Guest Post: Deeper Trends in Securities Class Actions 2006-2015


Michael Klausner


Jason Hegland

There have been a number of important developments in class action securities litigation case filings in the recent years. In the following guest post, Michael Klausner, Professor of Law, Stanford Law School, and Jason Hegland, Executive Director, Stanford Securities Litigation Analytics, using the Stanford Securities Litigation Analytics database, identify and review several of these developments. As their guest post explains, there have been a number of interesting changes with respect to the kinds of cases that are being filed, as well as with respect to who is filing them. I would like to thank Mike and Jason for their willingness to publish their guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this site. Please contact me directly if you would like to submit a guest post. Here is Mike and Jason’s guest post. Continue Reading

Guest Book Review: Money Changes Everything: How Finance Made Civilization Possible

money changes everythingRegular readers know that from time to time I publish my reviews of books that I have recently read. I also publish guest posts from time to time as well. In variance that combines these two practices, today I am posting a guest book review, by fellow Clevelander, attorney, and writer Mark Gamin. In this guest post, Gamin reviews the recent book by Yale School of Management Professor William N. Goetzmann entitled Money Changes Everything: How Finances Made Civilization Possible. I would like to thank Mark for his willingness to publish his guest post on this site. I welcome guest post submissions on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Mark’s guest post. Continue Reading

Securities Litigation in Japan

japanAs I have previously noted, the prevalence of misrepresentation-related securities litigation in Japan increased significantly after the 2004 revisions to the Japanese securities laws. The increase largely has been due to the legislative changes and to a number of high-profile accounting and financial scandals. There are features of the Japanese law that, according to a recent review, make Japan “an attractive forum for securities litigation.” However, claimants still face a number of hurdles, as a result of which, according to a recent academic study, securities litigation in Japan “is still not a widespread phenomenon.” The June 15, 2016 Law 360 article entitled “A Look at Shareholder Remedies in Japan,” can be found here. University of Tokyo Professor Gen Goto’s January 2016 article “Growing Securities Litigation Against Issuers in Japan: Its Background and Reality” can be found here. Continue Reading

Securities Litigation and Life Sciences Companies: An Update

lifesciencesLife sciences companies are among the most frequent targets of securities class action litigation as I noted in a recent post. However, according to a recent law firm report, life sciences company defendants fared well in securities litigation in 2015. The recently released report, written by the Sidley Austin law firm and entitled “Securities Class Actions in the Life Sciences Sector: 2015 Annual Survey,” can be found here. This comprehensive report reviews all of the district court and appellate court decisions in 2015 in securities class action lawsuits pending against life sciences companies, and also reviews the new securities suits that were filed in 2015 against life sciences companies. The report provides a broad overview of the important issues involved with securities class against litigation against life sciences companies. Continue Reading

The Need for Law Firms to Advise Their Clients About Potentially Available Insurance

nystateA recurring theme on this blog is the problem that the late provision of notice creates for policyholders. Insurers frequently will seek to deny coverage when the policyholder does not provide timely notice of claim. As anyone with day-to-day claims involvement knows, there are a lot of reasons why policyholders fail to provide timely notice of claim. Sometimes the delayed notice is the result of a conscious decision, as, for example, when the policyholder decides that the claim isn’t all that serious. Sometimes, the failure to provide timely notice is the result of an oversight, as, for example, when the policyholder fails to recognize that the matter might be covered by insurance. That this type of oversight might happen is hardly surprising, since even very sophisticated business managers may not be fully aware of what their insurance might cover. When this happens, you would hope that the company’s attorneys would be looking out for them and would ask about the company’s insurance, as a way to help their clients to maximize available insurance protection.


As illustrated by a recent case from New York, it is an all-too-frequent occurrence that a company’s outside counsel fails to ask about the insurance or to inquire whether insurance might be available to protect the company. In discussing the New York case here, I have no interest in encouraging claims against companies’ counsel. Rather, my hope is that by highlighting these issues I will encourage both policyholders and their counsel to include the discussion of insurance into their standard routines at the outset of a claim, as a way to help ensure that policyholders avoid late notice problems and take full advantage of the insurance coverage for which they have paid. A copy of the May 11, 2016 New York intermediate appellate court case, Soni v. Pryor, can be found here. A June 14, 2016 memo from the Pullman & Comley law firm about the decision can be found here. Continue Reading

