CASE STUDIES INTO SOME OFTHE LARGER INTERNATIONALGOVERNANCE FAILURESAFFECTING THE PENSION FUNDINDUSTRY
ENRONMIRROR GROUP NEWSPAPERSDOMINION STORES
ENRONDEPARTMENT OF LABOUR (“DOL”)“AMICUS BRIEF”
EMPLOYER STOCK AS A FUNDINVESTMENT OPTIONThe Enron case raised a number of difficultissues for funds holding employer stockincluding:• Whether and what extent the fund’s trusteesmust disclose inside information regarding thecompany and/or its stock to fund participantswhen stock is held in the fund – when suchdisclosure may conflict with the obligations ofsuch individuals under US federal securities laws
• Whether 404 (C) protection is available withrespect to employer stock if participants do nothave all information necessary to make aninformed decision as to whether to select thatinvestment option• The fact that fund trustees are charged with thesame standard for selecting employer stock asan investment option as they are with respectto any other investment option
INVESTIGATION UNDERSECTION 432(2) AND 442 OFTHE COMPANIES ACT 1985• 1980Robert Maxwell’s private companiesobtained a controlling interest inBritish Printing Corporation; RobertMaxwell became chief executive.Company subsequently renamedMaxwell Communication Corporation(MMC)
• 1984 July:• 1985 – 1988• 1985Robert Maxwell’s companies(private side) acquired MirrorGroup Newspapers (MGN) for£113mMCC and the private side’speriod of expansion; a number ofcompanies of substantial worth andpotential acquired.Pension funds commencedlending monies to private side.
• 1987• 1988Private side incurred over £300m inborrowings taking up rights issue inMCC.MCC borrowed $3 billion and acquiredMacmillan and Official Airlines GuidesAutumn: Pension funds commencedlending shares to provide collateral forbank loans to private side.• 1990 Private companies only survived 31December year end throughborrowings from pension funds andunauthorised overdrafts; bankborrowings remained at about £1billion.
1991 January to April: Advisers worked onflotation.Robert Maxwell spend £105m (somethrough offshore entities) on MCCshares.30 April: MGN floated – produced£210m to reduce MGN bankborrowing. At the time private sideowed pension fund £100m and wasusing £270m of their assets ascollateral; private side bankborrowings remained at about £1billion.
May to July: Robert Maxwell spent £72mthrough offshore entities on MCshares and £26m on MGNshares.April to November: MGN supportedprivate side through provision ofcash and use of its bankborrowings.5 November: Robert Maxwell died. Empirethereafter collapsed and MGNsought support of bankers
SUMMARYMaxwellFoundationMr RobertMaxwellMaxwellCharitableTrustRobert MaxwellGroup LimitedHeadingtonInvestmentsLimitedBishopsgate InvestmentManagement Limited(Trustee of the CommonInvestment Fund for thepension schemes)PergamonHoldingsLimitedOtherinterestsRobert MaxwellHoldingsLimitedMirror GroupNewspapersMaxwellCommunicationCorporationLondon andBishopsgateInternationalInvestmentManagement plc
DOMINION FOOD STORESThe Pension Fund Surplus Raider1984 $56 million
SECTION 19(4)MAXIMUM OF 5% invested orlent to the business of anemployer participating in thescheme whereby the fund hasbeen established
SECTION 19 (4A)10%, ifConsulted with membersMembers support
REGULATION 28 ITEM 9
CIRCULAR PF 130• Paragraph 10.2Every fund should have an investmentpolicy statement (IPS)• Paragraph 66Fund / Employer / Sponsor relationship
FINANCIAL INSTITUTIONS(PROTECTION OF FUNDS ACT)2001Section 3 and 4