One of the interesting things about the 2020 securities class action lawsuit filing numbers is that even though the overall number of securities suit filings went down in 2020, the number of securities class action lawsuits filed against non-U.S. companies actually increased during the year. The 2020 securities suit filings against non-U.S. companies are reviewed in detail in a new report from the Dechert law firm entitled “2020 Developments in U.S. Securities Fraud Class Actions Against Non-U.S. Issuers.” The March 8, 2021 report can be found here.
According to the report, of the 324 federal court securities class action lawsuits filed in 2020, 88 were filed against non-U.S. companies, representing about 27.1% of all 2020 federal court securities class action filings. These numbers represent a significant increase over the equivalent figures for 2019; in 2019, there were 64 federal court securities suits against non-U.S. companies, representing about 15% of all federal court securities suit filings.
The Southern District of New York proved to be the preferred forum for plaintiffs filing lawsuits against non-U.S. companies; 31 of 88 filings (or about 35%) in 2020 against non-U.S. companies were filed in the Southern District of New York. In addition to the 31 filed in the S.D.N.Y. at the outset, there were four additional suits that were filed in other federal district courts in 2020 that were transferred to the S.D.N.Y.
The non-U.S. companies with the highest number of securities suit filings in 2020 was China, which had 28, representing slightly less than one third (31.8%) of all 2020 filings against non-U.S. companies. Of the 28 suits against companies headquartered in China, 22 involved companies incorporated in the Cayman Islands. The country with next highest number of companies sued in 2020 was Canada with 12, followed by Israel, with 6. Of the 22 lawsuits (25% of the 2020 lawsuits filed against Non-U.S. companies) filed against companies from European countries, the countries with the highest number of companies sued were the United Kingdom (5); Netherlands (4); and Germany (4).
The 2020 lawsuit filings against non-U.S. companies involved companies in a wide variety of industries, with the largest number involving companies in the biotechnology and medical equipment industry (14), followed by software and programming (9), the consumer and financial services industry (7), and the communications services industry (7).
The non-U.S. companies hit with securities suit filings in 2020 included companies representing a wide range of sizes. The market capitalization of the non-U.S. issuers at the time at which the securities class actions were filed largely consisted of both smaller market cap companies (14 of 88) under US$250 million and larger market cap companies (23 of 88) over US$5 billion.
As far as the types of allegations raised in the 2020 complaints filed against non-U.S. companies, the report identifies three general trends, involving allegations that the defendant companies: (1) misrepresented their prospects of approval by or compliance with U.S. regulatory agencies (about 9% of all cases fell in this category); (2) misrepresented or omitted material information from proxy or solicitation statements in connection with a merger or acquisition (about 19% of all cases fell in this category); or (3) failed to register under applicable federal and state securities laws in connection with the sale of cryptocurrencies (about 8% of all cases fell in this category. (interestingly, with respect to the merger misrepresentation cases, the report notes that over half of the lawsuits were voluntarily dismissed).
In terms of rulings on dispositive motions, the authors note that in 2020 and early 2021 courts rendered nine dispositive rulings in cases that were filed in 2018 and 2019. (In addition 20 filings were voluntarily dismissed in their entirety.) While the report observes that it is difficult to generalize from just nine dispositive rulings, the authors note that courts generally dismissed complaints: relating to China-based Cayman incorporated companies that went private and later relisted; for failing to allege a domestic transaction underlying a Section 10(b) claim, as required under the U.S. Supreme Court’s Morrison decision; for failing to plead fraud relating to financial issues; for being time-barred; and for lacking personal jurisdiction.
In its conclusion, the report notes that the 2020 securities suit filings serve as a reminder that a U.S.-listed company does not need to be based in the U.S. to face potential securities class action liability in the U.S. courts. For that reason, the authors note, it is important for companies with U.S. listings to take steps to mitigate their risks not only their home countries but also in the U.S. as well. Among other things, the report suggests that companies should adopt policies designed to ensure that the companies: speak truthfully and disclose both positive and negative news; ensure that the companies disclosure procedures are “well-documented and consistently followed”; and adopt a disclosure plan establishing procedures and expectations not only for SEC filings but also for press releases and statements by executives.