Cornerstone Research: 2016 Accounting-Related Securities Suit Filings and Settlements Again Increased

cornerstoneAccording to Cornerstone Research’s latest annual survey of accounting-related securities suits, the number of accounting-related securities suit filings rose to the highest level in years in 2016, largely as a result of the number of federal court merger objection lawsuit filings involving accounting-related allegations during the year. The total value of accounting settlements during the year was also at the highest level in years. The Report, entitled “Accounting Class Action Filings and Settlements: 2016 Review and Analysis,” can be found here. Cornerstone Research’s April 5, 2017 press release about the report can be found here. Continue Reading

Securities Litigation: What if the Real Exposure is Less Than Supposed Damages?

gavel1Most securities class action lawsuits that are not dismissed outright ultimately settle. One of the starting points for securities suit settlement negotiations is what is referred to as “plaintiffs’ style” damages estimate. The plaintiffs’ damages estimate is usually adjusted to reflect the composition of the class, the duration of the class period, trading patterns in the defendant company’s stock, and so on. Even with these adjustments, the dollar amount under discussion, at least on the plaintiffs’ side of the equation, is still some form of the plaintiffs’ damages estimate.

 

One specific fact that would be useful in the dialogue would be to know how much the estimated damages exceed the dollar amount of the damages claims that will actually be submitted and approved for payment if the case settles or if the plaintiffs prevail at trial. It is difficult to come up with the data to calculate these amounts because the outcomes of securities class action lawsuit settlement claims processes are not publicly available and because few cases go to trial and reach a verdict.

 

However, in a recent paper, several researchers from Cornerstone Research examined the claims data following two recent securities suit jury verdicts. Their analysis identifies actual claims rates in these two cases, information that may be useful to securities litigators and to their clients’ D&O insurers. Continue Reading

Policyholder Group Supports Appeal Involving Professional Services Exclusion

Ninth CircuitRegular readers know that one of my hobby-horse issues is what I perceive as insurers’ overbroad application of the professional services exclusion typically found in private company D&O insurance policies, particularly with respect to policyholders in services businesses. Because of this long-standing concern, I was interested to see that a policyholders’ rights group has filed an amicus brief in the Ninth Circuit in support of a policyholder’s appeal of a district court ruling that coverage under a D&O insurance policy for the underlying claim was precluded by the professional services exclusion. While the amicus brief may help focus the appellate court on the problems involved in what is a recurring situation, the larger point may be that as an industry we need to address a problem that affects all industry participants. Continue Reading

You Need to Know This: YTD Securities Class Action Lawsuit Filings are Off the Charts

rising numbersSecurities class action lawsuit filings have been going crazy. Securities suit filings during the first quarter 2017 set a pace that if continued would mean an unprecedented number of securities lawsuit by year end. But even more significant than the sheer number of lawsuits is the rate of litigation. The percentage of listed companies sued in the first quarter, if annualized, would mean that U.S. public companies are being sued at four times the long-term historical rate. As discussed below, three factors account for much of the upsurge in securities suit filings. Continue Reading

Guest Post: Three Cybersecurity Lessons From Yahoo’s Legal Department Woes

David Fontaine

David Fontaine

John Reed Stark 1

John Reed Stark

The recent news that Yahoo’s general counsel had resigned following a probe of high-profile data breaches at the company has generated a great deal of discussion and concern. In the following guest post, David Fontaine and John Reed Stark take a look at the circumstances surrounding the resignation and consider the implications of and lessons from this development. David is the CEO of Kroll and its parent company, Corporate Risk Holdings, and John is President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement. A version of this article originally appeared on CybersecurityDocket. I would like to thank Dave and John for their willingness to publish their article 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 Dave and John’s guest post. Continue Reading

D&O Insurance: When Is a Claim a “Securities Claim”?

