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Coronavirus stock markets

Publicly traded companies should take steps now to prepare for stock-drop litigation in the wake of COVID-19.

We saw plaintiffs attorneys file these lawsuits in the wake of the 2008 financial crisis and the outbreaks of Ebola and SARS. While the precipitating events may change, the resulting cases from the securities class action bar follow a predictable pattern.

First, a significant issue leads to a substantial drop in the stock price of a publicly traded company. Then plaintiffs attorneys file class action lawsuits alleging that certain representations or disclosures made by the company were materially misleading because they either mischaracterized or understated the potential risk from such events, or misstated the company’s reaction to them. These statements are typically found in U.S. Securities and Exchange Commission filings, such as an 8-K or 10-Q, but other public statements, such as investor calls, press releases or media interviews, can provide fodder for such claims as well.

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