More About State Court Secondary Offering-Related Securities Class Action Suits

In a recent post, I commented on the settlement of a state court securities class action lawsuit relating to the defendant company’s secondary offering, suggesting in the post among other things that the state court suit was noteworthy because it was the first state court secondary offering-related securities suit of which I was aware. In response to the post, I received a helpful and informative email from my friends at Stanford Securities Litigation Analytics, who pointed out that over time there actually have been quite a number of state court secondary offering-related securities suits. Following their direction, I was able to research this issue further myself using their site’s analytic tools and confirm a number of their observations to me about these kinds of lawsuits. Turns out, as they informed me, there have in fact been a number of state court secondary offering-related securities lawsuits, both pre- and post-Cyan, as set out below. This information could have significant implications both for companies conducting secondary offerings and for their D&O insurers. Continue Reading

Guest Post: The European Union Whistleblower Directive: Overdue Protective Shield

Frank Hülsberg

Burkhard Fassbach

In the following guest post, Frank Hülsberg, a Partner for Governance, Risk, Compliance & Technology at Warth & Klein Grant Thornton AG in Düsseldorf, and Burkhard Fassbach, a D&O-lawyer in private practice in Germany, take a look at the EU’s new Whistleblower Directive. I would like to thank Frank and Burkhard for allowing me to publish their article. 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 Frank and Burkhard’s article.




The aggressive tax avoidance models of a Big Four accounting firm in Luxembourg, money laundering at Danske Bank or the stretching of cancer drugs by a cytostatic pharmacist in the German city of Bottrop – three very different cases that would not have been discovered, or would probably have been discovered much later, without whistleblowers.


The gratitude shown to whistleblowers by their employers and the judiciary remained within reasonable limits – many have paid for their reports with the loss of their jobs, high legal fees and sometimes even prison sentences. While other EU countries such as Italy, France or Sweden offer at least basic protection through national laws, there is no protection for whistleblowers in Germany so far.


Now the German legislator has to put up a protective umbrella for whistleblowers within the next two years after the European Parliament passed the EU-Whistleblower Directive in April 2019.


According to the Directive, companies with more than 50 employees or a turnover of more than EUR 10 million p.a. as well as financial service providers and regional / state administrations must ensure that an internal whistleblower reporting channel is set up to protect the whistleblower’s identity. This internal reporting channel can expressly also operated by a third party.


In principle, a whistleblower must first select the internal message path. If this was unsuccessful or no satisfactory response was received within three (maximum six) months, or if the internal report would endanger the clarification, the whistleblower can also contact the competent authority directly. According to the Directive, the authorities also have extensive obligations for reporting channels similar to those of companies. If the official channels have not been successful or if the public interest is acutely endangered, the whistleblower should also be able to address the public directly.


The aim is to protect all whistleblowers who, as part of their “work-related activities,” have privileged access to information on infringements which may cause serious damage to the public interest”. This also covers trainees, applicants, shareholders and even employees of suppliers.


The protective measures envisaged include a ban on sanctions against the whistleblower, whereby the burden of proof – e.g. in the event of dismissal – lies with the employer that it was not pronounced as a retaliatory measure. Under the Directive, companies or persons acting on behalf of the company who obstruct the submission of information or expose the whistleblower to reprisals shall be subject to adequate and dissuasive sanctions.


The Directive applies only to infringements of EU law and not to infringements of German law such as tax law or criminal offences under the Criminal Code. Although the Directive thus covers a large part of the critical areas, such as money laundering, consumer protection or public procurement, the potential whistleblower will not want to check first whether the reported infringement and thus his protection falls within the scope of the EU Directive. Here the German legislator is called upon to create clarity.


The Directive quickly triggered a controversial, sometimes heated debate on the following fundamental questions:


(1) Is the predefined message path (initially internal reporting) the correct one?

(2) Is there potential for conflict with other standards?

(3) How expensive and time-consuming will this be?

(4) What is the moral dimension of whistleblowers?


The first two questions are answered quickly – in case of doubt, a look at the original sources will help. The guideline offers sufficient exceptions to skip the internal reporting path. The Prima Facie conflicts concerning the German Act Establishing the Federal Financial Supervisory Authority (FinDAG) (direct notification to the authorities), the German Trade Secrets Act (GeschGehG) – noble attitude vs. suitability to preserve the public interest – and the EU General Data Protection Regulation (GDPR) (right to information also on whistleblower data, State Labor Court of Baden-Wuerttemberg in December 2018) can be resolved with a glance at the law or the judgement: Pursuant to section 5 No. 2 GeschGehG, the acquisition, use or disclosure of a trade secret is justified if it takes place to uncover an unlawful act or a professional or other misconduct and if the acquisition, use or disclosure is suitable to protect the general public interest. The whistleblower must act only to detect an unlawful act or professional or other misconduct.  The “good will” of the whistleblower alone is not sufficient, but an actual misconduct must be uncovered. The bona fide whistleblower, however, is protected by the general rules on error. According to the landmark decision of the Baden-Württemberg state labor court, Daimler must give a dismissed employee full access to the data collected about him – including information about internal investigations. The plaintiff was granted the right to inspect his personnel file and the data collected by the Business Practises Office (BOP) department. Daimler, on the other hand, opposes the classification of the BOP file as part of the personnel file because this would reveal the identity of whistleblowers. According to the ruling, experts expect a wave of lawsuits. Daimler filed an appeal so that the next instance to decide on the case will be the Federal Labor Court (BAG). Question 3 can be solved in a way that is compatible with established standard solutions.


