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Hell hath no fury like an institutional investor scorned. Several big shareholders that took a bath in the recent corporate scandals decided that it wasn’t enough to go after the companies for their losses. Investors-frequently pension funds-have also been targeting officers and directors who either committed fraud or let it happen on their watch. These efforts are starting to pay off: Shareholders in Enron Corp. and WorldCom Inc. recently won recoveries from directors at those companies. But because the potential recovery from an individual is usually only a fraction of what it would be from a company, several shareholders have decided that they need to give their lawyers extra incentive to pursue officers and directors. That’s come in the form of bounties, in which the attorney gets a cut of the recovery, and sliding-scale fees, where the compensation increases as the suit progresses. Some shareholders have recovered significant amounts in cases using a premium-fee arrangement. However, even the general counsel at institutional investors that have offered a bounty or sliding fee say that it’s too early to tell how effective the tactic is. Christopher Waddell, general counsel of the California State Teachers’ Retirement System, said that he uses both bounty and sliding-scale fees in order to “incentivize” his outside counsel to go after personal assets. CalSTRS, the nation’s third-largest public pension fund, has promised its lawyers a 2.5% bounty, plus an undisclosed fee, in a pending suit against the former directors of WorldCom. Though this is the only suit in which CalSTRS has offered a bounty, Waddell said that the fund has sought personal recoveries in other actions. “Our goals are increased recovery and deterrence [of bad conduct], especially in a class action case,” he said.

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