SECURITIES LITIGATION TRENDS ABROAD
The number of actions settled by the SEC in the last fiscal year remained essentially constant, according to a report prepared by NERA Economic Consulting. In contrast, the number of securities class actions filed last year ticked up slightly in the U.S. compared to the prior year (here). Securities litigation in other countries such as Canada, the U.K. and Australia, however, generally increased, according to other NERA reports.
The filing of securities class actions in Canada increased significantly in 2011, continuing a recent trend. In 2011 fifteen new cases were filed, compared to ten in 2010 and nine in 2009. Indeed, the number filed in 2011 is almost triple the average number of actions brought from 1997 through 2010.
The largest number of cases filed in 2011 were so-called Bill 198 actions. Those relate to the adoption of a continuous disclosure system in late 2005. A number of the new cases involve Chinese issuers. This trend prompted the Ontario Securities Commission to announce in July 2011 that it is conducting a targeted review Canadian issuers with significant operations in emerging markets.
Many Canadian domestic companies also risk being named in securities class actions in the U.S. the report concludes. Those cases almost always involve companies with securities listed on U.S. exchanges. In 2011 five Canadian domiciled companies were named as defendants in six securities class action filings in the U.S., an increase from the three cases filed each year in 2009 and 2010. Since 1997 Canadian domiciled companies have been named as defendants in 74 U.S. securities class actions. Of those cases 28% had a parallel class action filed in Canada. Since Bill 198 was instituted at the end of 2005 however 46% of the U.S. class actions filed against Canadian domiciled companies have had a parallel action filed in Canada.
In the U.K. NERA measured regulatory enforcement trends in terms of fines imposed. For fiscal 2010/2011 the consulting firm found that fines were at record levels. Standing alone however, that finding does not fully reflect enforcement activity. Aside from a few large actions where the fines were imposed at record levels, in fact the total amount of fines imposed decreased. Furthermore, while the FSA is imposing more fines than previously, it has focused on unsuitable investments and mis-selling. In contrast, market abuse cases against firms are rare, the report concludes.
Other key findings include:
- Total fines for fiscal 2010/2011: â‚¤98.6 million compared to â‚¤33.3 million for the prior fiscal year;
- Of total fines imposed in fiscal 2010/2011 â‚¤64 million were in four cases; and
- For individuals in fiscal 2010/20 the number of fines imposed was more than ten times the average over the six years prior to fiscal 2008/2009.
Enforcement actions by the Securities and Exchange Surveillance Commission centered on claimed misstatements reached a record high of 12 in 2010, up from nine in the prior year, according to NERA. Actions by the SESC tend to foretell trends in private litigation according to the report.
In private litigation the number of judgments increased to a record 56 cases in 2010, up from 14 in 2009. Indeed, the 56 civil and criminal judgment cases in 2010 more than doubled the average of 25 per year from 1998 through 2009. The number of judgments centered on alleged misstatements, however, decrease d to seven in 2010 in contrast to fourteen in the prior year.
In Australia the number of securities class action filings continued to increase. In 2009 six actions were filed compared to five in 2008 and three each year in 2006 and 2007. A key to the increase in the number of cases is the manner of funding. Previously, according to the report, until recently there was a strong disincentive to bring an action because of the risk of incurring significant legal costs. The emergence of commercial litigation funding has altered the incentives for, and ability of, investors to participate.