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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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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What to Watch Now in the World of D&O
Every year just after Labor Day, I take a step back and survey the most important current trends and developments in the world of Directors’ and Officers’ liability and D&O insurance. This year’s survey is set out below. Once again, there are a host of things worth watching in the world of D&O.
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The Developing Phenomenon of Trade Sanction-Related Follow-On Civil Litigation
In 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.
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Cornerstone Research Releases Midyear Securities Litigation Report
The number of federal securities class action lawsuit filings in the first half of 2015 was above the number of securities suits in the first half of 2014, although below long-term semiannual averages, according to the latest report from Cornerstone Research. The report, entitled “Securities Class Action Filings: 2015 Midyear Assessment,” can be found here. Cornerstone Research’s July 30, 2015 press release about the report can be found here. My own analysis of the first half securities class action lawsuit filings can be found here.
It is very important to note that while the Cornerstone Research study reports a decline in the absolute number of securities class action lawsuit filings, the rate of securities litigation relative to the number of U.S.-listed companies remains elevated compared to historical levels. As discussed below, though the absolute number of filings is down, the likelihood that any given U.S.-listed company will get hit with a securities lawsuit is actually up compared to long-term averages.
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Meanwhile, Back at the FDIC Failed Bank Litigation Ranch
As the global financial crisis has receded further into the past and as other issues have crowded to the top of the agenda, the remaining vestiges from the credit crisis have faded into the background. But though the peak of the crisis is now nearly seven years behind us, the crisis remnants continue to work their way through the legal system. In particular, a large part of the wave of failed bank litigation that the FDIC filed against the former directors and officers of many of the U.S. banks that have failed continues to grind on, as evidenced in the FDIC’s latest professional liability litigation update, which the agency posted on its website on July 28, 2015 (here).
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NERA Reports on Latest Wage and Hour Lawsuit Settlement Trends
One of the most significant areas of litigation in the employment practices liability arena has been the employee lawsuits seeking damages for employer violations of federal and state wage and hour laws. But while these kinds of lawsuits remain important, many of the trends in the settlements have shifted in the most recent years, according to a recent study from NERA Economic Consulting. The July 14, 2015 report, entitled “Trends in Wage and Hour Settlements: 2015 Update,” can be found here. NERA’s July 14, 2015 press release about the report can be found here.
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The Beginning of the End of the Merger Objection Lawsuit Curse?
One of the great curses of the corporate litigation environment in recent years has been the proliferation of merger objection suits, the incidence of which has gotten to the point that now just about every large merger deal draws at least one lawsuit, and sometimes several. However, if recent developments in the Delaware Chancery Court are any indication, the courts are as appalled by this seemingly undifferentiated mass of litigation as are the parties to the transactions. Two recent decisions may suggest that the Delaware courts, at least, are no longer willing simply to accept the standard “disclosure only” settlements that typically resolve these kinds of cases, which in turn may mean that the cases could become less attractive to the plaintiffs’ lawyers that bring these cases.
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Advisen Report: Declining Corporate and Securities Litigation Filings Continued in Second Quarter, But Most Recent Quarterly Trend May be Upward
The recent annual trend toward declining numbers of corporate and securities lawsuit filings continued in the first half and second quarter of 2015, although second quarter activity did increase slightly compared to the prior quarter, according to a report from the insurance industry information firm, Advisen. If the increase in the second quarter numbers compared to the first were to continue for the remainder of the year, the number of new corporate and securities lawsuits during the year could see an annual increase for the first time in four years. The July 15, 2015 Advisen report, entitled “D&O Claims Trends: Q2 2015” can be found here.
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Another U.S. Securities Suit Arising from Overseas Corruption Investigation
In an earlier post, I noted that a significant factor driving securities litigation filings so far this year has been the rising number of U.S. securities lawsuits involving non-U.S. companies. A number of different factors are contributing to the filing of these suits, but among the factors is the increasing numbers of U.S.-listed non-U.S. companies that have been caught up in corruption investigations in their home countries.
The highest profile company among the firms involved in corruption probes is the Brazilian petroleum company, Petrobras, which has been the target of growing Operação Lava Jato (Operation Car Wash) corruption investigation in Brazil. Petrobras, whose ADSs trade on the NYSE, was hit with a class action securities lawsuit in the U.S. in December 2014 (as discussed here).
The continuing Petrobras investigation has spread to a number of other Brazilian companies. Among other things, the investigation has led to the recent arrests of two high profile executives in the construction industry in Brazil, as discussed here. The leaders of the nation’s two largest engineering and construction companies, Marcelo Odebrecht, head of Odebrecht SA, and Otavio Marques Azevedo, head of Andrade Gutierrez, were taken into custody in raids linked to the Petrobras scandal.
The investigation has now led to yet another U.S. securities class action lawsuit against yet another Brazilian company. On July 1, 2015, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Braskem, S.A. and certain of its directors and officers. Braskem, which is based in Brazil, is Latin America’s largest petrochemical company.
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