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Did the PSLRA help shareholders?

That's certainly what the data suggests in Professor Michael Perino's paper "Institutional Activism through Litigation: An Empirical Analysis of Public Pension Fund Participation in Securities Class Actions."

In the Private Securities Litigation Reform Act of 1995, Congress created the lead plaintiff provision in the hope that institutions would closely monitor class counsel and thereby curb the agency costs that typically plague securities class actions. This paper uses a random sample of 627 pre- and post-PSLRA settlements to examine the efficacy of this provision. Specifically, the paper analyzes whether there is any correlation between the participation of one kind of institutional investor, public pension funds, and settlement outcomes, attorney effort, or attorneys' fee requests or awards. The paper finds that cases with public pension lead plaintiffs have larger settlements, recover a greater percentage of the stakes at issue in the case, have greater attorney effort, and have lower fee requests and awards than cases with other types of lead plaintiffs. These findings suggest that public pensions do in fact act as effective monitors of class counsel.

Of additional interest to our readers: auctions substantially reduce fees, ceteris paribus, and, even controlling for the different client mix and case mix it had, Milberg Weiss's fee requests are statistically significantly higher than those of other firms, which is a data point supporting the idea that they financially benefited from the alleged kickback scheme described in the government's indictment of them.



Rafael Mangual
Project Manager,
Legal Policy

Katherine Lazarski
Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.