Preparing for global securities litigation & regulatory enforcement expansion.

• Author: Carangelo, Robert
• Position: LEGAL

In light of the U.S. Supreme Court's decision in the case of Morrison v. National Australia Bank, and the dramatic increase in overseas securities regulation and regulatory enforcement activity by foreign governments, multinational companies that trade on multiple international stock exchanges must consider the relatively new threats posed by global securities litigation and regulatory enforcement activity.

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How do these new realities affect litigation and settlement strategy for securities class actions (or "mass plaintiff" actions) and shareholder "derivative" actions commenced against a multinational both in the United Slates and abroad simultaneously (along potentially with U.S. and foreign regulatory investigations, as well)? How will international regulatory and enforcement trends affect a company's compliance initiatives?

And, following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, how does this impact a company's purchase of directors and officers liability insurance, which may help defend and settle global investigations, claims and lawsuits commenced against multinational companies?

These are discussed, along with practical advice to help navigate global securities litigation and regulatory enforcement.

Overseas Securities Litigation

In June 2010, the Supreme Court held in the Morrison case that the federal securities laws of the United States do not apply to claims by foreign investors who purchase shares of foreign companies on foreign stock exchanges. Not surprisingly, that ruling did not deter the securities class action plaintiff bar from pursuing claims on behalf of foreign investors who no longer have a forum to prosecute their securities-related claims in the U.S.

For example, on Jan. 10, 2011, after a securities fraud suit against Fortis, a Belgium-based financial services company, was dismissed by the United Slates District Court for the Southern District of New York, a Dutch law firm, along with two U.S. law firms (Grant & Eisenhofer P.A. and Barroway Topaz Kellser Meltzer & Check LLP) filed suit on behalf of foreign investors against Fortis in Utrecht Civil Court on behalf of a specially formed foundation called the "Stitching Investors Claims Against Fortis."

The suit mirrors the allegations in the lawsuit dismissed in the U.S. The press release announcing the lawsuit claims that more than 140 investors, "including many of the largest pension funds in Europe" have joined the foundation. While Morrison will likely curb the filing of certain securities litigation actions in the U.S., its net effect seems to be that such litigation will just shift to some other foreign (and perhaps more friendly) jurisdiction.

Among the likely jurisdictions where U.S.-type securities litigation (in different shapes and forms) is likely to emerge are:

CANADA. Canada is most similar to the U.S. in terms of securities fraud lawsuits against issuers of securities trading on both Canadian and U.S. exchanges. With the advent of...