Steps For Filling Fiduciary Gaps & Recovering Litigation Settlement Payments

DIVIDEX vs. the Status Quo

Required Steps Status Quo DIVIDEX
Real time monitoring of global portfolios for potential securities fraud losses designed in part to address the Morrison problem
Typically none 1

Analyze: Use analytics to seek to identify possible securities fraud – reported on bespoke criteria

Recommend: Whether to investigate litigation options for recovery

Independent evaluation of merits of potential claims by outside counsel designed in part to address the Morrison problem
Typically none 2

Analyze: Evaluation of all identified cases, domestic and foreign, free of the potential conflicts panel counsel may have

Recommend: What cases to join to seek to recover losses

Identify counsel for cases to seek to recover losses designed in part to address the Morrison problem
Typically limited to panel counsel 1 and cartel-based foreign counsel
Analyze: Various options for US and non-US securities counsel
Recommend: Ideally suited counsel and negotiate favorable fee arrangements
Oversight & management of counsel for cases in which the plan sponsor is named plaintiff designed in part to address the Morrison problem
Typically there is limited oversight of outside counsel, which we believe results in little attention to cost impact on recoveries

Sophisticated independent litigation oversight and management

Recommend: Steps to reduce costs to increase recoveries

Negotiation of litigation funding for non-US cases designed in part to address the Morrison problem
Typically none
Seek to obtain favorable funding terms based on aggregated losses across multiple clients

Improved litigation funding options and terms for each case
Calculate and track important deadlines such as statutes of limitations and statutes of repose designed in part to address the IndyMac problem
Typically none
Important deadlines are calculated and updated as required, with tickler system

Receive advice on opt-out, settlement proposals and fee applications designed in part to address the IndyMac problem

Typically none

Focused analysis

Recommend: Strategies to improve recoveries at critical points in securities fraud litigation, such as deadlines to opt-out of class actions or to object to settlement terms and/or attorneys’ fees

Claims filing

Custodians typically file securities claims in class action settlements with what we view as “fiduciary gaps”, such as claims filings with zero basis positions and no attention to non-U.S. cases

Improved claims filing using proprietary methodology developed to seek to increase recoveries

Recommend: Superior filing approach for each claim

Settlement payment receipt and reconciliation

Typically, no reconciliation

Reconciliation against recognized loss (damages per share as approved under settlement) for payments. Negative deviation from expected recovery initiates investigation and advocacy with court-appointed claims processing agent

Receipt of payments to the fiduciary

Most typically involve payment to plan sponsor net of fees

Payment in full of all recoveries to plan sponsor as directed

The cost issue: Who pays for the recovery process services?

General counsel typically pays for legal services

Typically, costs of claims filing are embedded in the custodial contract, plus sometimes contingency out of recovery

Fees billed quarterly in arrears under agreed fee structure and client may cost fees out of recoveries or investment management budget

1 For US portfolio positions, we believe the monitoring function is usually outsourced to class action plaintiffs’ law firms (a/k/a “panel counsel”). Acting in what we do not view as an official fiduciary capacity, we believe these firms typically acknowledge being driven by profit motive in seeking class counsel appointments and, thus, typically focus on the largest FIFO or LIFO losses. Further, for litigation arising from non-US portfolio securities, we believe ad hoc networks of litigation funders sometimes cold-call, seeking claimants, and miss many plan sponsors.

We believe panel counsel typically provide potentially conflicted evaluation of domestic cases, designed to convince the plan sponsor to seek appointment as class representative, and offer little evaluation of non-US potential cases.

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