vascoIn the latest example of a case where alleged violations of U.S. trade sanction laws have led to a follow-on civil lawsuit, on July 28, 2015, a plaintiff shareholder filed a securities class action lawsuit against VASCO Data Security International and certain of its directors and officers. The lawsuit follows the company’s announcement that it has self-reported a possible violation of federal prohibitions against sales of goods to parties in Iran. A copy of the plaintiff’s complaint can be found here.


VASCO designs, develops, markets, and supports hardware and software securities systems that manage and secure access to information assets. On July 21, 2015, VASCO filed a statement with the SEC on Form 8-K stating that “certain of its products which were sold by a VASCO European subsidiary to a third-party distributor may have been resold by the distributor to parties in Iran, potentially including parties” subject to U.S. economic sanctions. The filing also stated that the company’s board’s audit committee had initiated an internal investigation to review the matter with the assistance of outside counsel. The filing also stated that the company had made a voluntary disclosure of the matter to the U.S. Department of Treasury Office of Foreign Asset Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security.


As reflected in her counsel’s July 28, 2015 press release (here), a VASCO shareholder has filed a securities class action complaint against the company and its CEO and CFO in the Northern District of Illinois in connection with the information disclosed in the July 21 filing. According to the press release, the complaint alleges that “defendants made false and/or misleading statements and/or failed to disclose that: (1) VASCO’s products were illegally sold to parties in Iran in violation of federal laws prohibiting such sales; (2) the Company lacked adequate internal controls; and (3) as a result of the foregoing, VASCO’s public statements were materially false and misleading at all relevant times.”


The complaint alleges that on the news about the company’s discovery of the possible Iran-related sales, the company’s share price “fell $0.86, or over 3.22%, on unusually heavy volume, to close at $25.83 on July 22, 2015.”


The lawsuit purports to be filed on behalf of a class consisting of everyone that purchased VASCO securities between February 18, 2014 and July 21, 2015. The complaint seeks to recover damages against the defendants for alleged violations of the federal securities laws under the Securities Exchange Act of 1934.


As I noted in a recent post (here), the U.S. government, as part of its conduct of foreign affairs and of its national security program, has instituted a series of economic and trade sanctions against a number of countries and individuals. OFAC administers the various sanctions programs. The sanctions programs include broad trade embargoes against, among other countries, Iran, North Korea, Sudan, and Syria. OFAC’s enforcement power includes the authority to file civil liability actions. These types of actions have recently resulted in a number of high profile penalties and settlements. As I discussed in the recent post to which I linked above, these settlements have a number of significant implications and may raise a number of D&O liability insurance concerns.


As I also noted in the prior post, in addition to the sanctions enforcement action-related investigative costs, D&O insurance could also become relevant in the event of a follow-on civil lawsuit asserting claims against company officials on connection with a sanctions investigation.


Indeed, as discussed here, there are prior examples of shareholders filing derivative lawsuits against company officials after the company has paid a sanction-related penalty or settlement. For example, as discussed in the prior post, shareholders filed a derivative lawsuit against the board of J.P. Morgan Chase after the company reached an $88.3 million settlement with OFAC. (UPDATE: According to a July 30, 2015 Law 360 article, the sanctions-related lawsuits filed against J.P. Morgan Chase have been dismissed, refer here [subscription required].)


The new lawsuit against VASCO is the yet another example of a sanction-related follow-on civil action. However, the VASCO lawsuit represents something of a departure from the prior cases, in that the lawsuit does not follow the entry of OFAC penalties against the company or following a settlement with OFAC. Rather, the securities class action lawsuit filed against VASCO following only the company’s voluntary self-reporting of a possible violation; the company has yet even to complete its own internal investigation of the events. In addition, rather than as was the case with J.P. Morgan, the plaintiff in the VASCO lawsuit did not file her claims in the form of a shareholder derivative lawsuit; instead, she filed a lawsuit seeking damages based on alleged violations of the federal securities laws.


