spain1The filing of securities class action lawsuits is, of course, well-established in the United States, and in recent years has become a regular phenomenon in Australia and Canada as well. In the wake of various recent scandals, numerous group or mass investor actions, if not full-blown class actions, have been filed or will be filed in a number of other countries, including the U.K. (for example, in connection with the Tesco accounting scandal), Germany (in connection with the VW emissions scandal), Japan (in connection with the Toshiba scandal), Italy (in connection with the Saipem scandal), and possibly Brazil (in connection with various companies’ involvement in the Petrobras scandal).


Now it appears that investors in the troubled Spanish banking company Bankia have initiated a class action lawsuit against the company. According to news reports (here), counsel for 660 individual investors has filed an action in a Madrid court seeking to have the individuals compensated for their investment losses in connection with the company’s 2011 stock flotation. The investors collectively seek recovery of 6.3 million euros (about $7 million).


Bankia is a bank holding company that was formed in December 2010 through the consolidation of seven regional savings banks. At the time of the consolidation, a portfolio of troubled loans was transferred to a separate government-controlled holding company. Bankia completed an IPO in July 2011, but in 2012 the company required a further government bailout and restructuring. The government seized control of the bank, which ultimately triggered a further substantial bailout of Spain’s savings banks. Bankia’s former CEO, Rodrigo Rato and several other of the bank’s former executives are the target of a criminal prosecution in which the individuals are alleged to have misled investors in connection with the 2011 offering.


In the lead-up to the recently instituted class action, two small individual investors had filed claims against Bankia seeking to recover their investment losses in connection with the July 2011 offering. In a ruling on Wednesday, January 27, 2016 (described here), the  Spanish Supreme Court ordered Bankia to reimburse the individual investors, ruling that  Bankia must pay one investor nearly 10,000 euros, or about $10,850, and the other nearly €21,000 euros, to cover losses on Bankia shares that eventually were nearly worthless.


The Supreme Court said that Bankia’s prospectus for its IPO had contained “serious inaccuracies.” The Supreme Court’s rulings affirmed decisions by two regional courts that supported the individuals’ assertion of their claims.


Bankia has said that it is aware of lawsuit claims totaling €819 million euros. Bankia has also said it has adequate provisions for legal liabilities, having set aside €1.84 billion. The suggestion is that there are or will be further claims beyond those asserted in the recently filed class action lawsuit arising out of the 2011 offering.


The press coverage in connection with the recently filed investor action describes the lawsuit as a class action although the features of the action make it sound more like a group or mass action rather than a class action as we think of them in the United States.


The new lawsuit is interesting of course in and of itself, regardless of its specific procedural form, but it is also interesting as yet another example of the emergence of class, mass, or group investor actions in a variety of different jurisdictions. While these lawsuits may not share all of the features of an investor class action of the type that are familiar in the United States, they still do represent collective efforts of investors to recover their investment losses from companies and their senior executives. In many instances, these developments reflect that involvement and support of litigation funding firms (as discussed, for example, here).


Many of these lawsuits, including the recently filed Bankia action, may involve scandals arising from the global financial crisis, others of them are completely unrelated to the financial crisis. The emergence of these kinds of claims and lawsuits in many of the jurisdictions represent something of a new development and also represents a new or developing liability exposure for companies in those jurisdictions, as well as for those companies’ D&O insurers. It may be that as these legal developments emerge, the D&O insurance underwriting environment for many of these cases must develop as well.


For many years, the most important question when underwriting companies outside of the U.S. is whether or not the companies had U.S. exposures (and in particular whether or not the companies had a listing on one of the U.S. exchanges). In the past, if the company had no U.S. exposure, it was regarded as having little or no securities claim risk exposure. It may well continue to be the case that companies that do not have U.S.-listing continue to have potentially lower than other companies that do have U.S. listings; however, the recent emergence of securities claim in various jurisdictions suggests that the securities litigation exposure for many of these countries at least potentially may be more significant than has been perceived in the past. This arguably represents an important change in the D&O liability environment outside of the United States.


March 2016 C5 D&O Liability Conference in London: Speaking of developments in securities litigation outside of the U.S., I will be participating in a session on the class action litigation developments in Europe and the U.S. as part of  C5’s 25th D&O Liability Conference, which will be March 8 and 9, 2016, in London. The March conference, which will include alternative afternoon sessions on FI and Cyber Liability Insurance, will feature an all-star lineup of speakers and panelists Information about the conference including the full agenda and registration information can be found here. Readers of this blog are eligible for a 15% discount. To receive this discount, please use the following code when registering: P15-999-DOD16.