On December 7, 2015, in a complaint that reflects a number of current U.S. securities class action lawsuit filing trends, a plaintiff securityholder filed a securities class action lawsuit in the Southern District of New York under the U.S. securities laws against the Brazilian mining giant Vale, S.A. and two of its officers. The complaint relates to the massive dam failure that occurred on November 5, 2015 near Mariana, in the Minas Gerais state, in Brazil. The failed dam is the property of Samarco Mineração, S.A., a joint venture between Vale and BHP Billiton. The securities suit plaintiff claims that the Vale defendants made misleading statements about the company’s safety and environmental standards and risk management, as well as about the spill itself.
Continue Reading A Burst Dam in Brazil, a U.S. Securites Lawsuit, and a Heap of Current Litigation Trends
Does the Omnicare’s Holding Regarding Opinion Apply to Securities Fraud Claims?
In its March 2015 decision in the Omnicare v. Laborers District Council Construction Industry Pension Fund (here), the U.S. Supreme Court held that an issuer may be liable for opinions set forth in a registration statement if the issuer did not genuinely hold the stated opinion, or if the issuer failed to disclose material facts relating to the foundation for the opinion, as discussed here. Because the Omnicare decision was made with respect to claims under the liability provisions of the Securities Act of 1933, one of the questions that arose following the Court’s decision was whether and to what extent the principles the Court enunciated are applicable to securities fraud actions under the Securities Exchange Act of 1934. In an interesting article entitled “False Statements of Belief as Securities Fraud” (here), University of Idaho Law Professor Wendy Gerwick Couture takes a look at these questions and argues that the Omnicare’s holding with respect to statements of opinion analytically should apply equally to securities fraud claims under Section 10 of the ’34 Act as to prospectus liability claims under Section 11 of the ’33 Act. A summary version of Professor Couture’s article appeared on October 28, 2015 on the CLS Blue Sky Blog (here).
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Uptick in Securities Suits Against U.S.-Listed Chinese Companies
Long-time readers of this blog will recall that in 2011, there was a rash of U.S. securities class action lawsuits filed against U.S.-listed Chinese companies. Many of these companies had obtained their U.S.-listings by way of a reverse merger with a U.S.-listed public shell. The 39 securities suits filed in 2011 against U.S.-listed Chinese companies represented 18% of all securities class action lawsuits filed in the U.S. that year. While the number of lawsuit filed against Chinese reverse-merger companies has abated since the peak in 2011, U.S. securities lawsuits continue to be filed against Chinese companies at a significant rate.
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New SEC Enforcement Action Database from NYU and Cornerstone Research
On October 27, 2015, Cornerstone Research in conjunction with the New York University Pollock Center for Law & Business and the Leonard N. Stern School of Business to launch the Securities Enforcement Database (SEED). As described in the organizations’ joint October 27, 2015 press release (here), the database will track record and information relating to SEC enforcement actions filed against public companies. The SEED database, which can be found here, will facilitate the analysis of and reporting of SEC enforcement actions through regular updates of new filings and settlement information relating to ongoing enforcement action.
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Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit
For purposes of determining the scienter of a corporate entity defendant under the federal securities laws, a company’s executives’ knowledge generally is imputed to company. There is an exception to these general principles – the “adverse interest exception” – which provides that an executive’s knowledge will not be imputed to the company if the executive acted for his or her own purposes and contrary to the interests of the company. There is also an exception to the exception, which provides further that a rogue executive’s knowledge will nevertheless be imputed to the company when an innocent third-party has relied on the executive’s representations made with apparent authority.
In an October 23, 2015 opinion (here), the Ninth Circuit applied these principles to reverse the district court’s dismissal of the ChinaCast Education Corp. securities class action lawsuit, holding that the knowledge of the company’s CEO, who had embezzled funds and mislead investors through omissions and false statements, could be imputed to the company for purposes of innocent third-party investors’ claims.
Continue Reading Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit
SEC Files Record Number of Independent Enforcement Actions in Fiscal 2015
According to the agency’s recently released enforcement activity statics, the SEC’s overall enforcement activity and the number of independent enforcement actions both increased in the fiscal year 2015 (which just ended on September 30) compared to prior years. More specifically, during fiscal 2015, the agency filed a record number of independent actions for violations of the federal securities laws. The agency’s enforcement statistics reflect a significant increase in the number of financial reporting and audit cases. The agency’s October 22, 2015 press release presenting its 2015 fiscal year enforcement statistics can be found here.
