(Reuters) - New York City employees’ pension funds are accusing Bernstein Litowitz Berger & Grossmann and Kessler Topaz Meltzer & Check of breaching their ethical and contractual obligations to the funds in a lead counsel fight in a securities class action against Kraft Heinz.
In a brief and accompanying declaration from New York City Law Department Senior Counsel Alan Kleinman, the pension funds allege that Bernstein Litowitz and Kessler Topaz misused confidential information about the funds’ trading in Kraft Heinz to undermine the New York funds’ motion to lead the shareholder class action against the company. Bernstein Litowitz and Kessler Topaz represent a competing lead plaintiff candidate in the securities fraud case in federal court in Chicago, which alleges that Kraft misled investors in the run-up to its $15 billion writedown of brand assets in February. Kraft Heinz counsel Daniel Kramer of Paul Weiss Rifkind Wharton & Garrison declined to comment.
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Bernstein Litowitz and Kessler Topaz sent me a joint statement: “BLBG and KTMC unequivocally deny the allegations by the New York City funds and their lawyers,” it said. ”At no time did BLBG or KTMC represent the NYC funds in the Kraft Heinz case or violate any confidentiality or ethical obligations relating to the New York City funds.” The firms are scheduled to file a brief Friday addressing the funds’ assertions. They said they are looking forward to providing the court with that response.
I reached out to the New York City comptroller’s office, which oversees the city’s pension funds, to ask if Bernstein Litowitz and Kessler Topaz still have a client relationship with the funds. In a response on behalf of the New York funds, their outside counsel in the Kraft Heinz case, Cohen Milstein Sellers & Toll, declined to comment.
According to the pension funds, Bernstein Litowitz and Kessler Topaz received proprietary trading data because they are among the six firms pre-approved to represent New York City funds in securities class actions. The panel was selected in a competitive process in 2018, according to the funds. Bernstein Litowitz and Kessler Topaz learned of their selection in the fall of 2018 and both subsequently signed agreements with New York City’s Law Department. The agreement requires firms on the securities panel to obtain a written conflict waiver if they want to represent different clients in matters involving the pension fund, according to the declaration by NYC senior counsel Kleinman. The agreement also contains a confidentiality provision barring lawyers from panel firms from disclosing pension funds’ trading data.
In April 2019, as the NYC funds contemplated a pitch to lead a shareholder class action against Kraft Heinz, the city sent data about its trading in Kraft Heinz to its panel firms. The city funds eventually submitted a motion in late April to run the Kraft Heinz case, represented by Cohen Milstein Sellers & Toll. New York’s funds claimed losses of nearly $60 million in Kraft Heinz trading – the biggest alleged losses of shareholders who want to lead the case.
Bernstein Litowitz and Kessler Topaz submitted a motion for the Swedish pension fund AP7 and the German fund Union Asset Management to serve jointly as lead plaintiff. The foreign funds alleged losses of “tens of millions of dollars.” (Other investors are also competing to lead the shareholder class action, which is before U.S. District Judge Robert Dow of Chicago. The other lead plaintiff candidates are not involved in the dispute between the New York funds and Bernstein Litowitz and Kessler Topaz.)
Typically, in securities class actions, judges pick the shareholder with the biggest losses to lead the case, especially if, like the New York City pension funds, that investor is a sophisticated institution with experience in major fraud litigation. But in an extraordinary brief filed on May 24, Bernstein Litowitz and Kessler Topaz asked Judge Dow to permit discovery on the New York funds’ alleged losses, suggesting that because some of the funds’ investments were in commingled vehicles, the funds may not have directly owned all of the Kraft Heinz shares on which they supposedly lost money.
The May 24 brief accused NYC officials of “obfuscating the record” and refusing to answer the foreign funds’ questions about commingled investment vehicles. It also attacked Kleinman, the city lawyer who signed the pension funds’ certification of their investment losses, as having “no apparent expertise in calculating financial interest under the (Private Securities Litigation Reform Act), finance or mathematics.”
Bernstein Litowitz and Kessler Topaz said in the May 24 brief that were relying on public information, making no mention of the firms’ relationship with the New York City pension funds. In fact, the firms said that the trading data they sought through the motion was not privileged or confidential and would eventually be demanded by Kraft Heinz. The pension funds’ arguments for secrecy, they said, were baseless.
The May 24 motion for discovery triggered the funds’ accusations Friday against Bernstein Litowitz and Kessler Topaz. The funds assert that despite the conflict waiver provision in the agreement between the firms and New York City, Bernstein Litowitz and Kessler Topaz did not ask for or receive waivers to represent the Swedish and German funds in the Kraft Heinz case – and then turned around and used the funds’ own trading data against them.
“NYC believes that BLBG and Kessler Topaz have engaged in continuous violations of their contractual and ethical obligations,” the funds’ brief said. In his declaration, NYC lawyer Kleinman said, “At a minimum, it should be beyond dispute that (Bernstein Litowitz and Kessler Topaz) should not have used the NYC funds’ confidential data in a manner adverse to their clients, the NYC funds.”
I should note that I didn’t find evidence of Bernstein Litowitz or Kessler Topaz appearing publicly as counsel for the New York City funds after they joined the panel of approved firms in 2018. Years ago, New York City pension funds were one of the co-lead plaintiffs in a securities class action against Cendant, in which Bernstein Litowitz was co-lead counsel. The city funds successfully appealed the $262 million fee award in the $3.2 billion case. The court ultimately approved a reduced fee award of $55 million.
As Bernstein Litowitz and Kessler Topaz said in their statement, their brief addressing the funds’ accusations is due Friday. It’s going to be a must-read.
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