With regard to question 4 the discussion about the moral dimension remains, where the camps are currently facing each other almost irreconcilably. Denunciation, block-keeper mentality and the destruction of the culture of trust are the dominant terms for whistleblowers. However, experience with whistleblower systems shows that the abuse rate is very low and that massive misconduct would not have been uncovered without whistleblowing. The protection now to be created was overdue. The change of attitude towards the issue is also overdue and must now be achieved in objective debates.

Guest Post: The Looming SEC IEO Smackdown

John Reed Stark

In the following guest post, John Read Stark, President of John Reed Stark Consulting and former Chief of the SEC’s Office of Internet Enforcement, takes a look at the latest cryptocurrency phenomenon — the  “initial exchange offering,” or IEO. A version of this article originally appeared on Securities Docket. I would like to thank John for allowing me to publish his article. 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 an article Here is John’s article. Continue Reading

Guest Post: Courts Reject Wage and Hour Claims as Employment-Related Misrepresentation Theory

In the following guest post, Kelly Johnson of Hiscox USA and  James Talbert and Elan Kandel of Bailey Cavalieri took a look at a recent judicial decision addressing the question of whether a wage and hour claim represents an employment related misrepresentation within the meaning of an Employment Practices Liability Insurance policy. I would like to thank Kelly, James, and Elan 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 Kelly, James and Elan’s article.   Continue Reading

Recent African e-Commerce IPO Draws Securities Lawsuit

One of the more interesting developments in the financial markets this year has been the number of so-called “unicorns” that have completed their IPOs. Among others, Uber, Lyft and Pinterest made their debut in recent weeks. Some of these companies have stumbled as they began trading, and indeed some have already been sued in securities class action lawsuits (as I noted here with respect to Lyft). Among the companies completing IPOs in recent weeks is Jumia Technologies AG, an African e-commerce platform that has been called Africa’s first unicorn, whose American Depositary Shares began trading on the NYSE on April 12, 2019. Even though Jumia’s securities have been trading barely a month, the company has been hit with a securities lawsuit, following a short-seller’s report about the company. Continue Reading

SEC Public Company Enforcement Activity Remained Near Record Levels in FY2019’s First Half

Driven in significant part by the new actions filed as part of the SEC’s Share Class Selection Disclosure Initiative, the number of SEC enforcement actions against public companies and subsidiaries remained at “near-record levels” in the first half of fiscal year 2018, according to a recent report. The report, published by Cornerstone Research in collaboration with the NYU Pollack Center for Law & Business and entitled “SEC Enforcement Activity: Public Companies and Subsidiaries Midyear FY 2019 Update,” states that the enforcement activity levels in the first half of FY 2019 continued “a resurgence of activity that began in the second half of FY 2018.” The report can be found here. A May 15, 2019 press release describing the report can be found here. Continue Reading

Del. Court Addresses Summary Judgement Issues in Dole Foods Take-Private Transaction Insurance Coverage Litigation

The long-running insurance coverage litigation arising from the settlements of the shareholder claims filed in connection with the Dole Food Company’s November 2013 “going private” transaction continues to work its way through the Delaware court. In the latest development in the coverage dispute, a Delaware Superior Court judge has entered two separate  interesting orders, the first granting the insurer’s motion for summary judgment on the defendants’ bad faith counterclaim, and the second denying the insurers’ summary judgment motions, among other things, on the consent to settlement and cooperation clause issues. Delaware Superior Court Judge Eric Davis’s May 1, 2018 opinion on the bad faith counterclaim can be found here.  Judge Davis’s May 7, 2018 opinion on the consent to settlement and cooperation clause issues can be found here. Continue Reading

Secondary Offerings and State Court Securities Suits

As readers will recall, in March 2018, the U.S. Supreme Court held in the Cyan case that state courts retain concurrent jurisdiction for liability actions under the Securities Act of 1933. Commentators have correctly identified this decision as primarily of concern to IPO companies. However, one question I regularly get is whether Cyan could mean that companies conducting secondary offerings could also face state court class action securities litigation. I have usually answered this question by saying that while it is theoretically possible, for a number of reasons I thought it was relatively unlikely. Besides, I usually have added, I am not aware of any class action lawsuits in which claimants have filed ’33 Act claims relating to a secondary offering in state court. That is, I was not aware – until now. Continue Reading

Guest Post: Marijuana:  Big Opportunities and Challenges for Insurers

Paul T. Curley

One of the more interesting businesses to emerge in recent years has been the legal marijuana industry. Because of lingering legal issues, this industry’s emergence has been accompanied by a host of complications. These complications in turn raise a number of challenges for insurers seeking to get involving in this industry. In the following guest post, Paul T. Curley takes a look at the opportunities and challenges for insurers in connection with the legal marijuana industry. Paul is a partner in the Insurance Coverage and Coverage Litigation Group at Kaufman Borgeest & Ryan LLP. I would like to thank Paul 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 Paul’s article. Continue Reading

Guest Post: Improving Securities Class Action Outcomes Through Early Damages Analysis

Doug Greene

John McCarrick

In the following guest post, Doug Greene and John McCarrick take a look at the way that securities class action lawsuits settle and make a suggestion of a way for D&O insurers and defense counsel to try to improve settlement outcomes. Doug is the leader of BakerHostetler’s firmwide Securities and Governance Litigation Team. John is the chair of White and Williams’ firmwide Financial Lines Group. A version of this article previously appeared on Law 360. I would like to thank Doug and John for their willingness to allow me to publish their article as a guest post. 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 Doug and John’s article. Continue Reading