At a glance:
- The pension schemes were successful in the case when a settlement was agreed just ahead of the trial beginning
- The schemes were heavily invested in First Solar, and acted on behalf of those who purchased or acquired their shares during the class action period
- The defendants, First Solar, never admitted to any wrongdoing
Holly Roach reports on how the schemes won a US class action case, reaching a $350m settlement.
The Mineworkers' Pension Scheme and the British Coal Staff Superannuation Scheme have been successful as lead plaintiffs in a US securities fraud case, securing a $350m (£270m) settlement on behalf of investors.
The schemes - who were represented by US securities class action law firm Robbins Geller Rudman & Dowd - won a major victory in a class action case which alleged that solar panel producer First Solar made false and misleading statements about defects plaguing its products and failed to disclose material adverse facts about its business, operations, and prospects.
The case alleged that First Solar not only concealed these defects from shareholders, but also misrepresented the cost and scope of the defects and reported false information on the company's financial statements.
The firm's executives were accused of discovering a manufacturing and design defect that caused the company's modules to suffer rapid power loss in hot climates, and knowingly avoiding disclosing it.
According to court documents, the defendants concealed this problem from investors until July 2012, even though First Solar later admitted that it had "identified" and "addressed" the problem in June 2009.
The plaintiffs initially requested a jury trial in August 2012, but the $350m settlement was agreed earlier this month and will resolve claims on behalf of all those who purchased or acquired First Solar shares between April 2008 to February 2012.
The Mineworkers' Pension Scheme and the British Coal Staff Superannuation Scheme purchased the publicly traded securities of First Solar during the class period and were "damaged as the result of the defendants' wrongdoing", according to the court documents.
The defendants initially denied all claims brought by the schemes but the jury trial that was set for 7 January this year was vacated when the parties revealed they had reached a settlement when the court was called to order.
A spokesperson for the two schemes commented: "We are pleased that a $350m financial settlement has been reached on behalf of all members of the class. We believe it is important that asset owners hold companies and executives to account and this approach forms part of our commitment to being a good steward of our members' pension assets."
First Solar did not admit to any wrongdoing as part of the settlement. Chief executive Mark Widmar explains: "We are confident that resolving this matter is the right business decision for First Solar and its shareholders."
Widmar adds: "While we are confident in the facts and the merits of our position, we believe it is prudent to end this protracted and uncertain class litigation process, and focus on driving forward."
"We remain in a strong financial position, are pleased with our progress and our contracted customer pipeline, and are focused on executing our global strategy and serving our customers."
Robbins Geller Rudman & Dowd partner Mark Solomon adds: "This result is rendered possible only because there are responsible institutions such as the Mineworkers' Pension Scheme and the British Coal Staff Superannuation Scheme whose stewards are willing to stand up and spearhead the cases.
"So long as we can provide and fund such opportunities for them, it is our mission to do so."
The lawsuit - originally filed in federal court in Arizona in 2012 - was brought on behalf of all those who had purchased or otherwise acquired the publicly traded securities of First Solar between the class period.
UK pension funds getting involved in cases like this, while not unexpected to happen, are rare. Yet, Solomon explains: "It is becoming less unusual with several securities class actions being led by UK funds." Last February, Norfolk Pension Fund was successful as lead plaintiff in a class action case which found Puma Biotechnology, and its chief executive and board chairman liable for securities fraud.
At the time, Norfolk Pension Fund chairwoman Judy Oliver explained: "It is important that asset owners hold companies and executives to account when securities fraud is discovered."
Solomon adds: "Securities class actions often are the only available means to recover investment losses caused by fraud and they serve also to deter future misconduct.
"Without lead plaintiffs stepping forward to lead the case, the cases simply would not be possible and the ability to recover losses and deter misconduct would be lost."
He continues: "In the last 25 years well over $100 billion has been recovered for defrauded investors through these lawsuits."
Of course, a concern for pension funds when accepting to take on a case such as this is the high cost involved. Speaking previously to PP, Burges Salmon partner Richard Pettit said schemes have to weigh up the risks and benefits, but that members' savings will not usually be impacted by the outcome.
"The promise of a defined benefit pension to the members is not affected, but it affects the money in the fund so therefore could increase the risk of losing that promise. But there won't be an immediate impact to members," he said.
The costs associated with prosecuting the cases are advanced by lead counsel and are only reimbursed if there is, and from, a successful recovery. Solomon notes: "Unlike in the UK and many other jurisdictions, in the US the losing party is not responsible for the winner's fees. Accordingly, pension funds, often in deficit with no money to spare and no desire to throw good money after bad, can engage in responsible stewardship in this area, recover losses and promote good governance at no financial risk."
The settlement is subject to approval by the United States District Court for the District of Arizona.
What is a class action lawsuit?
A class action lawsuit is one where a group of people with the same or similar injuries caused by the same product or action sue the defendant as a group. One of the parties is a group who are represented collectively by one member of that group.
Class actions are not permitted in the UK, but there are collective forms of litigation available such as group litigation orders which allow individuals who have claims giving rise to common or related issues of fact or law, to join forces.
Attorneys in a class action lawsuit don't usually get paid unless the case is won, either at trial or through a settlement. Their pay is usually a percentage of the money that has been recovered on behalf of the class members.