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PENSION POLITICS
Trial Lawyers, Inc. has its hands in the California taxpayer's wallet.
As already noted, Trial Lawyers, Inc. injects millions of dollars
into California politics, including roughly $10 million to state legislative
and statewide campaigns in each of the two most recent political cycles.[110]
The litigation lobby is quite strategic about how it spends its cash, typically
pouring it into the races of vulnerable legislative supporters or using it to
influence key state members of the executive branch, such as insurance commissioner
John Garamendi (see box on page "Pension Politics"). And in recent years, the government-relations
arm of Trial Lawyers, Inc. has focused particular attention on the states' mammoth
public-employee pension funds: the California Public Employees' Retirement System
(CalPERS) and the California State Teachers' Retirement System (CalSTRS).
Why? Much of today's shareholder litigation is driven by such funds, which
are enormous investors. CalPERS and CalSTRS are the nation's largest and third-largest
public pension funds, respectively, and together they manage over $300 billion
in shareholder assets.[111] Recent legislation has made
these funds the 800-pound gorilla in securities litigation, and the political
appointees on their boards—invariably beholden to the litigation industry—have
been all too happy to play politics with their funds, and reward their legal
contributors with business in the process.
The Origins of the Problem
When the 1995 Private Securities Litigation Reform Act (PSLRA) mandated that
the biggest stockholders should act as lead plaintiffs in securities class actions,
public pension funds took charge of much shareholder litigation merely as a
function of their size. They have responded enthusiastically. According to a
study released last year by PricewaterhouseCoopers, securities cases with public
pension funds as lead plaintiffs rose steadily from four in 1996 to 56 in 2002
(see graph below).[112]
Unlike mutual funds and hedge funds, whose ability to retain investors is dependent
on their performance, public pension funds have captive investors who are promised
defined benefits, i.e., taxpayers have to pick up the shortfall should the funds
lose money. Realizing that it could profit handsomely by encouraging these funds
to litigate and taking the legal fees for itself, Trial Lawyers, Inc. has invested
heavily in the political appointees on the funds' union-dominated boards. In
2002 alone, Milberg Weiss gave $250,000 to the California Democratic party,
several members of which sit on the CalPERS board, including state treasurer
Phil Angelides, state controller Steve Westly, and former San Francisco mayor
Willie Brown.[113] Angelides, an ex officio member
of the CalPERS and CalSTRS boards, received 8 percent of his campaign contributions
from the plaintiffs' bar when he was elected in 1998, for a total of over $296,000.[114]
For his reelection in 2002, those contributions increased to over $375,000.[115]
In recent years, the government-relations
arm of Trial Lawyers, Inc. has focused
particular attention on the states'
mammoth public-employee pension funds. |
In turn, Angelides has been the most vocal proponent of using pension funds'
clout to try to change corporate behavior. He has spurred CalPERS to oppose
politically unpopular mergers, sue companies involved in labor disputes, and
urge companies to settle "Holocaust restitution" lawsuits.[116]
Says Angelides, "Shareholders should start acting like the owners they are.
. . . The age of investor complacency must be replaced by a new era of investor
democracy."[117]
The Cost of Pension Politics
Ultimately, however, the shareholder activism of CalPERS and CalSTRS hurts
both investors in targeted companies and California taxpayers. A study released
this February by Lawrence McQuillan of the Pacific Research Institute (PRI)
surveys published research on the topic and concludes that "[t]he overwhelming
consensus among academic researchers is pension-fund activism does not create
additional net social value."[118] PRI awarded CalPERS
with its 2004 "Golden Fleece" Award, noting: "From 2000 to 2004, [CalPERS's]
investments under-performed and [the fund] suffered severe cash-flow problems,
forcing taxpayers to pick up the tab" (see graph).[119]
The easy solution to pension fund shenanigans is removing political control
from state employees' retirement savings. Governor Schwarzenegger has come out
in support of a proposed state constitutional amendment, ACAX1, that would place
state employees' retirement funds under their control in defined contribution
plans similar to 401(k)s.[120] Hopefully, Californians
can pass such a commonsense measure against the certain fight from Trial Lawyers,
Inc.
