Securities Litigation

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Gill-mary2015
Mary Gill
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Courtney Quirós

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.
Continue Reading Guest Post: Access to Internal Investigation Records by Shareholders

tescoIt 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.
Continue Reading Tesco Securities Suit: Applicability of U.S. Securities Laws to Unlisted ADRs?

vwThe news that Volkswagen employed sophisticated software-based “defeat devices” in order to permit a number of its diesel-engine models to appear to meet U.S. emissions standards has dominated the headlines in the business pages over the last few days. The news has already led to the resignation of its embattled CEO, Martin Winterkorn. In addition to regulatory enforcement proceedings, the company faces possible criminal action as well as a host of consumer lawsuits. In addition, on September 25, 2015, plaintiff’s lawyers filed a securities class lawsuit in the Eastern District of Virginia against VW, its U.S. operating divisions, and certain of its directors and officers, on behalf of investors who purchased VW’s American Depositary Receipts (ADRs) in the United States.  As discussed below, there are a number of interesting features to this new securities lawsuit. In addition, as also discussed below, a Dutch investors’ association has separately initiated an effort under Dutch collective action statutory provisions to pursue claims against VW, as well. 
Continue Reading Volkswagen Vehicle Emissions Scandal Triggers U.S. Securities Suit, Dutch Collective Action Initiative

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Michael J. Biles

In the following guest post, Michael J. Biles of the King & Spalding law firm takes a look at the analysis of the materialization-of-the-risk issues in the Fifth Circuit’s September 8, 2015 decision in the BP Deepwater Horizon securities class action lawsuit. As Michael asserts below, the Fifth Circuit’s decision opinion essentially removes the risk of materialization-of-the-risk cases in the Fifth Circuit.

I would like to thank Mike for his willingness to publish his article on my site. I welcome guest post submissions from responsible authors on topics of interest to readers of this site. Please contact me directly if you are interested in submitting a guest post. Here is Michael’s guest post.

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Materialization-of-the-risk cases are a favorite of the securities class action plaintiffs’ bar.  The basic theory of fraud in these cases is that a company misrepresented or withheld information, causing the market to miscalculate the company’s exposure to a particular risk.  Every company is susceptible to risks, whether it be natural or man-made disasters, competition, labor disputes, technological obsolescence, currency fluctuations, supply-chain disruptions, etc. –the risks are endless.  When a company’s stock price declines following a disclosure that you-name-the-risk has materialized – as every company must do on occasion – plaintiffs’ lawyers will scour the company’s prior disclosures concerning the risk and allege (with the benefit of hindsight) that the company and its executives did not accurately explain the company’s exposure to the risk.  The damages in such cases are usually easy to calculate – plaintiffs say that the stock was inflated by the amount of the share price decline following the revelation of the risk.  And if the case is certified as a class action, the damages typically run in the hundreds of millions, if not billions.

The securities class action filed against BP plc following the 2010 Deepwater Horizon explosion and oil spill is a classic materialization-of-the-risk  case.  Before the spill, according to plaintiffs, BP touted the company’s safety plans and procedures as being more advanced on paper than they were in practice.  These pre-spill statements lulled the market into believing that BP was a safer company than it actually was.  According to plaintiffs, BP thus understated the risk of the Deepwater Horizon catastrophe, and when that risk materialized, investors were damaged by the full value of the decline in BP stock caused by the materialization of the risk of the spill.  The Fifth Circuit recently affirmed the district court’s order denying class certification of plaintiffs’ materialization-of-the-risk claims.[1]  Ludlow v. BP, PLC, — F.3d —, 2015 WL 5235010 (5th Cir. Sept. 8, 2015).  This opinion essentially removes the risk of materialization-of-the-risk cases in the Fifth Circuit.
Continue Reading Guest Post: The Fifth Circuit Takes the Risk Out of Materialization-Of-The-Risk Cases

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Daniel Tyukody

Almost every securities class action lawsuit that is not dismissed eventually settles; very few of the cases actually go to trial. However, there have been the rare cases that have gone to trial and there are some important lessons to be learned from these cases. In the following guest post, Daniel Tyukody of the Goodwin Procter law firm takes a look at recent cases in which the plaintiffs prevailed at trial, and the ways that in the post-trial phase, the defendants were able to reduce the damages that the plaintiffs were able to secure. The lessons from these cases have important implications for negotiations in the many securities class action lawsuit cases that settle.

I would like to thank Dan for his willingness to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Dan’s article.

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Introduction

Securities class actions that reach verdict are rare, but these rare events provide valuable insights for negotiating the roughly half of all cases that result in settlement.[1]  This article describes techniques for minimizing class damages following a judgment for plaintiffs, focusing upon two recent trial victories by plaintiffs, namely In re Vivendi Universal Sec. Litig. (Vivendi) [2] and Jaffe Pension Plan v. Household Int’l, Inc. (Household),[3] as well as the author’s experience defending an issuer with a final, nonappealable verdict in its post-judgment claims process, which resulted in a settlement and the vacating of the fraud judgment.[4]
Continue Reading Guest Post: Winning the Securities Litigation Damages Battle After Losing the Liability War

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Renzo Comolli
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Jorge Baez

In its June 2014 opinion in Erica P. John Fund, Inc. v. Halliburton Co., the United States Supreme Court held that in connection with a motion for class certification in a securities class action lawsuit, a defendant should have the opportunity to try to rebut the presumption of reliance by showing that the alleged misrepresentation did not impact the defendant company’s share price. The case itself was remanded to the district court for further proceedings in light of the Supreme Court’s ruling. On July 25, 2015, the District Court issued its ruling on the motion for class certification based on the principles the Supreme Court enunciated. A copy of the District Court ruling can be found here.