Long-Running Household International Securities Suit Settles for $1.575 Billion

hsbcOn June 16, 2016, HSBC, as successor in interest to Household Finance, announced that the parties to the long-running Household International securities class action litigation had agreed to settle the case for $1.575 billion. Subject to court approval, the settlement will bring to a close an epic case that has been pending for fourteen years. The case is one of the few securities class action lawsuits ever to go to trial; the post-trial judgment of $2.46 billion in the case, which was the largest judgement ever in a securities fraud trial, was later set aside by the Seventh Circuit. The case was poised to go to trial again when the parties reached the recently announced settlement. HSBC’s June 16, 2016 press release about the settlement can be found here. The plaintiffs’ law firm’s June 16, 2016 press release about the settlement can be found here. Continue Reading

Guest Post: Key Takeaways From the SEC Morgan Stanley Cybersecurity Case

Stark Photo

John Reed Stark

As I noted in a recent post, on June 8, 2016, the SEC, in what one commentator called “the most significant SEC cybersecurity-related action to date,” announced that Morgan Stanley Smith Barney LLC had agreed to pay a $1 million penalty to settle charges that as a result of its alleged failure to adopt written policies and procedures reasonably designed to protect customer data, some customer information was hacked and offered for sale online. In the following guest post, John Reed Stark, President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, takes a look at the circumstances at the company that led to this enforcement action and reviews the important lessons that can be learned from what happened. A version of this article originally appeared on CybersecurityDocket. I would like to thank John for his willingness to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is John’s guest post.

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Guest Post: General Solicitation Under Rule 506(b) After Citizen VC: Guiding Principles and Best Practices

richie Leisner

Richard M. Leisner

In August 6, 2015, the SEC Division of Corporation Finance issued an interpretive letter to Citizen VC concerning exempt private offerings under Rule 506(b).  In the following guest post, Richard M. Leisner takes a look at the SEC’s new interpretive guidance for these types of exempt offerings and suggests how best practices might evolve for permissible general solicitation activities in future Rule 506(b) private offerings that will not violate the prohibitions of Rule 502(c).  Leisner is a shareholder with the Tampa office of Trenam Law.  The article summarized below is scheduled for publication in Securities Regulation Law Journal, Summer 2016 Edition, a Thomson Reuters Publication. For more information about this publication please visit  This article also is posted on the Trenam Law website Legal Update available here. Continue Reading

Public Enforcement of Directors’ Duties in Australia

ausAustralia has long been in the vanguard when it comes to enforcement of duties of corporate directors. Australia was the first English-speaking jurisdiction to introduce statutory directors’ duties in 1896, and the first English-speaking jurisdiction to introduce criminal sanctions to enforce statutory directors’ duties in 1958. However, following the recent global financial crisis, questions were raised in Australia (as they were elsewhere) about the effectiveness of Australia’s enforcement regime for directors’ duties. These questions in turn raised the question about what was in fact being done by to enforce directors’ duties under Australian law. In a March 2016 paper entitled “An Empirical Analysis of Public Enforcement of Directors’ Duties in Australia: Preliminary Findings” (here), five academics have taken a comprehensive look at the public enforcement of directors’ duties under Australian law. Their paper reaches a number of interesting conclusions, as discussed below. A summary of their paper and its findings appeared in a June 9, 2016 post on the Harvard Law School Forum on Corporate Governance and Financial Regulation (here).


The duties of corporate directors under Australian law are codified in the provisions of the Corporations Act 2001, the statutory predecessor of which was the Corporations Act of 1989. The statute specifies the directors’ duties as encompassing the following: the duty of care and diligence; the duty to act in good faith and in the best interests of the corporation; the duty not to improperly use their position to gain an advantage for themselves or to cause detriment to the corporation; the duty not to improperly use information; the duty to disclose material personal interests; the duty not to vote on matters in which the director has a personal interest; duty not to give a financial benefit to a related party without member approval; and a duty to prevent insolvent trading by the company. All of these duties are subject to both civil and criminal sanctions, except the duty to exercise care and diligence.


The statutes allow for both private and public enforcement of directors duties; the private enforcement is pursued through civil litigation. The public enforcement of the duties is pursued through civil enforcement actions by the Australian Securities and Investments Commission (ASIC) and criminal enforcement actions by the Commonwealth Director of Public Prosecutions (CDPP). ASIC is empowered to pursue pecuniary penalties up to A$200,000 per contravention; management disqualification orders, and compensation orders for loss incurred by the company. The CDPP can pursue a wide range of sanctions including prison sentences of up to five years per offense, fines of up to A$360,000 per offense, pecuniary penalties, compensation orders, good behavior bonds and community service orders.


In order to assess and analyze the public enforcement of directors’ duties, the authors assembled a database of all sanctions imposed in civil and criminal proceedings brought by ASIC and the CDPP for contravention of the statutory provisions specifying the directors’ duties. The authors identified 27 civil and 72 criminal court matters from January 1, 2005 thought December 31, 2014. (The database excluded enforcement actions pursuant to other procedural means, including, for example, administrative proceedings and negotiated outcomes.) From their review of this database, the authors made a number of interesting findings.


