ALM Properties, Inc.
Page printed from: Corporate Counsel
Select 'Print' in your browser menu to print this document.
Securities Litigation Report Predicts Big Changes Ahead
A look at securities litigation in the first six months of 2013 suggests some interesting developments for general counsel are on their way, said Monica Loseman, a partner at Gibson, Dunn & Crutcher's Denver office. The law firm released its securities lit update last week.
At the top of Loseman's high-impact list was the U.S. Supreme Court's decision in February in the class-action lawsuit Amgen Inc. v. Connecticut Retirement Plans and Trust Funds [PDF]. "Clearly the biggest development in many years," she said.
In the Amgen case, the court ruled in favor of the plaintiffs, who filed a securities fraud action based on a false statement by the drug company. The decision upheld the "fraud on the market" theory—that is, that the materiality of a misstatement can be presumed when a company makes public statements in an "efficient securities market" or a market that reflects all publicly available information about a company.
However, Loseman noted, a number of the Justices still questioned the ongoing viability of reliance on the presumption of fraud on the market.
"Security litigators should expect to see a growing number of defendant challenges to the [theory] early on in the case or at the class certification stage," she said. "There will be an increased focus like we have not seen before," she added.
The next big development, in Loseman's view, is the increasing amount of merger and acquisition litigation "that shows no sign of stopping."
She added, "We saw some interesting signs out of the Delaware Court [of Chancery] that they are showing increased scrutiny of litigation, especially in those cases where the plaintiff's bar is looking for a disclosure-only settlement," which allow attorneys to collect hefty fees, while the plaintiffs only receive additional disclosure of information.
In a related development, Loseman said the volume of M&A suits have encouraged plaintiffs to expand that litigation model to proxy disclosures. The plaintiffs file for injunctions to prevent votes at annual shareholder meetings, while requesting additional materials.
"It usually results in a quick settlement and fees for the plaintiffs bar," Loseman said. "We think that trend in proxy litigation will continue to increase," she predicted.
In other predictions, the law firm said it expects the new leadership at the Securities and Exchange Commission "will be striking an aggressive tone. For the first time in the commission's history, the chairman and the enforcement division leadership are all former criminal prosecutors."
The SEC, according to the update, is expected soon to start seeking party admissions of wrongdoing as a condition of some settlements. "Though it is unclear how far reaching this change will be, an internal email . . . to the Enforcement Division staff stated admissions might be required in cases of 'egregious intentional misconduct,' where the conduct harmed large numbers of investors, or where the defendant had obstructed the investigation."
The law firm also said it expects a renewed SEC focus on public company accounting and reporting fraud. "The agency is said to be developing computer programs to help sift through SEC filings for signs of irregularities, including both quantitative financial anomalies and suspicious word choice in management discussion and analysis," the report states.
Other areas cited in the report include developments in insider trading, investment advisers, and broker-dealers.