by T. GormanPosted on Posted in SECActions

The filing of securities class actions increased significantly last year in the U.S. In Canada the number of such actions filed also increased last year. Over the last two years in Canada however, the number of securities class actions filed has not matched that of earlier years. This is in “stark contrast” to the U.S., according to a new report by NERA Economic Consulting titled Trends in Canadian Securities Class Actions, 2016 Update (Feb. 22, 2017)(here).

Last year nine securities class actions were filed in Canada. That more than doubled the four brought in 2015. At the same time, it is less than the 13 brought in 2014, 11 in 2013, 10 in 2011 and 15 filed in 2010. This contrasts significantly with the U.S. where the number of these cases has increased significantly in recent years.

The risk of being named in a securities class action in Canada is also far less than in the U.S. Over the last six years 44 securities class actions were filed against TSX listed firms, according to NERA. That represents about 2.9% of the average number of firms listed on the exchange meaning that there is about a 0.5% chance of being named in such a suit. For firms listed on the TSX Venture Exchange, the risk is about 0.4%. In contrast, the risk of being named in such a suit for a firm listed on a major U.S. exchange, on average, is about 3.1% for the period from 2011 through 2016, the same time span used to compute the risk for the Canadian issuers.

Over the last 20 years a disproportionate number of the Canadian class action suits have been filed in Ontario. For the period 1997 through 2005 about 55% of those suits were filed in Ontario. For the period 2006 through 2016 that percentage increased to 62% of the suits filed.

Six of the nine Canadian cases filed in 2016 had a parallel action brought in the U.S. This is consistent with trends in earlier years in which the majority of the Canadian class actions had a parallel U.S. case. A key difference between the U.S. and Canada is the “responsible issuer” definition in the provincial securities laws. Under this provision an action was brought against Volkswagen AG in Canada last year although the firm’s shares are not listed there. The action parallels a U.S. filing where the firm’s shares are listed. Other, similar actions, have been filed. The “responsible issuer” cases cannot be brought in the U.S. Four Canadian firms were named in suits filed in the U.S. but not in Canada.

Canadian class actions were brought last year against firms engaged in a number of sectors. Those included consumer durables and services, health, technology and non-energy minerals. No suit was brought against a financial services firm last year. Three of the cases brought in 2016 involved the non-energy mineral sector. This is consistent with a trend observed last year, according to NERA – an increasing proportion of new cases involving firms in the minerals sector.

Finally, only two Canadian securities class actions settled last year. That is down significantly from the 7 in 2015, 6 in each of 2014 and 2013 and just above the 3 in 2012. Only one of the two settlements involved cross-border actions. Historically the domestic cases settle on average for about $6.2 million representing about 12.1% of the claimed compensatory damages. In contrast, the cross-border cases settle on average for about $21.9 million, according to NERA.

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by T. GormanPosted on Posted in SECActions

The SEC received a split decision from a jury in an insider trading case that spawned three separate enforcement actions and ten different traders. The jury found in favor of the Commission and against one first tier tippee – one who obtained his information directly from the tipper – and against the agency and in favor of a second tier tippee. SEC v. Melvin, Civil Action No. 1:12-cv-02948 (N.D. Ga. Verdict entered Fe. 17, 2017).

The action centered on the tender offer by French pharmaceutical company Sanofi-Aventis for Chattem, Inc., announced on December 21, 2009. The offer was for $93.50 per share, a 32.60% premium over the closing share price the day before the announcement. In November 2009 the Chattem board members were informed that Sanofi had a serious interest in acquiring the company. The next month one of its board members consulted with his personal accountant, defendant Thomas D. Melvin, Jr., about 50,000 Chattem options he held that would be automatically exercised if there was a change in the ownership of the company.

After learning about the deal Mr. Melvin is alleged to have told four individuals about the pending deal. Each traded and was named in one of the three enforcement actions that emanated from the initial tips. Mr. Melvin is alleged to have tipped: Charles Cain, his longtime broker, who purchased 1,500 shares of Chattem which yielded $36,680.10 in trading profits following the announcement; Joel C. Jenks, a close friend, who purchased 1,000 shares of Chattem which yielded $24,337.43 in trading profits; R. Jeffrey Rooks, his partner at the accounting firm who purchased $16,000 in Chattem shares, yielding trading profits after the announcement of $6,020.39 and was named as a defendant in a separate action; and C. Roan Barry, a close friend who purchased 1,700 shares which yielded $41,859.71 in trading profits following the announcement and was also named in a separate action.

Each person tipped by accountant Melvin is alleged to have tipped another: Mr. Cain told his friend, defendant Peter Doffing, named as a defendant in the Melvin case, and an unidentified individual; Mr. Doffling purchased out of the money call options which yielded trading profits of $378,979.32 following the deal announcement; the unidentified individual bought 250 shares which yielded $5,877.35 in illicit trading profits; Mr. Jenks is alleged to have tipped another unidentified individual who purchased call options which yielded trading profits of $38,802.71; Mr. Rooks tipped another unidentified individual who purchased 725 shares of stock which resulted in $12,461.75 in illicit trading profits; and Mr. Berry tipped Ashley J. Coots, a friend and neighbor who, in turn tipped Casey D. Jackson and another person. Mr. Coots purchased 540 shares of Chattem which resulted in $13,231.40 in illicit trading profits while Mr. Jackson bought 100 shares which yielded $2,369.78 in trading profits; the other person tipped by Mr. Coots bought 165 shares yielding $4,128.63 in profits following the deal announcement.

The complaint against defendants Melvin, Cain, Jinks and Doffing alleged violations of Exchange Act Sections 10(b) and 14(e). The Melvin case went to trial. Prior to that time defendants Melvin and Cain settled. Each agreed to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 10(b) and 14(e). Defendant Melvin also agreed to pay disgorgement, on a joint and several basis with Mr. Cain, of $36,991.20 along with prejudgment interest, and $28,840.75 on a joint and several basis with Mr. Jenks, also with prejudgment interest. In addition, Mr. Cain agreed to pay a penalty of $36,991.20.

Messrs. Jinks and Doffing went to trial. The jury returned a verdict in favor of Mr. Jinks and against Mr. Doffing.

See also SEC v. Coots, Civil Action No. 1:12-cv-02986 (N.D. Ga. Filed Aug. 28, 2012); SEC v. Jackson, Civil Action No. 1:12-cv-02987 (N.D. Ga. Filed Aug. 28, 2012); SEC v. Rooks, Civil Action No. 1:12-cv-02988 (N.D. Ga. Filed Aug. 28, 2012). Defendants Berry, Coots, and Rooks settled with the Commission. Each consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 10(b) and 14(e). Mr. Jackson also settled, consenting to the entry of an injunction based on Exchange Act Section 10(b). In addition, each agreed to pay disgorgement, prejudgment interest, and a penalty as follows: Mr. Barry, $55,091.51 and a penalty in the same amount; Mr. Coots $17,360.51 and a penalty of $13,231.80; Mr. Jackson $2,369.78 and a penalty of $1,184.89; and Mr. Rooks $18,482.14 and a penalty of $4,620.54. Mr. Rooks also agreed to be barred from appearing and practicing before the Commission as an accountant. His settlement reflects his cooperation with the Commission.

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