State Street Corp. (Photo: Shutterstock) State Street Corp. (Photo: Shutterstock)

The executive director over an Arkansas pension fund has retained outside counsel but insisted he could continue to serve as lead plaintiff in settlements with State Street Corp. despite an overbilling probe that could end up returning a “significant amount of money” to class members, according to a federal judge’s remarks.

In an affidavit filed on Wednesday, George Hopkins, executive director of the Arkansas Teacher Retirement System, said he had retained Thomas Hoopes of Boston’s LibbyHoopes, who represents professionals in criminal matters and corporate investigations.

Senior Judge Mark Wolf  of the U.S. District Court for the District of Massachusetts had ordered the affidavit following a May 30 hearing at which Hopkins testified about his role as lead plaintiff and the relationship between his Arkansas pension fund to Labaton Sucharow, one of three plaintiffs firms whose potential overbilling in a $75 million attorney fee request prompted Wolf to bring in a special master, who filed his report under seal last month. At last week’s hearing, Wolf raised concerns that Hopkins and Labaton Sucharow, which has defended the fee request, now has a conflict with class members.

“The conduct of Labaton and the other lawyers you selected has been called into question,” he told Hopkins, who testified at the hearing. “The special master, as you know, recommends that what, by my standards, is a significant amount of money be returned by those lawyers and distributed to the class.”

He said his “paramount responsibility” is to the class and whether the lead plaintiff is “typical and adequate,” in light of the report’s recommendations.

“Do you understand, therefore, that I have a concern that there may be a conflict at this point between the interests of Labaton and the other lawyers, who want to vindicate the propriety of everything they did and keep the money,” he said, “and the class that would benefit if I ordered some of that money paid back?”

In his May 31 order, Wolf asked whether the Arkansas pension fund wanted to continue to be lead plaintiff and, if so, whether it would seek legal advice other than Labaton concerning the case.

In his affidavit, Hopkins acknowledged the judge’s concerns but insisted he could still represent the class.

“I do firmly believe that we all can learn from this case, including a little more ‘trust but verify,’” wrote Hopkins, who has been the system’s executive director since 2008. “However, trusting those who have not previously given us cause to distrust does not create a failure of duty. Imperfection may or may not signal more. Still, hindsight is 20/20 and hindsight will certainly lead to refinements in best practices, at least for class representatives both sophisticated and less sophisticated as there is no instruction manual on how to be a class representative. But that does not prevent ATRS from continuing to do our best to be both fair and vigorous on behalf of those we serve.”

He wrote that Hoopes’ legal advice consisted of the Arkansas pension fund’s duties to the class and other issues raised in the special master’s report. But Hopkins said he would continue to consult with Labaton on the settlement’s distribution.

Hoopes declined to comment.

Labaton issued a statement on Wednesday defending the affidavit and saying the Arkansas pension fund had a “critical role in helping formulate and evaluate litigation strategy, overseeing and supporting class counsel and establishing a basis for a strong financial recovery for the class. George Hopkins personally did an outstanding job as class representative throughout the six-year entirety of the case.”

A year ago, Wolf appointed the special master, Gerald Rosen, a retired federal chief judge from the Eastern District of Michigan, to look into potential overbilling in a $300 million settlement of cases alleging State Street overcharged pension fund clients in connection with foreign currency trades. Lawyers at New York-based Labaton and two other lead counsel firms, San Francisco’s Lieff Cabraser Heimann & Bernstein and the Thornton Law Firm in Boston, admitted to double-counting hours relating to staff attorneys but continued to defend their fee request.

Rosen filed his report on May 14. The three plaintiffs firms have challenged Rosen’s findings and insisted on redactions to the 375-page report. Wolf has set deadlines for those redactions and a possible June 22 hearing.

He also scheduled last week’s hearing and ordered Hopkins to show up in court to address whether, given the findings of the report, the judge should replace class counsel and the lead plaintiff.

At the hearing, arguments by the special master’s lawyer, William Sinnott, and Joan Lukey, who represents Labaton, shed some light on the polarized opinions about the report.

Sinnott, of Barrett & Singal in Boston, pointed to a declaration filed by Hopkins as “very troubling.”

“And not for nefarious reasons, but with respect to what he saw as his role with respect to the class and the members,” he said.

But Lukey, of Boston’s Choate Hall & Stewart, called the report’s conclusions “very vigorously disputed.”

Some items in the report, she said, “are extremely injurious to the reputations of the three firms” and could have an “effect on these firms and perhaps others in the plaintiffs’ class action bar.”

She also said some of the report is based on “errors of law as to what the Massachusetts law is on the subject at issue.”

That issue became clearer when, following a closed sidebar discussion, Lukey stated in court: “We wish to make it clear that the nature of the misconduct which is asserted relates to the existence of a so-called bare referral or origination or forwarding fee, as permitted under Massachusetts Rules of Professional Conduct, which was not disclosed to the court under the premises of Rule 54(d)(2), and which the master feels was inappropriate withheld from the court.”

Given that the hearing was public, she said, “I did not wish anyone publicly present to be left with the impression that there was anything more nefarious than that.”

Sinnott responded: “This was not a referral fee. This was a finder’s fee. And, more importantly, this was a finder’s fee that was not disclosed to the client, to the class, to co-counsel, nor to the court.”

Massachusetts Rules of Professional Conduct permits a referral fee—a fee paid from one law firm to another for referring a client —“only if the client is notified before or at the time the client enters into a fee agreement.” But the Massachusetts rules on referral fees are less stringent than that of the American Bar Association’s, said Tigran Eldred, a professor at New England Law | Boston.

“The ABA rules require that, if there’s going to be a division of fees between two or more lawyers that either the fees are distributed proportionate to the amount of work each lawyer does, or that those lawyers take on ethical responsibility for all the work done,” he said.

Massachusetts rules do not define a finder’s fee, he said, but that presumably could mean any kind of payment for “law-related services,” like title insurance, financial planning, real estate lobbying or legislative lobbying.

In a statement on Thursday, Labaton insisted no misconduct occurred. “This recent development involves a payment made to an attorney who originally referred our firm to ATRS.  Referral fees are legal and common, and Massachusetts permits lawyers who refer clients in a case to receive a referral payment. In the State Street case, class counsel provided such a referral payment, which was made from the attorney’s fees awarded to class counsel. We complied with all disclosure requirements.”

In court last week, Hopkins disputed that Labaton had engaged in any misconduct.

“Oh, you don’t think failure, if it’s proven, to be candid with the court is misconduct?” Wolf asked.

“Well, I think—I think this, your honor,” Hopkins responded. “And without trying to inflame you, I think what you should have done in this case is what experience taught you to do in Insulet, which is, if you want to take a referral fee, ask.”

“I know,” Wolf said. “I was educated by this case.”

Hopkins was referring to another case in which the same Arkansas pension fund is serving as a lead plaintiff in a securities class action against Insulet Corp., a manufacturer of insulin infusion pumps. In that case, two lead plaintiffs firms—Bernstein Litowitz Berger & Grossmann and Scott + Scott—filed a June 1 motion for $4.87 million in fees. The request is 25 percent of a $19.5 million settlement that is set to go before Wolf for final approval on Aug. 2.