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Money Laundering Allegations and Follow-On Securities Litigation
In the wake of the 9/11 terrorist attacks, Congress enacted or expanded a number of laws regarding the global financial system in order to combat money laundering and promote national security. As I have noted in prior post (most recently here), regulatory enforcement activity under these laws represents a potentially significant new area of potential D&O exposure. In addition, as a recently filed securities class action lawsuit shows, alleged violations of these financial controls not only can lead to regulatory action by federal regulators but may also lead to private civil litigation.
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Game Over?: Del. Chancery Court Rejects Disclosure-Only Settlement in H-P/Aruba Networks Merger Objection Lawsuit
Stating his belief that the merger objection litigation dynamic represents a “systemic” problem that has resulted in a “misshapen legal system,” Delaware Chancery Court Vice Chancellor Travis Laster rejected the proposed disclosure-only settlement of litigation that had been filed objecting to Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. In an October 9, 2015 settlement hearing in the case, Laster cited the “inadequacy of the representation” of plaintiffs’ counsel for the shareholder class as the basis for his rejection of the settlement, as well as for the outright dismissal of the case. Liz Hoffman’s October 10, 2015 Wall Street Journal article about Laster’s ruling can be found here.
Continue Reading Game Over?: Del. Chancery Court Rejects Disclosure-Only Settlement in H-P/Aruba Networks Merger Objection Lawsuit
Guest Post: Access to Internal Investigation Records by Shareholders
In many instances when allegations of wrongdoing surface at a company, the appropriate course for the company’s board will be to appoint an independent committee to investigate the allegations. The investigation can be conducted in a way to preserve confidential information and privileges. However, recent case law developments underscore the fact that in some instances the company’s shareholders may have access to the records of the investigation even when all steps are taken to preserve confidentiality and privileges. In the following guest post, Mary Gill and Courtney Quirós of the Alston & Bird law firm take a look at the recent case law developments and consider the implications of these recent cases. Mary is a partner and Courtney is an associate in the Securities Litigation Group at the firm. This article was prepared for a panel at the 23rd Annual Securities Litigation and Regulatory Practice Seminar, to be held in Atlanta on October 23, 2015.
I would like to thank Mary and Courtney for their willingness to publish their 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 Mary and Courtney’s guest post.
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I. Introduction
In the current environment, it is not uncommon for a company, its executives, or directors to be presented with allegations of wrongdoing. Whether the issues are raised by a concerned or disgruntled employee, the Securities Exchange Commission, or the Department of Justice, the company should be prepared to promptly determine the nature and severity of the potential problem. Generally, the appropriate course in these situations is for the board of directors of the company to appoint an independent committee to oversee an internal investigation into the allegations. Through an internal investigation, the company can determine the factual nature and scope of the alleged misconduct and analyze the legal implications of the situation, which will allow the company’s board of directors to take appropriate remedial action if necessary. The investigation should be conducted in such a way to achieve maximum credibility, integrity, and accuracy, while at the same time preserving all applicable privileges and legal defenses for the company to the greatest extent possible. A recent Delaware Supreme Court decision serves as a reminder that even where companies and their counsel take care to protect the confidentiality of an internal investigation, there is no guarantee against shareholders’ access to these records.
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Tesco Securities Suit: Applicability of U.S. Securities Laws to Unlisted ADRs?
It has been over five years since the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank restricted the ability of shareholders of non-U.S. companies who purchased their shares outside the U.S. to file securities fraud lawsuit in U.S. courts under the U.S. securities laws. During that five year period, the lower courts have sorted out many of the issues the Morrison decision raises. But one issue continues to percolate – that is, the question of Morrison’s effect on securities suits brought in U.S. court under U.S. law against non-U.S. companies by investors who purchased the companies’ unlisted ADRs over- the-counter in the U.S. The investor lawsuits filed in U.S. court just in the last few days by holders of unlisted Volkswagen ADRs raise this very issue.
The action filed in Southern District of New York in October 2014 by holders of unlisted ADRs of Tesco raise these same issues as well. The parties’ briefing in connection with the defendants’ motion to dismiss in the Tesco case present a detailed examination of the issues involved in the question of the applicability of Morrison to transactions in unlisted ADRs, as discussed below.
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