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NY state pension to sue BP for investment loss

donsutherland1

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From Reuters:

New York state's pension fund plans to sue BP (BP.L) to recover losses from the drop in the company's stock price due to its "disastrous" oil spill, Comptroller Thomas DiNapoli said on Wednesday.

NY state pension to sue BP for investment loss | Reuters

IMO, even as the drop in BP's stock price has been severe, this is a lawsuit that deserves to be tossed out of court. To be blunt, it is frivolous.

Investors purchase instruments with the understanding that such instruments are not risk free. They take on risk in the pursuit of higher returns. Sometimes risks--macroeconomic developments, accidents/natural disasters/supply or production disruptions, industry decline, bad choices by management, etc.--play out with severe drops in share prices. There is no indication that the decline in BP's share price was on account of company fraud. Instead, it deals with developments related to a terrible accident.

If this lawsuit is allowed to be pursued, it would set a dangerous precedent by which any investor could sue a firm when its stock price declines. That would create substantial uncertainty in the markets and have an overall negative impact.

IMO, NY's pension fund is merely responding in an environment in which the State and its pension fund are under growing financial pressure. Nonetheless, that harsh environment is not sufficient justification for such a lawsuit.
 

rivrrat

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Yeah, this is pretty ridiculous. It would set a terrible and very dangerous precedent. Stocks are risk. They are, for all intents and purposes, legalized gambling. You can't sue the slot machine for taking your money. ;)
 

Kandahar

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This is the stupidest thing I've ever heard. It doesn't even make sense, and indicates that the bureaucrats who dreamed this up don't understand how the stock market works. Shareholders are part owners in the company, so they're basically suing themselves. And even if they won the lawsuit, where do they think the money is going to come from to pay them off? Right off of BP's balance sheet, which would make their stock decrease in value by an equal amount.
 

RightinNYC

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This is the stupidest thing I've ever heard. It doesn't even make sense, and indicates that the bureaucrats who dreamed this up don't understand how the stock market works. Shareholders are part owners in the company, so they're basically suing themselves. And even if they won the lawsuit, where do they think the money is going to come from to pay them off? Right off of BP's balance sheet, which would make their stock decrease in value by an equal amount.

If this is a shareholder derivative suit, which is what it sounds like, the shareholders are actually suing the board of BP on behalf of the corporation, alleging that deception by the board caused a pre-spill inflation of prices or that the spill was due to negligent or intentional misconduct by the board.

If the shareholders win, the money theoretically comes out of the pockets of the board and goes directly into the company coffers. In practice, whatever money the shareholders would get generally comes from the company's Director & Officer insurance policies.
 

washunut

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From Reuters:



NY state pension to sue BP for investment loss | Reuters

IMO, even as the drop in BP's stock price has been severe, this is a lawsuit that deserves to be tossed out of court. To be blunt, it is frivolous.

Investors purchase instruments with the understanding that such instruments are not risk free. They take on risk in the pursuit of higher returns. Sometimes risks--macroeconomic developments, accidents/natural disasters/supply or production disruptions, industry decline, bad choices by management, etc.--play out with severe drops in share prices. There is no indication that the decline in BP's share price was on account of company fraud. Instead, it deals with developments related to a terrible accident.

If this lawsuit is allowed to be pursued, it would set a dangerous precedent by which any investor could sue a firm when its stock price declines. That would create substantial uncertainty in the markets and have an overall negative impact.

IMO, NY's pension fund is merely responding in an environment in which the State and its pension fund are under growing financial pressure. Nonetheless, that harsh environment is not sufficient justification for such a lawsuit.

First I am not sure that this would set any precedent as there have been lawsuits against companies whose stock prices have fallen.

A judge ( I forget the case) recently ruled that a case like this can go forward. However the suit should be brought against directors and/ or execs of the firm rather than have shareholders pay.

In this anti- business climate I would expect that there will be many more suits. I think that there are rightful claims against directors and execs who think they are smart enough to pay themselves millions but make bad judgement calls that cost shareholders billions.

Shareholders have gotten a rotten deal out of the way many BOD handle the affairs of a corporation. They are elected to be the watchdogs over the operating management's decision to insure they are in the best interests of the owners( shareholders). When they fail they breach their fiduciary responsibilites.

The stock market should not be considered a casino. Stockholders deserve management that perform to increase the value of their investments.
 

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From Reuters:



IMO, even as the drop in BP's stock price has been severe, this is a lawsuit that deserves to be tossed out of court. To be blunt, it is frivolous.

Investors purchase instruments with the understanding that such instruments are not risk free. They take on risk in the pursuit of higher returns. Sometimes risks--macroeconomic developments, accidents/natural disasters/supply or production disruptions, industry decline, bad choices by management, etc.--play out with severe drops in share prices. There is no indication that the decline in BP's share price was on account of company fraud. Instead, it deals with developments related to a terrible accident.

If this lawsuit is allowed to be pursued, it would set a dangerous precedent by which any investor could sue a firm when its stock price declines. That would create substantial uncertainty in the markets and have an overall negative impact.

IMO, NY's pension fund is merely responding in an environment in which the State and its pension fund are under growing financial pressure. Nonetheless, that harsh environment is not sufficient justification for such a lawsuit.

I totally agree.
 

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In this anti- business climate I would expect that there will be many more suits. I think that there are rightful claims against directors and execs who think they are smart enough to pay themselves millions but make bad judgement calls that cost shareholders billions.

Thats the largest issue with capitalism. Maybe the ONLY issue. People getting overpaid (in a "I'll scratch the boards back if they scratch my back" situation) and then underperforming. By the time it is discovered that they have been underperforming, the've already been paid millions and it's to late to do anything about it.

A lot of people have complained that Obama should not have had the power to fire the pres of GM. And they are correct. But why the heck did the board not fire the guy years ago. During the 12 years that he was in charge, GM lost billions, very few profitable years, and even in those profitable years GM made far less than what they lost in the unprofitable years - for an overall net loss. The guy wasn't doing his job. They could have had a monkey as a CEO and probably would have done better. Yet he recieved a huge raise every single year. Why do investors put up with p!ss poor performance, and why do they pay mega-millions to CEO's who lead their company to bankruptcy?
 

washunut

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Thats the largest issue with capitalism. Maybe the ONLY issue. People getting overpaid (in a "I'll scratch the boards back if they scratch my back" situation) and then underperforming. By the time it is discovered that they have been underperforming, the've already been paid millions and it's to late to do anything about it.

A lot of people have complained that Obama should not have had the power to fire the pres of GM. And they are correct. But why the heck did the board not fire the guy years ago. During the 12 years that he was in charge, GM lost billions, very few profitable years, and even in those profitable years GM made far less than what they lost in the unprofitable years - for an overall net loss. The guy wasn't doing his job. They could have had a monkey as a CEO and probably would have done better. Yet he recieved a huge raise every single year. Why do investors put up with p!ss poor performance, and why do they pay mega-millions to CEO's who lead their company to bankruptcy?

Those are all fair questions. Let's remember that for most stocks the people holding most of the shares are mutual funds. They have shown a poor history of looking out for their ultimate owners, the holders of the funds.

I do think that because of the issues you mentioned it is more than appropriate for shareholders like the NY pension fund to sue the BOD and execs as individuals who have not done their fiduciary responsibilities.
 
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