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The U.S. Department of Labor recently issued Advisory Opinion 2007-07A to the U.S. Chamber of Commerce, responding to the Chamber’s concerns about “the use of pension plan assets by plan fiduciaries to further public policy debates and political activities through proxy resolutions that have no connection to enhancing the value of the plan’s investment in a company.”

Mike Melbinger notes in his CompensationStandards.com blog: “By way of background for those not familiar with ERISA, the DOL has long considered the right to vote proxies related to a retirement plan’s stock holdings as a valuable asset of the plan. In Advisory Opinion 2007-07A, the DOL said:

‘Under section 404(a)(1)(A) and (B) of ERISA, plan fiduciaries must act solely in the interest of participants and beneficiaries and for the exclusive purpose of paying benefits and defraying reasonable administrative expenses. In our view, plan fiduciaries risk violating the exclusive purpose rule when they exercise their fiduciary authority in an attempt to further legislative, regulatory or public policy issues through the proxy process when there is no clear economic benefit to the plan. In such cases, the Department would expect fiduciaries to be able to demonstrate in enforcement actions their compliance with the requirements of section 404(a)(1)(A) and (B).
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Consistent with these various pronouncements, the use of pension plan assets by plan fiduciaries to further policy or political issues through proxy resolutions that have no connection to enhancing the value of the plan’s investment in a corporation would, in the view of the Department, violate the prudence and exclusive purpose requirements of section 404(a)(1)(A) and (B).’

Those of us familiar with ERISA’s fiduciary requirements were sometimes curious as to how some union plan fiduciaries could square their proxy activism with ERISA. Apparently, the DOL was too.”

An Uptick in Securities Fraud Class Action Lawsuits

The latest study from Stanford’s Securities Class Action Clearinghouse and Cornerstone Research finds that the number of companies sued in securities fraud class action lawsuits rose 43 percent between 2006 and 2007, up from 116 in 2006 to 166. The current level of litigation activity still remains well below the ten-year historical average of 194 companies sued per year.

The study attributes the 2007 jump in cases to the subprime mortgage mess and increasingly choppy market conditions. Lawsuits against companies in the finance industry more than quadrupled to 47 in 2007, with 25 of those cases involving subprime issues.

In a demonstration of longevity, the study finds that of the 2,218 securities class action cases filed since 1996, 19 percent are continuing – primarily those filed in the past few years. Among the 81 percent of cases that have been resolved, 41 percent were dismissed and 59 percent were settled.

Among the other notable 2007 class action litigation developments cited in the study were:

– William Lerach’s guilty plea;
– The JDS Uniphase trial, notable in that the case actually went to trial and the defendants won; and
– The Supreme Court’s decision in Tellabs v. Makor

It now appears that the two-year lull in class action activity is over, and continued market volatility (like the day we had yesterday) seems likely to help propel the upward trend for the time being.

Heads Up on New Rule 144 Changes

Protect your company (and your key executives and clients) by learning what you need to know by catching our January 30th webconference – “New Rule 144: Everything You Need to Know – And Do NOW.” The conference will be archived in case that date doesn’t work for you.

Jesse Brill, Bob Barron and Alan Dye are busy working on the Key Conference Materials, which will provide the specific procedures, new memos, legends, representation letters, etc. that you will need to protect yourself. Take advantage of reduced rates for those of you that use the TheCorporateCounsel.net and The Corporate Counsel by registering online or via this order form.

– Dave Lynn