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article published in law journalIn this paper, we examine the role of institutional investors in securities fraud class actions. We begin by surveying the first five years of experience with the Lead Plaintiff provision of the Private Securities Litigation Reform Act (PSLRA). In particular, we look at those cases where the lead plaintiff position has been contested and the outcome of those disputes. We find that institutional investors have been very successful in obtaining the position of lead plaintiff where they have sought it, but that there are a number of cases where they were unsuccessful. In part two of the paper, we dissect institutional investors' fiduciary obligations in petitioning to become lead plaintiffs and in filing claims in securities fraud settlements. For each major type of institution, we analyze their legal obligations under different legal standards in an effort to answer the question what obligation do they have to act in these areas. We conclude that institutional investors have a duty to file claims in settlements, except what we believe are rare instances where their cost-benefit calculations show filing to be unjustified. The case for becoming lead plaintiffs in securities fraud class actions is much more tenuous, though, as the costs of such a course of action may be substantial and the benefits are less certain. The remainder of the paper focuses on the question of filing claims in settled securities fraud cases. Beginning with a discussion of the process of notifying claimants, we move to an empirical analysis of whether institutions actually file claims in these cases. We use a sample of 53 settlements. Our tentative findings are that only 25-33% of institutions that we can identify as having claims to file in these settlements are actually filing claims.The last section of the paper offers several theories as to why institutions are not filing claims. Among the theories proposed, we focus on three as the most likely candidates: first, that the institutions are making cost-benefit analyses of whether to file such claims, and concluding that they are not worth filing; second, that there are no internal personnel at the institutions that are responsible for filing the claims, and thus they never get made; and third, that the institutions may not be receiving notice of the settlements and claims forms from the banks and brokers that hold their shares for them. Each of these theories may explain some portion of the institutions' failure to file claims in securities fraud cases

Leaving Money on the Table: Do Institutional Investors Fail to File Claims in Securities Class Actions?