The volume of misstatement-related securities litigation in Japan has “increased dramatically” since the 2004 revisions to Japanese securities laws, according to a June 2013 report from the consulting firm Alix Partners. The report, entitled “Recent Trends in Japanese Securities Litigation: 2000-2012,” can be found here. Even though misstatement-related securities suit filings in Japan were down in 2012, last year may still go down as a milestone year, as the year in which foreign investors “discovered” securities litigation in Japan.
According to the report, misstatement related cases in Japan were virtually nonexistent before 2004. In 2004, Japanese securities laws were amended to reduce the burden of proof for plaintiffs and to introduce a presumptive rule for damages. Since these revisions, “the volume of litigation has increased dramatically,” even though Japanese legal procedures do not allow for class-action lawsuits.
Between 2007 and 2012, there were a total of 55 lawsuits involving misstatements, as well as 210 lawsuits involving the sales of financial products (more than double the number during the pre-2007 period). Though the number of misstatement-related lawsuits decreased to seven in 2012 from eleven in 2011, 2012 “will perhaps be remembered as the year when Japanese securities litigation was ’discovered’ by foreign investors.”
Prior to 2012, the plaintiffs in misrepresentation cases in Japan had been domestic individuals or institutional investors. In 2012, a large group of overseas investors filed litigation involving the Olympus scandal. Though there had previously been a lawsuit in Japan involving domestic investors, on June 28, 2012, a group of 48 overseas institutions and pension funds filed a lawsuit seeking 19.1 billion Yen in damages. According to the report “the Olympus filing became the first major litigation in Japan to be initiated by foreign institutional investors,” and the case has “generated more international attention” than prior cases.
One reason for these investors’ move to Japan is the U.S. Supreme Court’s decision in National Australia Bank v. Morrison, which held that the U.S. securities laws only apply to transactions in the U.S. Investors who purchased their Olympus shares could not resort to the U.S. courts (although the small number of investors that purchased Olympus ADRs in the U.S. did initiate a securities class action suit in U.S. Court.)
It is not just that the non-U.S. purchasers did not have the option of filing in the U.S. In addition, the revised Japanese securities laws “may lead to more favorable outcomes for plaintiffs than they could realize under U.S. securities laws,” owing to the significantly reduced burden of proof for plaintiffs and to the “no-fault liability on the part of corporations for their misstatements.” These features could make the jurisdiction more attractive to some claimants.
There has also been increase in Japan in the litigation between financial institutions and their customers concerning suitability principles and the requirement to explain financial products. Since 2007, these cases have “increased dramatically,’ peaking with 53 in 2011. Though there were only 39 such cases in 2012, the size of the cases has grown.
Readers may be familiar with the study of Japanese Securities Litigation that was published by NERA Economic Consulting (which I discussed here). The Alix Partners report acknowledges the NERA report but notes that the two reports are not consistent because “the authors used different methods in building a database and analyzing trends --- by excluding criminal cases and classifying cases using a different set of definitions.”
It may be particularly important to note the further explanatory observation in footnote 8 to the Alix Partners report, in which the authors state that the number of cases cited in the report “is based on court rulings; the district and upper court decisions that involve the same case are counted separately.” This methodology would obviously result in a larger overall tally than might a different approach.
Special thanks to a loyal reader for sending me a copy of the Alix Partners report.
Legal Challenge to Conflict Mineral Disclosure Rules Rejected: In a July 23, 2013 opinion, Judge Robert J. Wilkens rejected the legal challenge to the SEC’s conflict minerals disclosure rules that the National Association of Manufacturers and others had mounted. Judge Wilkens found “no problems with the SEC’s rulemaking” and disagreed that the conflict minerals disclosure scheme transgresses the First Amendment. The Court concluded that the plaintiffs’ claims “lack merit.” A copy of Judge Wilkens opinion can be found here.
As discussed at length here, the Dodd-Frank Act instituted requirements for the SEC to promulgate rules requiring companies to disclose their use of certain minerals originating in the Democratic Republic of Congo and adjoining countries. The specific minerals at issue are tantalum, tin, tungsten and gold. On August 22, 2012, the SEC adopted the conflict mineral disclosure rules. The SEC’s August 22, 2012 press release can be found here and the rule itself can be found here.
The conflict mineral rules are widely expected to be very challenging, as discussed here. For that reason various groups sought to block the implementation of the rules through a court challenge. In his July 23 opinion, Judge Wilkens rejected the plaintiffs’s summary judgment motion and upheld the SEC's (and intervenor Amnesty International's) cross-motion for summary judgment.
As Broc Romanek wrote in a July 24, 2013 post on his TheCorporateCounsel.net blog (here), the ruling means “the SEC's rules go forward as they currently exist (ie. no de minimis exception, etc.).” He adds that even if the challengers appeal the district court’s ruling, “with the first report due May 31, 2014, all companies should be operating on the assumption that the rules are indeed the rules and start preparing now.”
As I noted in a recent post about the conflicts minerals disclosure rules, many companies had been playing a waiting game and deferring what they knew would be a difficult task in the hope that the legal challenge would succeed. Now that the district court has rejected the legal challenge, many companies will be scrambling to meet the May 31, 2014 deadline. I predict we will all be hearing a lot more about this issue and the problem companies are facing trying to comply with the SEC’s disclosure rules.
More Libor Litigation: The Libor scandal captured the headlines a year ago at this time. Though the story has moved out of the headlines, the scandal story continues to grind on. And though the motion to dismiss was largely granted in the consolidated Libor antitrust litigation (as discussed here), claimants have demonstrated that they are willing to continue to try to fight on.
In the latest examples of the continuing fight, earlier this week two U.S. local governments each filed their own separate lawsuits against the Libor rate-setting banks. First, on July 22, 2013, the City of Houston, Texas filed an action in the Southern District of Texas against the Libor rate-setting banks, alleging that the banks’ manipulation of the benchmark rates artificially suppressed its returns on $1.1 billion in interest rate swap agreements. A copy of Houston’s complaint can be found here.
On July 23, 2013, Sacramento County, California filed an action in the Eastern District of California alleging that the Libor rate-setting banks manipulation caused it to lose money from bond issuances. The county’s complaint, which can be found here, alleges violations of federal antitrust laws, California antitrust laws and California state common law.
These latest cases illustrate a point that I have made elsewhere, which is that despite the setback, the Libor claimants are continuing to press ahead. It remains to be seen whether these latest claims will succeed where others have stumbled. The one thing that is clear that we have much further to go in the playing out of the Libor scandal and the related litigation wave.