Asset managers must keep track of, plan for, and strategize about multiple factors to ensure they are maximizing returns on client investments. However, by focusing narrowly on the ups and downs of the market, it is possible to overlook operational-based strategies for enhancing return on investment (ROI).
As ISS Securities Class Action Services has shared with clients, the quantity of newly filed securities class action litigation has grown each year since 2015. Further to this trend, the quantity of newly filed cases has set a record in each year since 2016. And 2019 is on track to set yet another record. In fact, since January 1st, the ISS Securities Class Action Services research team has tracked an astonishing 400+ newly filed cases – including U.S. Federal, U.S. State, Canadian, and non-North American securities cases.
The Complaint alleges that throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects.
The Complaint arises from misstatements the Company made regarding its new product line, RH Modern. Specifically, the Company and its executives publicly touted RH Modern as its “finest work ever,” a “game-changer” that was poised to double the Company’s revenue, and “the most important and significant new home furnishings business to be launched in the last 15 or 20 years.”
The claim relates to guidance provided by Murray Goulburn in its Product Disclosure Statement (PDS) issued on 2 July 2015 regarding its likely revenue and profits from the sale of milk products during the financial year ending 30 June 2016 (FY16). In its PDS, Murray Goulburn forecast a FY16 net profit after tax (NPAT) attributable Murray Goulburn shareholders and MGC unitholders of $85.8 million. On 29 February 2016, Murray Goulburn announced a revised FY16 NPAT forecast of approximately $63 million, citing historically weak dairy commodity prices.
The Complaint alleges that during the Class Period, Defendants issued materially false and misleading statements regarding the soundness of Alibaba Group Holding Limited’s (“Alibaba” or the “Company”) business operations, the strength of its financial prospects and concealing substantial ongoing regulatory scrutiny. Specifically, Alibaba failed to disclose that Company executives had met with China’s State Administration of Industry and Commerce (“SAIC”) in July 2014, just two months before Alibaba’s $25 billion initial public offering in the United States (the “IPO”), and that regulators had then brought to Alibaba’s attention a variety of highly dubious — even illegal — business practices. In the IPO, Alibaba and certain “selling shareholders” sold more than 368 million American Depositary Shares (“ADS”) at $68 each. The Complaint also alleges that selling shareholders included two of Alibaba’s co-founders, Jack Ma and Joseph Tsai, each of whom sold millions of shares.
The Complaint alleges that throughout the Class Period, defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, defendants made false and/or misleading statements and/or failed to disclose that: (i) Orbital lacked effective control over financial reporting; (ii) as a result, the Company failed to record an anticipated loss on the Lake City Contract after the loss became evident in 2015, as required by generally accepted accounting principles; and (iii) as a result of the foregoing, Orbital’s public statements were materially false and misleading at all relevant time.
The Statement of Claim alleges that, during the Class Period, unbeknownst to the Class members, SNC’s business was being conducted in an unlawful manner or otherwise in contravention of SNC’s internal policies. In particular, in December 2009 and July 2011, SNC entered into agreements with “agents” with respect to projects on which SNC was working, pursuant to which SNC made payments totaling US$56 million to those “agents”. Although SNC purports not to know the purpose of such payments, their purpose was to bribe foreign government officials for the procurement of business by SNC. In any event, the agreements and the payments there under violated SNC’s Agents Policy and Code of Ethics in numerous respects.
The Complaint alleges that the Defendants conspired to manipulate the prices of currency trades for at least a 10 year period, resulting in billions of dollars in illegal gains. The Complaint further alleges that, through the daily use of chat rooms with revealing names such as “The Cartel,” “The Bandits’ Club,” and “The Mafia,” the Defendants communicated directly with each other to coordinate their actions in order to move the foreign exchange benchmark rates, including U.S. and Canadian dollar. This affected not only those investors who directly purchased foreign exchange instruments, but those whose investments were in funds (including mutual funds and pension funds) that dealt in foreign currency.
Of the 6,000 U.S. Federal securities class action cases filed since passage of the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and tracked by ISS Securities Class Action Services, less than two dozen have gone to trial as disputes are almost always negotiated and finalized prior to any presence of a jury. However, according to attorney Adam Savett of TXT Capital, the Puma Biotechnology case is the fourteenth securities class action case to have been tried to a verdict since 1996, where the conduct at issue was alleged to have occurred after the PSLRA was enacted. (The last securities class action jury verdict involved Longtop Financial Technologies in 2014.)
Danske Bank was founded nearly 150 years ago and is currently the largest financial institution in Denmark with operations in sixteen countries. In September 2018, after years of denials and deliberate inaction by its senior leadership, Danske finally acknowledged its role in the largest money laundering scandal in European history, involving over €200 billion (US$233 billion) of largely suspicious transactions between 2007 and 2016 emanating from Danske’s small outpost in the former Soviet Republic of Estonia.
Elon Musk’s tweets from August 2018 stating he could take Tesla private at $420 per share and had secured funding for the transaction; allegations against Mr. Musk state that, in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies. The $420 price per share noted was a significant premium to the current share price at the time. Further, allegations stated Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact.