The VASCO lawsuit arguably will face a number of hurdles. The complaint’s allegations do not include any specific allegations that the defendants made any particularized representations about the company’s trade sanctions compliance efforts or affirming the company’s compliance with trade sanctions laws. The complaint does not contain particularized allegations pertaining to scienter, nor does the complaint allege, for example, trading in company shares by company insiders prior to the disclosure of the Iran sanctions-related issues. Moreover, the decline in the companies share price the complaint alleges is a less than impressive drop of 86 cents. The company has had larger drops (and gains) even just within the few trading days since the July 21 announcement.


While it remains to be seen whether the plaintiff’s lawsuit will actually get anywhere, it is an example of a developing corporate and securities litigation phenomenon that bears watching. Readers of this blog are well aware of the wave of litigation that has followed on in the wake of bribery and corruption investigations. It may be that trade sanction-related follow on litigation may represent something of the same kind of phenomenon. Indeed, the plaintiffs’ lawyers’ apparent eagerness to file this lawsuit despite the relatively modest share price decline involved suggests that this is an area of interest for at least some plaintiffs’ attorneys. Given the magnitude and reach of the U.S. trade sanctions programs, it seems likely that there could be many future opportunities for trade sanctions-related follow on litigation.


More About Efforts to Fight the Merger Objection Litigation Curse: As I noted in a recent post (here), there may be reasons to hope that we are seeing the beginning of the end of the merger objection litigation curse. As I noted in the prior post, Delaware’s courts have recently shown reluctance to approve disclosure-only settlements of merger objection cases. In addition, as I also noted in the prior post, Fordham Law School Professor Sean Griffith has launched an effort in which he hopes to file objections to the typical disclosure-only settlements of merger objection lawsuits.


Griffith’s efforts in that regards are the subject of a July 28, 2015 Wall Street Journal article (here). The article describes Griffith’s efforts to object to the settlement of a merger objection lawsuit involving Riverbed Technology Inc.’s sale. It is unclear yet whether Griffith’s objection to the settlement will succeed; the Vice Chancellor in the case has taken the objection under advisement and has not yet ruled.


What is clear is that Griffith’s efforts are drawing attention to the merger objection lawsuit problem. There is clearly something wrong with a system in which virtually every single merger transaction draws a lawsuit. If Griffith’s efforts can throw enough grit into the gears of the plaintiffs’ bar’s merger objection litigation machine to cause it to break down, that would be a welcome development for just about everybody except a very small number of plaintiffs’ lawyers that profit from the current system.


The Impact of the U.S. Supreme Court’s Halliburton Litigation: Following the U.S. Supreme Court’s June 2014 decision in the much-watched Halliburton case, there was a great deal of discussion of what the impact would be of the court’s ruling that price impact evidence should be considered at the class certification stage. It turns out that this aspect of the court’s ruling has now has a very significant impact – in the Halliburton case itself.

As Alison Frankel discusses in a very interesting July 28, 2015 post on her On the Case blog (here), the district court judge in the Halliburton case – which had been remanded to the court below following the Supreme Court’s decision – has applied the price impact principles articulated in the Supreme Court’s opinion in ruling on the plaintiffs’ motion for class certification. In her ruling on the motion, the district court judge knocked out claims based on five of the six disclosures at issue in the case, finding that Halliburton’s expert showed the supposed revelation of fraud didn’t impact Halliburton’s share price.


However, as Frankel noted in her post, “Judge Lynn did certify a class of investors to proceed with claims stemming from the disclosure of a $30 million jury verdict against a Halliburton subsidiary. The company’s share price fell by about 40 percent after word of the verdict, so Halliburton still faces significant exposure in the case.” Frankel also noted that the district court judge “joined three other district court judges in holding that defendants bear the burden of proving that so-called corrective disclosures revealing alleged corporate fraud did not affect the company’s share price.”


ABA Top 100 Law Blogs List: Once again, it is time for nominations to the American Bar Association’s annual list of the Top 100 Law Blogs. I certainly am going to nominate my favorite law blogs for inclusion in the list. I would be very grateful if there are readers who would be willing to nominate The D&O Diary as one of the top law blogs. You can nominate your favorite law blogs on the ABA website, here. When you make your nominations be sure to provide the reasons why you like the blogs you are nominating. Thank you for your support.