In the following guest post, Renzo Comolli and Jorge Baez of NERA Economic Consulting take a look at the district court’s ruling on the class certification motion. Renzo and Jorge are both Senior Consultants for NERA.

 

I would like to thank Renzo and Jorge for their willingness to allow me to publish their article as a guest post here. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you would like to submit a guest post. Here is Renzo and Jorge’s guest post.

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On 25 July 2015, the United States District Court for the Northern District of Texas issued the much-anticipated ruling on class certification in Erica P. John Fund, Inc. v. Halliburton Co. The economic analysis of price impact was front and center in the Court’s ruling.

This ruling follows the Supreme Court’s decision on price impact that is widely known as Halliburton II. Although this ruling involves facts that are unique to Halliburton’s particular disclosures, attorneys may look at it as a roadmap for guiding economic analysis of price impact in future cases in the post-Halliburton II world.
Continue Reading Guest Post: Update on Economic Analysis of Price Impact in Securities Class Actions Post-Halliburton II

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Bruce Ericson
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Stacie Kinser

One of the most important ways a company can try to avoid potential liability under the federal securities laws is to incorporate precautionary disclosure in its public statements and regulatory filings. However, in a June 23, 2015 decision in In re Harman International Industries Securities Litigation (here), the D.C. Circuit provided a reminder to companies on the importance of keeping their precautionary disclosures up-to-date.

 

In the following guest post, Bruce A. Ericson and Stacie Kinser of the Pillsbury Winthrop Shaw Pittman LLP law firm take a detailed look at the D.C. Circuit’s recent opinion and consider the decision’s practical implications for companies’ precautionary disclosures. Ericson is a partner and Kinser is an associate at the Pillsbury law firm. Ericson is also Managing Partner of Pillsbury’s San Francisco Office, and Co-Head of Pillsbury’s Securities Litigation and Enforcement Team. A version of this article previously was published as a Pillsbury client alert and on Law 360.

 

I would like to thank Bruce and Stacie for their willingness to publish their article as a guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Bruce and Stacie’s guest post.

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SEC Rule 10b-5 makes it unlawful to misstate a material fact (or omit to say something if the omission would render misleading what you do say) in connection with the purchase or sale of a security. The Private Securities Litigation Reform Act (PSLRA) created a safe harbor for statements that are forward-looking and accompanied by meaningful cautionary language. In a recent decision, the D.C. Circuit revisited the standard for forward-looking statements, and placed special emphasis on the accompanying cautionary language, holding that statements which fail to account for historical facts cannot be meaningful. The opinion should serve as a timely reminder for companies to review and update their cautionary language.
Continue Reading Guest Post: Court of Appeals Warns Against Complacency in the PSLRA’s Safe Harbor

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Jack Clabby
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Avi Kaufman

One of the recurring issues with which federal district courts wrestle is the right way to assess securities complaint allegations based on confidential issues. Another recurring issue has to do with the assessment of trading in company securities by corporate insiders pursuant to Rule 10b5-1 trading plans. A recent decision by Second Circuit addressed both of these issues. The Second Circuit’s opinion in Employees’ Retirement System of Government of the V.I. v. Blanford, Case No. 14-cv-199 (2d Cir. July 24, 2015), can be found here.

 

In the following guest post, John E. Clabby and Avi R. Kaufman of the Carlton Fields Jorden Burt law firm review the Second Circuit’s opinion and in particular consider the appellate courts consideration of the confidential witness and Rule 10b5-1 trading plan issues. The authors’ bios appear at the end of the post.

 

I would like to thanks Jack and Avi for their willingness to publish their article on my 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 Jack and Avi’s guest post.

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Late last week, the U.S. Court of Appeals for the Second Circuit reversed the dismissal of a shareholder class action against the makers of Keurig coffeemakers and their ubiquitous “K-Cups.” In so doing, the Second Circuit further described the standard for stating claims for securities fraud based on confidential witnesses and in the face of a 10b5-1 trading plan.
Continue Reading Guest Post: Second Circuit Revives Securities Fraud Class Action Against the Manufacturer of the Keurig Coffeemaker

petrobrasIn an interesting opinion addressing several of the critical issues in the U.S. securities lawsuit arising out of Petrobras bribery scandal, on July 30, 2015, Southern District of New York Judge Jed Rakoff denied in part and grated in part the defendants’ motions to dismiss. Among other things, Judge Rakoff rejected the company’s “adverse interest” argument, in which the company had tried to argue that the complicit corporate executives’ knowledge of the bribery scheme and consequent awareness of the misrepresentations of the company’s financial condition could not be attributed to the company. However, Judge Rakoff dismissed the claims asserted under Brazilian law on behalf of shareholders who purchased their Petrobras shares on the Bovespa, the São Paulo Stock exchange, ruling that these shareholders’ claims were subject to the mandatory arbitration clause in the company’s bylaws. A copy of Judge Rakoff’s opinion can be found here.
Continue Reading Petrobras Securities Suit: Judge Rakoff Rejects Company’s “Adverse Interest” Argument; Rules Brazilian Investors Must Arbitrate Brazilian Securities Law Claims

vascoIn the latest example of a case where alleged violations of U.S. trade sanction laws have led to a follow-on civil lawsuit, on July 28, 2015, a plaintiff shareholder filed a securities class action lawsuit against VASCO Data Security International and certain of its directors and officers. The lawsuit follows the company’s announcement that it has self-reported a possible violation of federal prohibitions against sales of goods to parties in Iran. A copy of the plaintiff’s complaint can be found here.
Continue Reading The Developing Phenomenon of Trade Sanction-Related Follow-On Civil Litigation