On February 4 2019, after nearly four years of litigation, and a three-week trial, a UK pension plan won a rare victory over an American pharmaceutical company (Puma). The case went to jury trial in California, where the jury found that Puma, together with its CEO and board chairman, were liable for securities fraud. 


The Norfolk Pension Fund is part of the Local Government Pension Scheme (LGPS) in the UK. The LGPS is a UK-wide public service pension plan, comprised of around 100 individual plans which are administered locally by local authorities. Around 200 organisations participate in the Norfolk Pension Fund, including colleges, charities and town councils in the region and they are required to fund the benefits, picking up the shortfall if the Fund's investments do not deliver the expected return. Norfolk County Council administers the Fund and the councillors operate effectively as trustees of the Fund, deciding, amongst other things, on the investment strategy for the Fund (with advice from investment advisers). 

As part of a diversified portfolio, a proportion of the assets of the Fund had been invested in Puma. The Fund (on behalf of all of the investors in Puma) alleged that Puma had falsified minutes of a meeting with the US Food and Drug Administration and that those falsified minutes exaggerated figures to give the impression that its breast-cancer drug was more effective than it actually was. This subsequently led to the inflation of the company's share price such that in mid-2014 the company's shares had peaked at over $270. The value of the shares had later plummeted and, as a result, the Fund suffered a substantial loss on its investment. 


The case was heard by the US District Court for the Central District of California. The jury found that Puma, together with its CEO and board chairman, were liable for securities fraud because they had knowingly misled investors. Puma's share price was inflated by $4.50 (£3.45) per share as a result of the fraud, which is more than 15% of the current share trading price.  

Puma, together with its CEO and board chairman, were found liable to compensate investors who purchased company shares between July 2014 and May 2015, at prices that were inflated by the misconduct of the defendants. 

Investment duties and powers

The trustees of UK pension plans have certain powers and duties when it comes to investing. One of those powers is to decide on the investment strategy for the plan and to invest the plan's assets. Trustees have a duty to act prudently, which means that they must act in a way that a prudent person would when deciding on investments, and they are under a fiduciary duty to choose investments that are in the best financial interests of the plan members. 

However, even if all the right steps have been taken in deciding on the investment, trustees of pension plans can still be the victims of negligence and fraud. Consequently, it is also the duty of the trustees to ensure that they pursue appropriate avenues to recover their losses when this happens. This action also protects the employers which are otherwise required to fund the plan because, if that action wasn’t taken, the employers would have to address the funding shortfall created by the investment loss. 

What does the case signal?

Local authority pension plans account for a significant slice of ownership of UK-listed companies, and the investment returns are expected to go a long way towards funding the pensions of millions of public sector workers in the UK. Ultimately, however, the LGPS is funded by the UK taxpayer, because local authority employers underwrite the pensions liability, and they can increase local taxes to meet the cost of funding those liabilities. This case demonstrates that local authority pension plans are becoming more aggressive and not simply assuming that the UK taxpayer can pick up the pieces for sub-standard corporate governance and criminality. It has been commented that Puma may have to pay up to £100m in compensation as a result of this case. 

Norfolk Pension Fund chairwoman Judy Oliver said: 

"We believe it is appropriate for the Fund to participate by taking its turn to lead such cases. This forms part of our commitment to being a good steward for our members' pension assets, our recognition of our wider responsibilities as an institutional investor, and importantly recognises the fiduciary obligations we owe towards our Fund members and beneficiaries to get the best possible return on investments for them."

UK pension plans in general (not just LGPS Funds) may be emboldened by the outcome of this case to act together as shareholders on issues of common concern in order to hold companies to account for their actions, even if that involves class action litigation outside the UK. If the investment market starts to believe that pension plans will challenge the companies they choose to invest in, then this will inevitably improve the governance of those companies and subsequently benefit the members of the plan. 

Some key points to take away are:

  • trustees must act in a way that a prudent person would when deciding on an investment strategy 
  • trustees must choose investments that are in the best financial interests of the members – this will usually involve obtaining investment advice, and 
  • trustees must ensure that they pursue appropriate avenues when investments fall short of the expected performance due to negligence or fraud.

If you think that your pension plan has been negatively affected by the fraud or negligence of a company in which your plan holds shares, or by the actions of a negligent investment adviser, then you may need to consider litigation to recover your losses. If you wish to discuss this further, please get in touch. As a transatlantic firm, and part of the Lex Mundi network of law firms across the globe, Womble Bond Dickinson will be able to connect you to the right expertise in the relevant jurisdictions.