In May 2007, Sydney-based plaintiffs’ law firm Slater & Gordon listed its shares on the Australian Stock Exchange, becoming the world’s first publicly traded law firm. On its website, the firm touts its “outstanding record” in class actions and group actions. As the firm’s website also highlights, the firm has been an active in pursuing securities class action lawsuits in Australia. More recently, however, the firm has recently experienced some financial turbulence, as a result of which its share price has plunged. Now, in a twist that can only be called ironic, the firm may be facing a class action lawsuit of its own.
According to a December 19, 2015 Sydney Morning Herald article (here), Slater & Gordon’s share price has declined over 90 percent in the last month, in part because of questions about the firm’s March 2015 acquisition of U.K.-based legal services firm Quindell. The article also cites as additional reasons for the share decline “an ‘emergency’ capital raising, a scaling back of dividends, and a swingeing writedown of goodwill.” The firm recently changed auditors after acknowledging the need for adjustments to its reported 2013-14 and 2014-15 financial reports. In order to fund its acquisition of Quindell, the firm raised A$890 million in an April share offering, which was priced at $6.38 a share. The company’s shares currently trade at 83 cents a share.
The firm’s share price took a particular beating last week after the firm, which had reiterated its revenue guidance as recently as November 30, 2015, on December 17, 2015 announced that that “there is a significant risk that full year guidance will not be met” as a result of which the firm was withdrawing its guidance.
On December 17, 2015, on the heels of this bad news and declining share price, the ACA law firm, Slater & Gordon’s rival, announced (here) that it was investigating the publicly traded law firm’s disclosures. The announcement cites the law firm’s April share offering related to the Quindell acquisition, which the law firm had said at the time would increase earnings per share by more than 30 percent in the first year. The announcement says that between the time of the offering and the law firm’s December 17 announcement, the firm’s “share price fell more than 86.4 percent and wiped almost $2 billion off shareholder value.”
The ACA law firm’s announcement asks for shareholders to register their interest in a proposed class action lawsuit against Slater & Gordon. The announcement also advises that shareholders who register will be “asked to sign a funding agreement and retainer at a later stage should you wish to participate in the action.”
Securities class action litigation has been on the upsurge in Australia, a development that has been noted with “alarm” (as discussed in greater detail here). The Slater & Gordon law firm has itself been deeply involved in these developments. Among other things, the Slater & Gordon firm represented claimants in the Centro securities class action lawsuit, which resulted in the largest ever securities class action lawsuit settlement in Australia. Slater & Gordon also represented shareholder plaintiffs in the Sigma Pharmaceuticals securities suit, which resulted in a A$57.5 million settlement. The law firm also represented claimants in the securities suit against agricultural firm Nufarm, which was settled for A$46.6 million.
Given the law firm’s deep involvement in securities litigation in Australia, the possibility that the firm might now face a securities lawsuit of its own is deeply ironic.
Regardless of whether or not the lawsuit against Slater & Gordon actually goes forward or succeeds, the developments at the firm undoubtedly will resurrect questions about whether it is a good idea for a law firm to be publicly traded. Even without the developments at the Slater & Gordon law firm, it is unlikely that we would ever see a publicly traded law firm in the U.S, because the ABA Model Rule of Ethics prohibit firms from selling equity shares in law firms to non-lawyers. At the same time, however, developments in litigation financing have taken these fund-raising efforts away from raising financing for a single case or groups of cases to entire portfolios of cases and even for the law firm’s themselves. Once the litigation financing moves beyond funding cases into funding the firm’s themselves, it may be a very short step for the firms to sell their shares to investors and to the investing public. Those considering these kinds of measures or making these kinds of investments may well want to consider the recent developments at Slater & Gordon.
Special thanks to a loyal reader for forwarding me a clipping about the developments involving Slater & Gordon.
Failed Bank Litigation Winding Down: On December 18, 2015, the FDIC updated the webpage on which it tracks the professional liability litigation it has filed as part of the bank failure wave that followed from the global financial crisis. The updated page shows that the agency has now filed 108 lawsuits against the former directors and officers of failed banks. However, the FDIC filed only three new lawsuits in 2015 and has filed no new lawsuits since July 2015. Moreover, of the 108 lawsuits that that the agency filed, the agency has settled 86 (with one other lawsuit resulting in a jury verdict in the agency’s favor). In other words, the agency is basically not filing any new lawsuits, and of the suits it did file, only 21 remain pending. The failed bank litigation wave is clearly in the home stretch.
Break in the Action: The D&O Diary will be taking a break for the holidays for the next few days. The regular publication schedule will resume the first week in January.