In the following guest post, Jeffrey Lubitz, Executive Director of ISS Securities Class Action Services, takes a look at securities class action settlements in 2021, including aggregate figures and the largest individual settlements during the year. Jeff also notes several important trends and developments in collective investor actions outside the U.S during 2021. A version of this article previously was published on the ISS Insights blog (here). Please note that the 2021 figures below are preliminary; the final calculations will be published in January 2022. The 2021 settlement figures include all settlements with a settlement hearing date between January 1, 2021 and December 31, 2021; some hearings currently scheduled to take place before year end potentially could be pushed into 2022, which would shift the settlement into the 2022 settlement year. I would like to thank Jeff for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Jeff’s article.
As the world will soon reflect on two full years of living through the COVID pandemic, the pace of shareholder-related class action settlements continue to bring significant recoveries back to harmed investors.
In fact, according to ISS Securities Class Action Services, 2021 U.S. class action settlements will outpace both 2019 and 2020 in terms of dollar amounts and quantity of settlements. (Note: 2021 numbers are preliminary – final calculations will be published in January 2022.)
When the dust settles and 2021 is officially over, one settlement – Valeant Pharmaceuticals – will have surpassed the $1 billion threshold. The following cases comprise the ten largest U.S. class action settlements of the year:
Not surprisingly, nine of the ten largest settlements occurred in Federal court (though two of the nine had a simultaneous action in State court where the settlements were combined). Of the 116 total settlements in 2021, the court venue with the most cases was once again The United States District Court for the Southern District of New York, however only two of the largest ten settlements took place in the SDNY.
A few interesting facts about the largest three 2021 settlements:
- Valeant Pharmaceuticals – In addition to the $1.2 billion settlement in the U.S., the company settled a Canadian class action in 2020 for CAD $97 million. Allegations related to the healthcare company covertly controlling a distribution network that engaged in questionable pricing practices to boost sales. (Note: in July 2018 – almost three years after the shareholder class actions commenced – the company changed its name to Bausch Health Companies, Inc.)
- Snap – The $187.5 million settlement combines both a Federal case ($154.7 million) and a State case ($32.8 million); allegations related to false & misleading statements surrounding the social media company’s user growth.
- DaVita – The $135 million settlement became the third largest of all time in a Colorado Federal court, following Qwest Communications at $445 million in 2006 and Clovis Oncology at $142 million in 2017. Allegations related to false & misleading statements as the Denver-based company was accused of steering patients into unnecessary insurance plans in order to maximize profits.
Outside of the U.S., the volume of shareholder class actions remained comparatively steady, with most of the cases taking place in Canada, Australia, Germany, Netherlands, and the United Kingdom.
With regard to non-U.S. class actions, four of the most prominent news stories included:
- China – The Intermediate People’s Court of Guangzhou delivered a groundbreaking victory to investors in China’s first-ever shareholder class action. The China Securities Investor Service Centre (CSISC), a government-affiliated body, represented investors as it brought the action against Kangmei Pharmaceutical Co. (In China, class actions can only be initiated by government bodies – different from the U.S., where any investor of record can file a complaint.) On November 12, 2021, the court declared the Puning-based drug manufacturing company to pay 2.46 billion yuan (USD $385.5 million) to investors as a reimbursement of its losses. The defendants included the company’s former Chairman, Ma Xingtian, his wife, other executives, and the company’s outside auditor.
- United Kingdom – The U.K.’s largest supermarket chain, Tesco plc, settled an investor class action for £193 million. Allegations related to a 2014 accounting scandal, specifically the company overstating expected profits. A stock drop valued at £2 billion in lost market capitalization occurred soon after news of supplier income errors became public. Previously, the company agreed to pay investors £85 million in 2018 via a settlement with the Financial Conduct Authority (FCA) and £93 million in 2020 through a private shareholder settlement.
- Netherlands and South Africa – The long-standing international investor action against Steinhoff International appears to be concluding. After years of back-and-forth legal jockeying – a tentative settlement was recently reached, with investor payouts possibly surpassing a sum of €1 billion. Additionally, investors will receive compensation from Steinhoff’s D&O insurers and the firm’s former auditor, Deloitte. Allegations of fraud became public in late 2017 when Deloitte discovered irregularities during its annual audit. The Big 4 accounting firm refused to sign-off on Steinhoff’s accounts, leading to a large stock price decline and the resignation of then CEO Markus Jooste. At the bottom of the market for Steinhoff, the stock dropped as much as 85%, eliminating €10 billion of the company’s market value.
- Australia – As noted within a July 2021 white paper, there are rapid changes taking place within the country’s class action landscape where some on the business lobby and their backers have pushed for changes to limit how actions can be brought and make it easier for corporate wrongdoers to avoid accountability for the harm they cause. It turns out that the pandemic provided political cover for those powerful lobbyists and the Australian Government to target a series of adverse changes to the Australian class action regime. In 2021, the pace of changes abated with:
- The government seeking to make changes to continuous disclosure laws permanent and extend the diminution in investor protections to Australia’s misleading and deceptive conduct laws;
- A High Court decision in Wigmans v AMP on competing class actions; and
- A further Federal government move to restrict by imposing an arbitrary cap on litigation funding commissions and legal fees
While 2021 was not a record-breaking year in terms of U.S. class action settlements, investor recoveries were clearly significant. And one can reasonable argue the $3.53 billion was truly impressive – considering the world continues to navigate unknowns of the ongoing COVID pandemic.
By Jeff Lubitz, Executive Director, ISS Securities Class Action Services