Back in 2009, one of the prominent securities litigation filing trends was the prevalence of “belated” securities class action lawsuit – that is, cases filed at the very end of the limitations period rather than in immediate aftermath of a stock price decline
And then in 2011, perhaps the most significant securities lawsuit filings trend at the time was the massive upsurge in the filings of securities class action lawsuits against U.S.-listed Chinese companies.
More recently, both of these trends appeared to have subsided. But a securities class action lawsuit filed this past week appears to bring both of these past trends together again in a single new case. It should be noted that, in an interesting variation of the past trends, the most recent case involves a company based not in the People’s Republic of China, but rather in Taiwan, Republic of China.
As reflected in their July 10, 2013 press release (here), plaintiffs’ lawyers filed a securities class action lawsuit in the Southern District of New York against SemiLEDs Corp. and certain of its directors and officers. According to the plaintiffs’ complaint, though the company was headquartered in Boise, Idaho, at the time of its December 8, 2010 IPO, the company has its principal operational, administrative and manufacturing facilities in Taiwan. SemiLEDs is a holding company for wholly-and majority-owned subsidiaries and joint ventures that manufacture and sell light emitting diode (“LED”) chips and components used in general lighting applications.
According to the press release, the Complaint alleges that the defendants failed to disclose that:
(i) that the Company was experiencing known, but undisclosed, pricing pressures for its products which were reasonably likely to have a material adverse effect on SemiLEDs’ future revenues and operating income; (ii) that known events or uncertainties, including the reduction in demand for the Company’s products, the likely (and ultimate) loss of a large customer, and the decline in the value of the Company’s inventory, were reasonably likely to cause SemiLED’s financial information not to be indicative of future operating results; (iii) that the Company’s disclosure controls were materially deficient and its representations concerning them were materially false and misleading; (iv) that the certifications issued by defendants associated with the Company’s disclosure controls were materially false and misleading; and (v) that, based on the foregoing, defendants lacked a reasonable basis for their positive statements about the Company, and its then current business and future financial prospects.
The complaint further alleges that on July 10, 2011, SemiLEDs issued a press release announcing its financial results for the quarter ended May 31, 2011. For the quarter, the Company reported a revenue decline of 43% from the previous year’s third quarter, and a net loss of $5.1 million. The Company’s results for the quarter were adversely impacted by a $1.1 million inventory charge during the quarter, an amount equal to more than 7% of the value of the Company’s total inventory at February 28, 2011. SemiLEDs’ stock price fell nearly 11% on July 12, 2011
The announcement and stock price decline took place two years ago, but the plaintiffs did not file their complaint until July 10, 2013. In their complaint, the plaintiffs purport to represent a class of the company’s shareholders who purchased their shares between December 9, 2010 and July 12, 2011 – that is, who purchased their shares between the day after the company’s registration statement was declared effective and the first trading day after the company’s July 10, 2011 earnings announcement.
Though the complaint references the company’s December 2010 IPO, the complaint does not assert claims under the Securities Act of 1933. Rather, the two substantive claims in the complaint are both asserted under the Securities Exchange Act of 1934. The apparent explanation for the omission of ’33 Act claims is the statute’s one-year limitations period. By asserting their action exclusively under the ’34 Act, the plaintiffs clearly hope to rely on that statutes two-year limitations period.
But while the way that the plaintiffs have plead their case can be understood by reference to the various limitations periods, that still does not explain why the plaintiffs did not get around to filing their suit until the very end of the limitations period.
Back a few years ago when there was a rash of belated securities suit filings — where the complaint was not filed until the very end of the limitations period — one of the explanations proposed was that the leading plaintiffs’ firms were buried under the vast numbers of credit crisis related lawsuits they were filing at the time. There may be something like that going on here as well, but the fact is that credit crisis litigation wave peaked some time ago. At least in absolute numbers, securities class action lawsuit filings overall are down compared to historical norms (about which refer here).. It isn’t apparent why this case would have been filed so belatedly.
By the same token, the surge of lawsuits filed against U.S.-listed Chinese companies also peaked some time ago. Of course this case involves a Taiwanese company rather than a Mainland company. But still the train left the station on the Chinese company securities suit filing trend some time ago.
In the end, of course, every case is filed for its own reasons and not merely because it represents an example of then-current filing trends. Each case also has its own dynamic and internal logic. All of which argues against trying to make too much out of a single case. Just the same, you just can’t help noticing the resemblance between the characteristics of this case and recent years’ filing trends. What was old is new again.