Letting Billions Slip through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Class Action Settlements

INTRODUCTION................................................................................................ 412 I. THE LITIGATION AND SETTLEMENT ENVIRONMENT .................................... 415 II. SETTLEMENT STUDY METHODOLOGY AND RESULTS ................................. 420 III. POTENTIAL EXPLANATIONS FOR SLUMBERING ......................................... 425 A. Sleeping with the Enemy ..................................................................... 425 B. A Rolling Stone Gathers No Moss ....................................................... 429 C. Voting with Their Feet......................................................................... 430 D. Who’s on First..................................................................................... 431 IV. INSTITUTIONAL INVESTOR SURVEY RESULTS ........................................... 432 V. LIABILITY RULES........................................................................................ 438 A. Institutional Investors ......................................................................... 440 B. Custodians........................................................................................... 442 VI. EASY STEPS TO ENSURE THAT INSTITUTIONS RECEIVE THEIR FAIR SHARE ...................................................................................................... 444 A. Establish a Centralized Information Clearinghouse........................... 444 B. Standardize Trading Documentation and Claims Forms.................... 445 C. Improve Institutional Monitoring of Claims Filing............................. 445 D. Strengthen Institutions’ 13F Filing Requirements .............................. 446