UK pension funds go it alone in AOL class action

A breakaway firm formed from US class action boutique Milberg Weiss has scored a victory for 10 UK-based pension funds as part of an ’opt-out’ action brought against AOL Time Warner.

San Diego-headquartered Lerach Coughlin Stoia Geller Rudman & Robbins advised a group of UK funds – including the local authority pension funds of the West Midlands, London, Falkirk and Lothian – as well as scores of US and Australian institutional investors in AOL Time Warner.

The UK funds together won $45m (£23.35m) of a total award of $600m (£311.28m) after they broke away from a $2.6bn (£1.35bn) shareholder class action that claimed securities violations during the 2001 merger of AOL and Time Warner.

Lerach New York managing partner Patrick Daniels said: “Had these funds done nothing and filed passively in a class action, the most they could have collectively recouped would have been $5m (£2.59m).

“But through their private action they netted $45m. To these pension funds that represent firemen, municipal workers and teachers, it’s very significant.”

Opt-outs are becoming increasingly popular in the US. The term refers to when members of a class action break away from to form their own suit. Class actions gain strength through numbers, but the more parties in a class the more diluted the award. By filing private suits, individual parties can land bigger awards.

Daniels said UK-based institutional investors in US-listed companies were becoming more attuned to suing fraudulent companies individually. Three years ago the firm had no UK clients, but it now represents 12 pension funds, mostly of local authorities.

Its fees typically amount to 10-20 per cent of the award – much lower than the 33 per cent usually charged in class actions. “There are typically higher recoveries in individual suits, so we get a better return on our investment in terms of man-hours, and we can negotiate with savvy investors like pension funds,” said Daniels.

Lerach broke away in 2004 from what is now Milberg Weiss & Bershad.

Milberg is suffering its own litigation woes and has been indicted for allegedly paying $11.4m (£5.91m) in kickbacks to three plaintiffs in class actions over 25 years.