It was perhaps inevitable after Facebook’s disappointing quarterly earnings announcement last week triggered what reportedly is the largest single day share price drop ever that securities class action lawsuits against the company would follow. And indeed on Friday at least two securities class action lawsuits were filed against the company. While the lawsuit filings may have been predictable, at least one of the lawsuits contains an interesting and unexpected variant on the standard pattern – one of the two lawsuits contains allegations that the company made misrepresentations about its readiness for the May 2018 effective date of General Data Protection Regulation (GDPR) and about the impact of GDPR compliance on the company’s business and operations. As discussed below, these allegations reflect the growing liability exposures arising from growing privacy-related concerns and regulation.
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Cornerstone Research: Securities Suit Filings at Near Record Level in Year’s First Half
Securities class action lawsuits were filed at “near record levels” in the first six months of 2018, according to a July 25, 2018 report from Cornerstone Research. According to the report, which is entitled “Securities Class Action Filings – 2018 Midyear Assessment,” more than 750 federal securities class actions have been filed since mid-2016, the highest number of filings in a 24-month period since the passage of the PSLRA. The report can be found here. Cornerstone Research’s July 25, 2018 press release can be found here. My report of the securities suit filings in the year’s first six months can be found here.
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9th Circ. Reverses Ruling That U.S. Securities Laws Do Not Apply to Toshiba’s Unsponsored ADRs
One of the questions that courts have wrestled with as they have struggled to apply the U.S. Supreme Court’s decision in Morrison is whether or not the U.S. securities laws apply to transactions in American Depositary Receipts (ADRs). In the U.S. securities class action lawsuit filed against Toshiba in the wake of the company’s massive accounting scandal, the district court granted the company’s motion to dismiss on the grounds that the Exchange Act did not apply to the plaintiffs’ over-the-counter (OTC) transactions in the company’s unsponsored American Depositary Receipts (ADRs). The plaintiffs appealed. In a July 17, 2018 decision, the Ninth Circuit reversed the dismissal and remanded the case in order for the plaintiffs’ to have the opportunity to try to plead facts that might be sufficient to establish that the securities laws apply, notwithstanding the fact that the ADRs were unsponsored. The Ninth Circuit’s opinion can be found here.
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Another D&O Lawsuit Arising from Sexual Misconduct Allegations
In the latest example of a D&O lawsuit arising in the wake of allegations against a corporate executive of sexual misconduct, a shareholder has filed a securities class action lawsuit against National Beverage Corp. and certain of its executives following news reports that the company’s Chairman and CEO allegedly had inappropriately touched company pilots while traveling on the Chairman’s business jet. (National Beverage manufactures the ubiquitous LaCroix brand mineral water, with which the author of this blog has absolutely no connection.) The complaint, a copy of which can be found here, also contains separate allegations relating to allegedly misleading financial disclosures. This new lawsuit, like the prior D&O lawsuits filed following revelations of sexual misconduct allegations, underscores the fact as corporate executives are called out for alleged misbehavior, the accountability process may extend not only the alleged wrongdoers themselves, but may also extend to their company and other executives.
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Torrid Securities Suit Filing Pace Continues in Year’s First Half
The torrid pace of securities class action lawsuit filings continued in the first half of 2018, coming in at a rate only very slightly below last year’s record-setting pace. While a significant number of the first half filings are attributable to merger objection lawsuit lawsuits, the number of traditional filing alone during the first half of the year were well above historical levels. If the first half’s pace continues in the second half of the year, the projected number of year-end filings would approach last year’s elevated total.
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IPO-Related Securities Litigation and the Idea of Shareholder Claim Mandatory Arbitration
As I have noted in prior posts, a number of commentators have proposed that companies filing with the SEC to complete IPOs ought to be able to include in their bylaws a mandatory arbitration provision requiring shareholder claimants to submit claims – including even claims under the federal securities laws – to arbitration. This idea, which has been percolating for years, received a significant boost in a statement last summer from outgoing SEC Commissioner Michael Piwowar, in which he suggested that the SEC would favorably view submissions by IPO companies that included bylaw provisions requiring mandatory arbitration of securities claims. As detailed in an April 23, 2018 paper from Elisa Mendoza of ISS Securities Class Action Services entitled “The Uncertain Role of IPOs in Future Class Actions” (here), this idea has its critics. But what might this kind of mandatory arbitration proposal, if put into action, actually mean for securities class action litigation going forward? Mendoza’s paper helpfully takes a statistical look at this question in light of historical securities litigation involving IPO companies.
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Wells Fargo Settles Phony Account Securities Suit for $480 Million
Wells Fargo has agreed to pay $480 million to settle the securities class action lawsuit arising from the company’s fake customer account scandal. The lawsuit followed in the wake of allegations that the bank had opened millions of accounts on behalf of customers frequently without the customers’ knowledge or consent, and in some instances based on fictitious customer information. As discussed below, the massive securities suit settlement, which is subject to court approval, is among the largest ever. The company’s May 4, 2018 press release about the settlement can be found here. The settlement was also disclosed in the company’s May 4, 2018 filing on Form 10-Q, here. A May 4, 2018 press release about the settlement by Union Investment, the lead plaintiff in the action, can be found here.
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Guest Post: The State of Securities Litigation After Cyan
As I noted at the time, on March 20, 2018, the U.S. Supreme Court issued its unanimous decision in Cyan, Inc. v. Beaver County Employees Retirement Fund, holding that state courts retain concurrent jurisdiction for liability actions under the Securities Act of 1933. In the following guest post, Doug Greene, Jessie Gabriel, Marco Molina, and Brian Song of the Baker & Hostetler law firm take a comprehensive look at the decision, including its context and significance. As the authors note, the decision has important implications for companies and their D&O insurers, as well as for claims going forward. I would like to thank the authors for allowing me to publish their 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 the authors’ article.
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Another Look at 2017 Securities Litigation Against Life Sciences Companies
As I have previously noted, the elevated number of securities class action lawsuits against life sciences companies was an important factor in the increase of securities lawsuit filings in 2017. The significant volume of securities suits involving life sciences companies has been the subject of focused analysis, as discussed here. Now the Sidley Austin law firm has released its exhaustive review of the 2017 securities litigation against life sciences companies. Among other things, the report finds that while the numbers of securities suit filings against life sciences companies has increased in recent years, the companies are faring worse at the dismissal motion stage in the district courts relative to the most recent years. The report summary can be found here. The full report can be found here.
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Cryptocurrencies: New Digital Assets, New Legal Issues?
Among the many innovations we have had to confront in a world characterized by rapid technological change is the advent of cryptocurrency, as a social and financial phenomenon. As I have previously noted, the current cryptocurrency craze has also become a legal phenomenon as well, as now nearly a dozen securities class action lawsuits involving cryptocurrency, ICOs, and blockchain technology have been filed just in the last six months or so. The latest of these lawsuits — one involving allegations relating to an Italian cryptocurrency exchange operator nicknamed “The Bomber” and including investor demands for the court to compel a “rescue fork” — may suggest that in addition to technological change, the advent of cryptocurrency could introduce legal changes as well.
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