At the end of May of this year, six European pension funds shared in a US$324m settlement paid by a number of banks who were alleged to have conspired to manipulate a key international financial market benchmark called the ISDAFix.
Pension funds around the world may have suffered billions of dollars in damages from manipulation of financial market benchmarks such as the ISDAFix.
But there does not appear to have been much action by UK pension funds either to examine whether the the assets they manage have suffered losses due to financial market manipulation, or to bring legal actions to recover any such losses.
This may cause pension funds and their advisers some problems, because they may be setting themselves up for claims by beneficiaries that they neglected their legal duties:
1. To examine whether the assets they manage have suffered any losses from financial market manipulation; and
2. To determine if any such losses are credible, and can be cost-effectively pursued; and, if so
3. To pursue available remedies to seek recovery of such losses.
If they do decide to act, UK pensions will have to hurry—time limitations are getting close to running out.
Why the ISDAFix Matters to Pension Funds
It has been alleged that a number of banks and financial institutions have manipulated a worldwide benchmark rate known as the ISDAFix.
The ISDAFix helps determine the value of approximately US$400trn worth of derivatives and structured financial products around the globe annually.
An investor in any product linked to ISDAFix may have suffered losses because of manipulation of this worldwide “benchmark”. This would be likely to include a large number of pension funds—a number of which have already made, and recovered, on such claims.
Legal Duties of Pension Fund Trustees
The trustees of pension funds have a fiduciary duty to act in the best interests of pension scheme beneficiaries.
In light of the publicity that has surrounded allegations of financial market manipulation, and the legal and regulatory actions that have followed such allegations, it is difficult to understand how this fiduciary duty could not include determining whether any pension schemes lost money due to such manipulations, which could be recoverable, and seeking to recover for any credible losses that can be cost-effectively pursued.
In the event that those things are not diligently pursued, the trustees, directors and advisers of pension funds may face claims by the beneficiaries for negligence and/or breach of fiduciary duty.
Is Third Party Funding Available to Pursue Damage Claims?
There are third-party litigation funders, as well as US and UK law firms, that have expressed their willingness to invest their own capital, at risk, to cover the costs and expenses of investigation and litigation of significant, credible losses due to financial market manipulation, including ISDAFix manipulation.
They can work independently or with a pension funds’ usual fund advisors, to undertake the analysis necessary to help ascertain the extent of any losses suffered in transactions linked to ISDAFix, and to help determine how to economically cover the costs of bringing necessary legal actions.
Third party funders, and “no win, no fee” law firms, of course, will expect to receive a significant portion of any damages recovered in exchange for their investments of time and money (often 30 to 50 percent), but their participation can reduce concerns about the cost-effectiveness of pursuing such claims.
Time is Running Out
The time limit for taking action is advancing, so the time to look into ISDAFIX-related claims is now.
• The first significant public information about these allegations of ISDAFix manipulation was published in the spring of 2013;
• The time limit for bringing some claims is four years;
• Claims may have to be filed no later than early in 2017.
Written by By Elborne Mitchell LLP partner Ned Swan