Enron Redux? Pension Plans as Plaintiffs

by: Susan Mangiero, CFA

According to the Stanford Law School Securities Class Action Clearinghouse, several cases against Washington Mutual, Inc. were consolidated in May 2008. Ontario Teachers' Pension Plan Board was designated lead plaintiff. The "complaint alleges that, during the Class Period, defendants issued materially false and misleading statements regarding the Company's business and financial results....On September 30, 2008, defendant Washington Mutual Inc. filed a notice of bankruptcy."

According to "Suing a Broken Bank" (CNN Money, March 30, 2009) and other sources, a motion to dismiss has since been filed.

Elsewhere in this video, I am asked by CNN Money anchor Poppy Harlow to comment on financial reporting as an element of risk management. (I agreed to discuss transparency in general but told producers upfront that I possessed no information about this particular case, other than what I had read as a member of the general public.) About allegations that material information was withheld from shareholders (whether this case or others), I stated that "It's essentially the same thing that we saw a couple years ago with Enron and WorldCom - Who knew what, when and on what basis and what was the obligation of senior management to disclose information to the shareholders?" Click to view "Suing a Broken Bank." In terms of full disclosure, I own 212 shares of Enron common (worth about a penny per share).

I wrote about Washington Mutual on September 26, 2008 when I posited whether better disclosure would have helped WaMu shareholders. At the time, the U.S. Securities Exchange Commission had just released a statement urging more "transparent disclosure for investors." I countered that "sufficient" news is always welcome but wondered (and still do) if numbers alone are meaningful. I think not. Let me repeat what I said then:

What exact type of disclosure can really make a difference? I vote for information about process and accountability. Otherwise, financial statement users end up with snapshot assessments of mandated metrics. While these numbers could be potentially helpful, they are made less so without an understanding as to how they are derived, why they change and the extent to which an organization is exposed to economic danger. A few of the countless questions on the minds of inquiring individuals are shown below. (This is by no means an exhaustive list.)

  • Who has the authority to effect change for all things financial management?

  • Who oversees authorized persons and the latitude they enjoy to make decisions?

  • How are risk drivers identified, measured and managed on an ongoing basis?

  • What creates "stop loss" thresholds?

  • How are functional risk managers compensated?

In addition to their already long "to do" list regarding asset allocation, plan design and so forth, countless pension fiduciaries are charged with corporate governance related duties such as monitoring. After all, they are frequently large shareholders in public companies stateside and abroad. It is interesting to note that most securities litigation leads are either public pension funds (U.S. and non-U.S.) or Taft-Hartley plans but not ERISA funds. Why this is true is one of the questions that will be discussed during our April 27, 2009 webinar entitled "Pension Plans as Plaintiffs - 800 Pound Gorilla of Litigation."