Several large California public pension funds are supporting a state ballot initiative that would make it easier for investors to sue companies for misleading them about their financial outlook.
They include: Los Angeles County Employees' Retirement Association; Fresno County Employees' Retirement Association; Alameda County Employees' Retirement Association; San Bernardino County Employees' Retirement Association; and San Mateo County Employees' Retirement Association.
Those funds agree The Retirement Savings and Consumer Protection Act, commonly known as Proposition 211, would safeguard their interests as investors.
The measure goes before California voters Nov. 5.
A letter sent by Marsha D. Richter, chief executive officer of LACERA, to other state public pension funds urges them to endorse the referendum "in the spirit of maintaining the highest level of integrity, transparency and responsibility for all participants in the financial marketplace."
Alameda County decided to back the measure because "it restored some of the rights of shareholders to seek redress from corporations under certain circumstances," said Charles Conrad, general manager.
Trustees "understand it is not a black-and-white issue but, on balance, they thought it was a desirable measure," he said.
"Large institutional investors are not immune to fraud," said Jake Petrosino, research director of the PERS Retirement Betterment Association in Glendale, Calif., a voluntary organization for public pensioners that supports Proposition 211.
Mr. Petrosino is a former president of the California Public Employees' Retirement System and head of its investment committee.
"If anyone thinks size insulates you from attacks of this sort, then you are mistaken," Mr. Petrosino said.
Several other public pension funds, including CalPERS - the nation's largest public pension fund - and the Sacramento County Employees' Retirement System have decided to stay neutral on the issue. Dozens of other funds in the state - public and corporate - have decided to simply steer clear of the debate.
"As a rule, our board stays out of politics," said Tom Lopez, chief investment officer of the Los Angeles Fire & Police Pension System, which has $7.5 billion in assets.
The Investment Company Institute, the Washington trade group representing mutual funds, and The Council of Institutional Investors, the powerful Washington-based group representing many of the nation's largest pension funds, also have not taken a stance.
Anne Hansen, the council's deputy director, said the subject probably will come up at the council's semiannual meeting in Chicago next week.
Executives at Intel Corp., Santa Clara, Calif., including Chairman Gordon Moore, are actively lobbying against Proposition 211. "Our position from the pension fund is the same as the corporate position: We are opposed to Proposition 211," said Satish Rishi, Intel's assistant treasurer.
Most Silicon Valley high-technology companies, which would bear the brunt of the measure, have launched an all-out effort to defeat the voter initiative. And because those companies' senior management and directors typically also act as fiduciaries of their pension funds, Mr. Rishi observed their pension funds invariably would back the corporate position.
By making companies more vulnerable to lawsuits if their stock price falters, and forcing them to empty their coffers to pay off plaintiffs, the measure would backfire against investors who own stock in those companies, Intel's executives and other opponents of the measure say.
The proposition also would hurt California's economy and cause a loss of thousands of jobs as companies flee the state, they say.
Worst of all, they say, investors would be hard-pressed to pick good investments because companies would clam up on discussing their financial prospects.
Moreover, activist investors, who have been pushing companies to bring in good outside talent to their boardrooms, could receive a setback in this effort as directors rush for the exits to avoid facing any personal liability in case of a lawsuit.
Also battling against Proposition 211 are the nation's largest stock exchanges and the securities industry. They've spent nearly $2 million on an intense lobbying effort.
"What happens in California has national implications. The more accurate information is available in the marketplace, or the public from companies, about their financial prospects the better it is for investors," said Arda Nazerian, a spokeswoman for the American Stock Exchange, New York.
To guarantee companies give out accurate information, the exchange reviews all material companies give investors, she noted.
Meanwhile, LACERA and the other institutional investors supporting the measure have lined up with trial lawyers, labor unions, numerous state and national groups representing senior citizens, pensioners and individual investors, to back the referendum.
The proposition would give investors the right to directly sue directors and officers of companies if the stock prices plummets; collect punitive damages from companies for offering a rosier than warranted outlook; and let shareholders bring lawsuits against companies if the stock price falls sharply after they buy the stock, even if they had not personally relied on executives' statements about the company's financial outlook.
The measure also would let investors go after accountants, stock brokers and other corporate advisers if they colluded with the company in perpetrating the fraud.
Proponents of the measure say it would go a long way to rectify the damage done by last year's Private Securities Litigation Reform Act, which throws huge roadblocks in the paths of investors seeking compensation from companies that make hollow claims about their financial prospects.