delawarePublic company D&O insurance policies typically provide coverage for the corporate entity only for “Securities Claims.” A recent case in the Delaware Superior Court involved the question of whether a bankruptcy trustee’s claim related to Verizon’s multi-billion dollar spinoff of its electronic directories business was a “Securities Claim.” In an interesting and detailed opinion dated March 2, 2017 and released March 15, 2017 (here), Judge William C. Carpenter, Jr. ruled that the bankruptcy trustee’s claim was a “Securities Claim” within the meaning of the Verizon’s D&O insurance policy and therefore that Verizon’s insurers were liable of the costs incurred in defending against the trustee’s claim. The opinion makes for interesting reading for anyone interested in how these kinds of disputes can arise, and also has some important practical lessons.   Continue Reading

Brazilian Energy Company’s Corruption-Related U.S. Securities Suit Survives Dismissal Motion

EletrobrasAs I have frequently noted (most recently here), Brazil’s ever-expanding corruption investigation that initially focused on Petrobras, the country’s state-run oil company, has swept up an increasing number of companies across the country’s economy (and elsewhere in Latin America as well). Among the companies caught up in the investigation is the country’s state-run electrical energy company, Eletrobras, which like many of the companies under investigation that have securities trading on U.S. exchanges, was hit with a corruption-related U.S. securities class action lawsuit. The defendants in the Eletrobras securities suit moved to dismiss. In a lengthy and interesting March 25, 2017 opinion (here), Southern District of New York Judge John Koeltl largely denied the dismissal motion. The ruling is interesting not only because it relates to one of the Brazilian companies caught up in the corruption scandal, but also because it addresses a number of interesting legal issues. Continue Reading

U.S. Supreme Court to Decide Whether Item 303 Creates Actionable Disclosure Duty

supreme courtThe U.S. Supreme Court has agreed to take up a case that will address a recurring issue that has arisen in the securities class action litigation arena – that is, whether or not the alleged failure to make a disclosure required by Item 303 of Reg. S-K is an actionable omission under Section 10(b) and Rule 10b-5. A circuit split has emerged on this issue, with the Second Circuit holding that Item 303 does create an actionable duty of disclosure, while the Ninth and Third Circuits have held that it does not. The Court’s grant of the writ of certiorari in the case of Leidos, Inc. v. Indiana Public Retirement System will afford the Court an opportunity to resolve the circuit split and to address the question of whether Item 303 creates an actionable disclosure duty. The U.S. Supreme Court’s March 27, 2017 order granting the writ of certiorari can be found here. Continue Reading

Fidelity Bond Rescission Denied Where Application Signatory Was Embezzling Credit Union’s Funds

minnesotaMaterial misrepresentations in an insurance application can serve as the basis for rescission of the resulting policy. A recent federal district court decision examined the question of whether or not an insurer could rescind a fidelity bond on the grounds that the credit union manager who signed the credit union’s insurance application failed to disclose that she was embezzling funds from the credit union. In a March 17, 2017 opinion (here), District of Minnesota Judge Donovan Frank, applying Minnesota law, held that because the manager was acting entirely for her own benefit when she failed to disclose her theft, the misrepresentation could not be imputed to the credit union, and therefore the insurer was not entitled to rescind the bond. Continue Reading

Brazilian Corruption Scandal Spreads to Meat Industry, U.S. Securities Litigation Follows

brazil flagThe massive Brazilian corruption scandal that began with an investigation of the state-owned oil company Petrobras and that has since spread both to other industries, including the construction industry, and to other Latin American countries, has now spread to an investigation of unsanitary practices and corruption in Brazil’s meatpacking industry. Among the Brazilian companies caught up in this latest scandal is JBS S.A., which is the world’s largest meat processing company. As has been the case with other companies caught up in Brazilian corruption scandal, JBS, whose Level 1 ADRs trade over-the-counter in the U.S., has now been hit with a follow-on securities class action lawsuit in the United States. This lawsuit is the latest in the string of lawsuits filed against companies from Brazil and elsewhere Latin America that have been hit with U.S. securities suits following news of their involvement in the burgeoning corruption scandal. Continue Reading

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