NERA Reports Increasing Securities Filings Against Foreign Issuers

NERA Report Shows Surprising Trend of Securities Filings Against Foreign Issuers

A report released by NERA Economic Consulting reveals that in the first half of 2011 securities class action filings were initiated at the second-highest semi-annual rate in eight years. More than a third of these cases were filed against companies domiciled in countries outside the United States, the report shows.

Dr. Jordan Milev, who co-authored the study, titled Recent Trends in Securities Class Action Litigation: 2011 Mid-year Review, told the LexisNexis® In-House Advisory that an unusually large number of those filings were against companies in China. He said that between 2002 and 2010 there were 26 securities cases filed against Chinese companies. “In the first half of this year alone we saw 27 filings against issuers domiciled in China,” Milev said. “That was very surprising.”

Morrison

He said that the increase in actions against non-U.S. issuers was particularly surprising in light of the 2010 U.S. Supreme Court decision in Morrison v. National Australia Bank (130 S. Ct. 2869; 177 L. Ed. 2d 535), which limited the scope of litigation against companies outside the U.S.

“Any effect of Morrison on the incentive to file has been more than offset by the rapidly growing number and changing circumstances of U.S.-listed Chinese Companies,” said co-author and NERA Senior Consultant Robert Patton.

Although Milev said that it may be too soon to attribute a reason to this trend, he offered some speculation as to the increase in filings against Chinese companies.

“We see the allegations there frequently concern the accuracy of financial reporting. Interestingly, we see that relatively few such cases name an accounting co-defendant. One possible reason for the recent rise in suits against Chinese domiciled companies may be that plaintiffs’ bar, being more aware of recent reports of accounting issues at some of these companies, is pursuing the ones that they think they have a good case against,” said Milev.

Decline in Settlement Size

Milev said that another interesting trend was a sharp decline in the size of the typical class action settlement. “If you read the report from last year, the median settlement was $11 million while this year it is just over $6 million, which is a very big decline,” he said.

Milev also commented that he observed that cases were being filed more quickly than in previous years. “In the first half of the year, fifty percent of the cases have been filed within 21 days of the end of the class period. The lag has been about 54 days for cases filed from 2007 to 2010,” said Milev.

Other than cases against foreign issuers, Milev observed a “wave of new cases relating to pricing disputes arising from mergers and acquisitions where one often observes allegations of breach of fiduciary duty.”

“We also continue to see the decline in the number of credit crisis related cases. Such cases were filed at a slower pace than last year. However, the majority of them are still pending. We can expect to see some interesting trends in settlements in the coming months,” said Milev.