Largely due to a significant decline in the number of filings during May and June, the number of federal court securities class action lawsuit filings in the first half of 2020 was well below the number of filings at the same point last year – although still well above long-term historical levels. The number of first half filings was significantly boosted by a cluster of securities suit filings against cryptocurrency companies that were sued on a single day in April, as well as by the number of coronavirus outbreak-related securities suits.
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Guest Post: “Stock Drop” Lawsuits
One of the shorthand expressions sometimes used to refer to shareholder class action litigation is to call them “stock drop lawsuits.” Securities suits do indeed involve stock drops. But how often do stock drops actually result in lawsuits? That is the interesting questions asked in the following guest post from Stanford Law School Professor Michael Klausner and Sam Blake Curry and Jason Hegland of Stanford Securities Litigation Analytics. 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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The Post-Cyan Section 11 Litigation Environment
Over the last two years, there have been two important judicial decisions concerning Section 11 litigation. In March 2018, the United States Supreme Court unanimously held in the Cyan case that state courts retain concurrent jurisdiction over lawsuits asserting liability claims under the Securities Act of 1933, a development that has increased the number of state court securities class action lawsuits. In March 2020, in Salzberg v. Sciabacucchi, the Delaware Supreme Court upheld the facial validity of corporate charter provisions requiring Section 11 claims to be litigated in federal court. A June 22, 2020 post of the CLS Blue Sky Blog entitled “State Section 11 Litigation in the Post-Cyan Environment (Despite Sciabacucchi)” (here) assesses the Section 11 litigation environment in light of these developments. The paper, written by Stanford Law School Professor Michael Klausner and Jason Hegland, Carin LeVine, and Jessica Shin of Stanford Securities Litigation Analytics, summarizes the authors’ more detailed academic paper (here), as discussed below.
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Do These Two New Lawsuits Belong on the List of COVID-19-Related Securities Suits?
As readers know, since the beginning the coronavirus outbreak in the U.S., I have been tracking the coronavirus-related D&O lawsuits as they are filed. As the lawsuits have started to accumulate, one challenge has been keeping a firm grasp on what it is that makes a lawsuit coronavirus-related. In the following post, I discuss two recently filed securities class action lawsuits that after some deliberation I have decided to include on the list of coronavirus-related securities suits. Though I have included them on the list, I will be the first to acknowledge that that the inclusion of these lawsuits, particularly the second of the two discussed below, is not beyond question. My hope is that by going through my logic for including the two lawsuits and my reasoning for including them on the list that readers will weigh in and share their thoughts about whether either or both of these lawsuits properly should be classified as coronavirus-related. I describe the two recently-filed lawsuits below, along with a description of my reasons for including them on the list.
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Investor Files COVID-19 Related Securities Suit Against Testing Company
A plaintiff shareholder has filed a securities class action lawsuit against a diagnostic testing company alleging that the company misrepresented the accuracy of its COVID-19 antibody test. The company’s share price, which had risen on the news of the FDA’s authorization of the company’s test, declined after the FDA announced it was revoking the authorization due to performance concerns with the accuracy of the test. As detailed further below, this new lawsuit is the latest in a series of securities suits that have been filed since the coronavirus outbreak began against companies that are alleged to have made misrepresentations concerning their ability to provide coronavirus-related therapies, testing, or equipment.
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Securities Suit Hits Company that Claimed 100% Accurate COVID-19 Tests
In the latest securities class action lawsuit alleging that the defendant company tried to position itself to investors as able to profit from the coronavirus outbreak, a plaintiff shareholder has filed a securities suit against a company that claimed to have developed COVID-19 tests that were 100% accurate. The plaintiff alleges company’s share price soared based on the company’s statements, but later fell when news reports and regulator statements began to circulate casting doubt on the company’s claimed testing accuracy. A copy of the June 15, 2020 complaint filed against Co-Diagnostics, Inc. can be found here.
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COVID-19 and D&O Insurance: The Latest Update
A lot has happened since early March, when I first wrote about the possibility that the coronavirus outbreak could lead to D&O claims. At that time, there were only 43 confirmed cases of COVID-19 in the United States and six deaths. Now, three months later, there have been over 2 million confirmed cases in the U.S. and over 115,000 deaths. Along with the public health crisis, a dramatic business downturn has unfolded over the last three months as well, one that likely will continue to effect the economy for months to come. Among other things, in the wake of these dramatic events, a number of disputes have developed, including litigation affecting corporate directors and officers. In this latest installment in my continuing series of monthly reports about the D&O consequences arising from the coronavirus outbreak, I have provided an overview of the developing claims trends, as well as the impact both the circumstances and the claims trends have had on the D&O insurance marketplace.
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Securities Suit Alleges Cybersecurity Company Misrepresented COVID-19 Impact
The troubled deal in which Advent International Corporation was to acquire cybersecurity firm Forescout Technologies, Inc. is already the subject of litigation pending in Delaware Chancery Court, and indeed a trial in the Delaware merger dispute case is scheduled for July. Now Forescout shareholders have filed a separate securities lawsuit, alleging that between the time the deal was announced in February 2020 and the time that Forescout announced in May 2020 that Advent had advised Forescout that Advent would not “consummate” the acquisition, Forescout made a series of misrepresentations about the company’s financial condition and performance. Among other things, the investors allege that Forescout misrepresented or omitted to disclose the impact that the COVID-19 outbreak was having on its financial performance. A copy of the plaintiffs’ June 10, 2020 complaint can be found here.
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Dismissal Motion Granted in Wynn Resorts #MeToo-Related Securities Suit
On May 27, 2020, in the latest #MeToo-related securities class action lawsuit to fail to survive initial pleading hurdles, Judge Gloria M. Navarro granted the defendants’ motion to dismiss the securities suit filed against Wynn Resorts based on allegations that the company had failed to disclose sexual misconduct of its former CEO, Stephen Wynn. The ruling joins several other recent dismissal rulings in #MeToo-related securities suits – although, as noted below, there have also been several noteworthy settlements in #MeToo suits as well. A copy of Judge Navarro’s opinion can be found here.
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Life Sciences Companies: Frequent Securities Suits Frequently Dismissed
As I have documented in prior posts (for example, here), publicly traded life sciences companies are frequent targets of securities class action lawsuits. But life sciences companies’ securities litigation exposure may be well-known, it is not always as appreciated that the securities suits against life sciences companies are often dismissed. Two recent rulings in securities suits against life sciences companies – Antares Pharma and Nabriva Therapeutics – provide recent examples of securities suits in which the courts have granted the companies’ dismissal motions. The rulings illustrate the extent to which life sciences companies often are able to successfully defend themselves against securities suits.
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