The 10b-5 Daily

Continuing The 10b-5 Daily’s international theme, the Toronto Globe and Mail has a feature article on recent amendments to the Ontario Securities Act that are expected to generate “a wave of shareholder class action lawsuits.” Until now, Canadian investors who purchase shares in the secondary market have been limited to common law fraud claims, which require a showing of individual reliance. The recent amendments will create a presumption of reliance (i.e., the fraud-on-the-market theory) and will allow investors to “sue for two types of misconduct: a misrepresentation made in disclosure documents or public oral statements; and a failure to make timely disclosure of a material change.”

The article notes that some commentators are concerned the amendments will create an incentive to bring U.S.-style strike suits, but there will be certain safeguards in the new laws that do not exist here. Notably, a company’s liability will “be limited to either 5 percent of its market capitalization or $1 million, whichever is greater.” There will also be penalty limits for individuals.

Quote of note: “The legislation also is notable for the broad scope of potential defendants it will expose to liability. Not only does it pertain to the company and its directors and officers, but also to investment fund managers, spokespersons, experts (such as accountants, lawyers, financial analysts, engineers and geologists) and so-called influential persons (such as stock promoters or a majority shareholders with a significant influence on the company).”

It is international week at The 10b-5 Daily, with two more articles discussing the exporting of American-style class action litigation (including securities fraud cases). The New York Law Journal (via law.com – free regist. req’d) has a piece on pending legislation in the Netherlands that will allow for settlements that bind all members of a class who do not opt out. The author notes that the expansion of class actions in Europe is taking place at the same time that U.S. corporations are attempting to limit their use here. While over at Forbes, there is a profile of U.S. lawyers who are pursuing mass tort actions abroad.

Quote of note (New York Law Journal): Marc Gottridge of Lovells “does not foresee a sea change in the balance of class actions, despite the pending legislation in the Netherlands and elsewhere. ‘Even if foreign countries adopted the same procedures’ used in American courts, ‘the U.S. would still be an attractive forum in many cases’ for institutional investors based in Europe, he said. That is because of the U.S. system’s wide-reaching discovery, jury trials and the potential for immense punitive damage awards.”

Long-time readers of The 10b-5 Daily know that this blog has been interested in South Korea’s efforts to establish a private securities class action system. As the deadline approaches for the new legislation to go into effect, financial regulators continue to weigh the costs and benefits. In this article from the Korea Times, the governor of the Financial Supervisory Service (FSS) notes that securities class actions can be misused and discusses the prevalence of these suits in the U.S. Another article from the same paper, however, quotes a FSS official as stating: “It’s fair to say the imminent class action lawsuit has also kept companies from cooking their books.”

The New York Law Journal has an article (via law.com – free regist. req’d) on whether the group pleading doctrine, which creates a presumption that a company’s senior officers are collectively responsible for misrepresentations or omissions contained in public statements made by the company, is compatible with the heightened pleading standards of the PSLRA. The article discusses the Fifth Circuit’s decision in the INSpire case from earlier this year.