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A Good Insurance Policy
How might trial lawyers ensure their market share? By
investing in the campaigns of government officials who
can later hire them to do work for the state. In October,
California's insurance commissioner John Garamendi
hired Bill Lerach's firm to file
suit on the state's behalf against
insurance brokers and insurers
over the bid-rigging and contingent-
commission scandals at
Marsh & McClennan and elsewhere.
[121] (Lerach's firm has also
filed private suits against many
insurers and brokers, under the
state's "private attorneys general"
statute, "which allows virtually
anyone to file a lawsuit on
the public's behalf.")[122] From 2002 through 2004, Lerach
and his law firms contributed $55,000 to Garamendi’s political
action committees.[123] |
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110. See Political Spending 2002, supra note 23; California Statewide
Races 97-98, supra note 23
111. CalPERS’s investment portfolio market value was $182.8 billion as of December
31, 2004, see Facts at a Glance: Investments, at http://www.calpers.ca.gov/eip-docs/about/facts/investme.pdf(last
visited Mar. 7, 2005). CalSTRS’s investment portfolio market value was $123.3
billion as of January 31, 2005, see Current Investment Portfolio, at
http://www.calstrs.com/investments/Invport.aspx
(last visited Mar. 7, 2005).
112. STEVEN SKALAK & DANIEL DOOLEY, PRICEWATERHOUSECOOPERS,
SECURITIES LITIGATION UPDATE: THE PENSION FUND FACTOR 2 (2003).
113. Contributions data for Milberg Weiss come from the website of the California
Secretary of State, at http://cal-access.ss.ca.gov/Campaign/
(last visited Mar. 7, 2005).
114. California Statewide Races 97-98, supra note 23.
115. Political Spending 2002, supra note 23.
116. See Press Release, At Urging of California Treasurer Angelides
and CalPERS President Sean Harrigan, CalPERS Will Actively Oppose Controversial
Merger of Wellpoint Health Networks, Inc. and Anthem, Inc. (June 14, 2004),
at http://www.treasurer.ca.gov/news/releases/2004/061404_wellpoint.pdf
(last visited Mar. 7, 2005); Thomas J. Donahue, CalPERS Needs Reforms,
S.F. EXAMINER, June 24, 2004, available at http://www.uschamber.com/press/opeds/040624tjd_sanfran_op_ed.htm
(last visited Mar. 5, 2005) ("[S]tate Treasurer Phil Angelides[ ] appears to
be exploiting the Safeway issue as a platform for his expected gubernatorial
bid."); California State Treasurer's Office: Holocaust Restitution, at
http://www.treasurer.ca.gov/holocaust/
(last visited Mar. 7, 2005) ("California State Treasurer Phil Angelides has
long been active in seeking reparations and justice for Holocaust survivors,
both in his role as State Treasurer and as a member of the boards of the California
Public Employees’ Retirement System (CalPERS) and the California State Teachers'
Retirement System (CalSTRS) . . . .").
117. Nicole Gelinas, Corporate America's New Stealth Raiders, CITY J.,
Winter 2005, available at http://www.city-journal.org/html/15_1_corporate_america.html
(last visited Mar. 5, 2005).
118. Lawrence J. McQuillan, Pacific Research Institute Briefing, CalPERS'
Corporate Activism Does Not Help Shareholders or Pensioners, Feb. 2005,
at 2, available at http://www.pacificresearch.org/pub/sab/entrep/2005/pension_brief.pdf
(last visited Mar. 7, 2005).
119. Anthony P. Archie & Lawrence J. McQuillan, Pacific Research Institute,
Flawed and Outdated Public-Pension System Earns California Golden Fleece
Award, CAL. GOLDEN FLEECE AWARDS NO. 10 (2005), at http://www.pacificresearch.org/centers/cfe/cgfa/cgfa_10.html
(last visited Mar. 3, 2005).
120. See McQuillan, supra note 118, at 1.
121. See Theo Francis & Vanessa Fuhrmans, Class-Action Threat Added
to Challenges Facing the Insurers, WALL ST. J., Oct. 20, 2004, at C1.
122. See Angela R. Thompson, United States: Insurance Industry Under
Fire over Bid-Rigging and Contingent Commissions, JORDAN BURT LLP/MONDAQ,
Oct. 28, 2004, at http://www.mondaq.com/
(last visited Mar. 7, 2005).
123. See website of the California Secretary of State, supra note 113.
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