Interestingly, the authors found that criminal enforcement of directors’ duties was significantly more prevalent than civil enforcement. Criminal enforcement by the CDPP was responsible for about 81% of all matters in which liability was established and about 61% of all defendants found liable.


The authors also made some interesting findings about penalties for corporate wrongdoing. Following the financial crisis, many commentators suggested the maximum civil pecuniary penalty of A$200,000 is too low. The authors concluded first that the imposition of other types of sanctions was much more frequent than the imposition of the pecuniary penalty, and that penalties imposed were typically much lower than the maximum. Custodial sentences and civil management disqualification orders were much more frequently imposed than pecuniary penalties. Prison sentences and disqualification orders together accounted for about 67% of sanctions imposed, while only about 18% were civil pecuniary penalties and only about 2% were fines.


With respect to the pecuniary penalties imposed, the authors found that median civil pecuniary penalty imposed on defendants who had engaged in a single contravention was only about A$25,000, and the median penalty imposed on all defendants (including those that had engaged in multiple contraventions) was A$50,000.


The average civil management disqualification order was about 5.2 years and the average maximum prison sentence was about 2.25 years. However about 46% of the prison sentences involved immediate release suspended sentences, in the form of immediate release subject to good behavior.


The ASIC and the CDPP enjoy a high rate of litigation success. The CDPP and ASIC established liability in about 88% and 89% of matters, respectively. The CDPP and ASIC established liability in relation to about 84% and 92% of defendants respectively.


In the text of their study, the authors make an interesting observation about the relative impact of civil and criminal enforcement. The authors note that it is “important not to equate prevalence of enforcement with the overall societal impact on enforcement, as the impact of enforcement is not just a matter of the particular matters won and particular defendants punished, but also the broader media exposure and public knowledge of the proceedings.” Given that some civil matters involve high-profile defendants, “it may be the case that some civil matters attract greater media coverage and public attention than criminal matters, which are predominantly litigated in the inferior courts.” The authors note that the distinction between civil and criminal jurisdictions is “not as meaningful as it first appears.” For example, the authors note, “criminal sanctions can be lenient, such as a 12 month good behavior bond,” while civil sanctions “can be severe, such as a 25 year management disqualification order.”


The authors’ analysis of the Australian directors’ duties enforcement regime is interesting, but it would be even more interesting to see an analysis comparing the Australian regime to that of the U.S. and U.K. For starters, directors’ duties in the U.S. equivalent to the ones enumerated in the Australian statutes are mostly regulated at the state rather than federal level. (Obviously directors’ duties under the federal securities laws are regulated at the federal level). The enforcement and sanctions regimes in the various U.S. states vary widely, and the U.S. system enforcement system relies heavily on the private enforcement mechanisms through private civil litigation.


Along with the comparative legal analysis, another assessment that would be interesting would be the relative effectiveness of the system – that is, which are better at deterring director misconduct and what is more effective – higher fines or greater sanction of disqualification?  A final analysis that would also be helpful for directors in Australia is discussion of the steps they can take to reduce the likelihood of becoming involved in an enforcement action.

Supreme Court Asked to Clarify Private Company’s Federal Securities Law Stock Purchase Disclosure Duties

sup ct 5In the D&O insurance world, private company liabilities, exposures, and insurance are viewed as categorically distinct from public company liabilities, exposures, and insurance. There are completely separate and distinct insurance policy forms for each of the two categories of companies. In this traditional view, one of the key distinctions between two kinds of companies is the potential liability of public companies and their directors and officers under the federal securities laws. However, it has recently become apparent to me that this perceived difference between the two categories of companies may be less distinct than I had perceived. For example, as I noted in a recent post, the SEC has recently made it clear it is watching private companies, and is particularly concerned with so-called “unicorns” (private start-up firms with valuations greater than $1 billion).


This issue of the potential private company liabilities under the federal securities laws came up again for me recently when I read about a petition for a writ of certiorari that a securities claim plaintiff has filed in the U.S. Supreme Court. As discussed in a June 8, 2016 post on Jim Hamilton’s World of Securities Litigation (here), the petition asks the Court to address the question whether a privately held corporation trading in its own stock has an Exchange Act duty to disclose all material information or abstain from trading. As discussed below, the petition and the underlying claim raise important questions about the potential liabilities of private companies under the federal securities laws. The May 31, 2016 cert petition in the case of Fried v. Stiefel Laboratories, Inc. can be found here. Continue Reading