechanisms. .
Based on the services currently being provided by FRT, a principal change to the policy is the formalization of consolidated securities litigation monitoring and claims filing services under a single, independent, non-law firm Monitoring Services Provider. This change establishes a clearer distinction between administrative monitoring functions and legal representation. Monitoring securities litigation is primarily an information, administrative, and claims management function. It does not, by itself, require legal advice or litigation representation. Separating these functions from legal representation provides a clearer distinction between the services provided by a Monitoring Service Provider and those provided by a securities litigation law firm.
While the proposed changes remove the use of law firms for monitoring services, the Policy preserves SBCERA’s ability to obtain legal services whenever a matter warrants legal analysis or litigation. Where legal advice, litigation strategy, representation or other specialized legal services are necessary, SBCERA may retain outside counsel independent of the Monitoring Service Provider through an appropriate procurement process. This separation is intended to preserve objectivity and avoid actual or perceived conflicts of interest that could arise if the same law firm responsible for monitoring also benefits financially from identifying litigation opportunities or recommending that SBCERA pursue litigation. Separating these responsibilities allows potential litigation opportunities to be evaluated independently of any prospective engagement for legal representation.
The revised Policy therefore does not eliminate access to securities litigation law firms when required. Rather, it ensures that law firms are retained when SBCERA needs legal services, rather than maintaining law firms primarily for monitoring functions that can be performed more efficiently by a specialized non-law firm provider.
Another significant proposed change to the Policy is the establishment of a more comprehensive framework for evaluating international securities litigation. International claims require a different evaluation from domestic securities litigation because the legal, procedural, and financial considerations vary substantially among jurisdictions. Factors may include the availability and structure of proceedings, opt-in requirements, limitation periods, evidentiary requirements, discovery, cost-shifting rules, litigation funding arrangements, attorneys’ fees, and the remedies available to investors. These differences can materially affect both the potential recovery and the financial and legal risks associated with participation. The proposed changes therefore establish a framework for identifying and evaluating international litigation opportunities rather than treating all international claims uniformly.
The Policy establishes low, medium, and high risk jurisdiction categories with corresponding investment loss thresholds to serve as an initial screening mechanism, including several factors for determining whether additional legal or financial analysis is necessary and whether active participation would be prudent. Exceeding a threshold does not automatically authorize SBCERA to participate in the litigation. Rather, it triggers a more detailed evaluation of the potential recovery, associated costs and risks, procedural requirements, and other circumstances to determine whether participation is prudent and in the best interests of SBCERA.
In sum, these updates improve the Policy’s clarity, consistency, and operational effectiveness while maintaining its underlying purpose of protecting SBCERA’s investment assets and preserving its ability to pursue recovery opportunity when warranted.
BUDGET IMPACT:
None.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Operational Excellence & Efficiency
STAFF CONTACT:
Barbara Hannah
ATTACHMENTS:
Exhibit A: Investment Policy No. 008 (Securities and Antitrust Litigation Policy) - Redline Version
Exhibit B: Administration Policy No. 005 (Securities and Antitrust Litigation Policy) - Clean Version