(Reuters) - The Arkansas Teacher Retirement System is scheduled to inform U.S. District Judge Mark Wolf of Boston whether it wants to continue to serve as lead plaintiff in a $300 million class action against State Street by the end of the day on Wednesday, a week after an extraordinary hearing in which the judge questioned the fund’s executive director about ATRS’ relationship with the plaintiffs’ firm Labaton Sucharow and hinted he may not allow the fund to continue to lead the case because of conflict concerns.
In a meeting Monday night, according to the Arkansas Democrat-Gazette, the fund’s trustees recommended that ATRS executive director George Hopkins withdraw as lead in the State Street case, which involves alleged inflated fees for foreign exchange transactions. The trustees also asked Hopkins to review ATRS’ leadership of other class actions and to consider withdrawing from those as well.
As I reported last week, ATRS was named lead plaintiff in at least six securities class actions in 2017 and 2018, although the fund was replaced late last week in a case against General Electric. (The replacement was not related to the issues in the State Street case.) In all, ATRS is leading about a dozen class actions.
Hopkins reportedly told ATRS trustees in an email sent before Monday’s meeting that he had not decided whether to pull out of the State Street case, citing the fund’s commitment to long-running litigation that has already pushed the bank into an unprecedented $300 million settlement. He said it was regrettable that the fund’s lawyers “lost focus” at the end of the case and submitted erroneous fee applications that “tarnished the outstanding result” ATRS and its counsel obtained for the class.
Judge Wolf, as you may recall, awarded Labaton and two other plaintiffs’ firms $75 million but appointed retired federal judge Gerald Rosen of Detroit in 2017 to investigate their billing records after a 2016 Boston Globe story revealed apparent overbilling in the case. Judge Rosen’s report, filed under seal on May 14, prompted Judge Wolf to call Hopkins to his courtroom to answer questions about whether ATRS can represent the interests of the class while the conduct of its lawyers is under scrutiny.
Judge Wolf said at last week’s hearing that the still-sealed special master’s report shows “misconduct” by Labaton, which apparently did not disclose that it paid a “finder’s fee” to an Arkansas contact who put the firm in touch with ATRS before Hopkins joined the fund. Labaton maintains the fee was a permissible referral payment that, under Massachusetts law, did not need to be disclosed.
I called Hopkins for confirmation of the Arkansas newspaper’s report. He said he could not comment. The chairman of the ATRS board of trustees, Jeff Stubblefield, did not respond to my email request for confirmation of what happened at Monday’s meeting. The meeting minutes are not yet posted at the ATRS website.
The board did seem to leave it up to Hopkins, ATRS’ executive director for more than 9 years, to make the final call on the fund’s leadership of the State Street case and other class actions. “I am not in favor of pushing Mr. Hopkins anywhere, except to slow down,” board chairman Stubblefield reportedly said at Monday’s hearing.
But the trustees’ caution shows the ripple effects of the State Street case. ATRS has been a vigorous class action plaintiff for the past 10 years – specifically at the direction of state legislators, according to Hopkins’ testimony last week before Judge Wolf. Five different plaintiffs’ firms monitor the fund’s portfolio for investments in corporations facing fraud allegations. And over the past nine years, Hopkins said, he and ATRS have become very good lead class action plaintiffs. The State Street settlement, he said, was powerful evidence. “I was always told not to brag growing up, you know. But I will brag,” he said. “I’m the one who found this case. I’m the one who helped develop this case over several months before it was ever filed. I chose the law firm that would proceed in this case, because I interviewed several.” (A lawyer who spoke at the hearing for the special master agreed that Hopkins “did an admirable job in pushing this case and proactively representing his members during the life of the case itself.”)
Hopkins told Judge Wolf that his priority as a lead plaintiff has always been his fiduciary duty to other class members. “I wanted to be, and I always tried to be, the best I can - not for ATRS, the Arkansas Teacher Retirement, but for the class,” he said. “And, you know, I have never - I have never asked a law firm to hire some attorney. I have never asked a law firm to make a political contribution. And I have done everything I can to focus for the class.”
But the State Street report, at least according to Judge Wolf, threatens to loom over ATRS’ future bids to lead class actions. “Questions have been raised by the (special master’s) report and recommendation about the origins of Labaton’s relationship with Arkansas Teacher, and they’re just questions,” the judge told Hopkins at last week’s hearing. “But to the extent that those issues are litigated in this case, they could be at least embarrassing to Arkansas Teacher.”
Hopkins pushed back against Judge Wolf last week, rejecting the judge’s suggestion that Labaton’s conduct would stain the fund. “You seem to assume that, you know, how Labaton became associated with ATRS was in some way improper, illegal, or untoward, and I don’t think the record shows that,” the fund official said. “You know, any time you’re in a case that blows up, the impact of it affects everybody in the case. So, sure, we’re impacted to a slight amount. But I don’t think you can impute any kind of misconduct finding you would make to me about what happened, and I wouldn’t worry about ATRS.”
A week ago, Hopkins said he was confident he could continue to serve the State Street class. Two days ago, his board suggested he might not want to do that. We’ll soon find out if Hopkins has changed his mind.