Walmart recently agreed to settle a long-running investor class-action suit at $160 million; this case relates to the U.S. government’s ongoing investigation of the retailer for alleged bribery. Initially publicized in 2012 by the New York Times, their articles detailed allegations that Walmart paid bribes in Mexico in return for the ability to modify zoning changes and permits in order to open new Walmart stores. Following the articles, Walmart’s stock started to fall. This settlement pays for claims alleging violations of the Securities Exchange Act of 1934, as well as covering legal fees and expenses the plaintiffs incurred during this lawsuit.
Institutional investors and public pension funds are benefiting from an active year as it relates to shareholder settlements. This activity is due to a combination of securities class action litigation, both in the U.S. and across the globe, as well as SEC Disgorgements, and a record-breaking year for antitrust cases. In fact, the top 15 settlements of 2018 total a significant $10 billion in shareholder recoveries, which includes five antitrust cases that combine for $3.9 billion being returned to investors.
In what will be known as Volkswagen’s first settlement, this case covers ADR stock purchases only and based upon the size of the settlement, is likely a reflection that the ADRs traded within the U.S. represented only a small percentage of the company’s tradable shares. In short, larger settlements are expected from other currently pending litigation against Volkswagen. This case was first filed in 2015 following Volkswagen’s admission that it misled regulators with regard to its official emissions test machines for a period of seven years. This led to a significant decline in the company’s stock price and ultimately to the company paying billions of dollars in penalties, vehicle buybacks, and added compensation to its diesel owners. It is believed that the falsified emissions details affected 11 million automobiles worldwide, including 600,000 within the United States.
With six U.S. cases from the last few years totaling over $5.8 billion, investors need to pay close attention to these antitrust cases and how to navigate the incredible complexities each of the six settlements bring. While claim deadline dates for most of the cases have already passed, this overview will highlight key details and dollar amounts, as well as serve as a knowledge point for potential future similar cases.
The long and drawn out eight-year battle between M&T Bank Corporation (parent of Wilmington Trust) and shareholders recently came to an end as both sides negotiated a $210 million settlement. The lawsuit, initially filed on November 18, 2010, is a direct result of Wilmington Trust allegedly making schemes to conceal millions of dollars in toxic commercial real-estate loans during the financial crisis of the late 2000s. Since the lawsuit was initially filed, Wilmington Trust was acquired by M&T Bank. Furthermore, to the wrongdoing, allegations state the bank avoided mandatory disclosures to the U.S. Securities & Exchange Commission and the Federal Reserve Bank by “waiving” matured loans from the reporting requirements for past due loans.
On July 13, 2018, the Ageas (f/k/a Fortis) securities case was finally approved by the Amsterdam Court of Appeals. At €1.3 billion, this instantly became Europe’s largest court-approved securities case settlement. The ruling follows seven years of litigation in the Dutch courts. The settlement resolves all claims in connection with the litigation arising out of the 2007 record-breaking acquisition of Dutch bank ABN Amro by Fortis, at the time a Dutch-Belgian financial services company. The claims, filed earlier this decade, concerned the bank’s financial health and the value of its holdings tied to subprime mortgage securities in the United States, issued prior to the 2008 financial crisis. Between 2007 and 2008, the value of Fortis shareholders were largely wiped out as the price of the bank’s securities plunged, requiring the governments of Belgium, Luxembourg and the Netherlands to bail out Fortis and nationalize it in September 2008.
The ISDAfix settlement is another antitrust case which recently settled, allowing institutional investors an opportunity to recoup lost assets from previously disclosed fraudulent activities. The ISDAfix case is one of six antitrust settlements from the last few years that have totaled close to $5.5 billion in rewards back to damaged investors. Without admitting guilt or fault, 15 defendants have agreed to pay more than $500 million from the ISDAfix case, including (but not limited to) Goldman Sachs, JPMorgan, Bank of America, Credit Suisse, Deutsche Bank, and RBS.
Allegations state that on April 16, 2018, AMP was the subject of an examination by the Financial Services Royal Commission. During the course of this, two significant revelations of misconduct by AMP were publicly revealed for the first time: (1) For a number of years, AMP had been charging clients ongoing fees for no service in various contexts; and (2) since May 27, 2015, AMP misled the Australian Securities and Investment Commission (ASIC) on a number of occasions when reporting the charging of fees for no service.
On May 4, 2018, Wells Fargo announced a $480 million payout to settle the securities class action lawsuit arising from its sales scandal related to the creation of over 2 million fake customer accounts. This shareholder payout is in addition to the significant fines and penalties Wells Fargo incurred from the Consumer Financing Protection Bureau, Office of the Comptroller of the Currency, and City & County of Los Angeles.
On September 22, 2016, Yahoo disclosed that hackers had stolen information in late 2014 on more than 500 million accounts. Following the breach, Yahoo executives advised investors that the breach was not material, in part because the Company had not required to reset their passwords.
In one of the largest class action settlements of all-time, Petroeo Brasileiro S.A. (Petrobras) has agreed to settle its bribery and corruption-related securities class action lawsuit pending against the company. Following the public revelation of Petrobras’ activities, the company’s share price in Brazil declined by over 80% and the price of its ADRs on the NYSE declined by 78%.
In March 2017 Tesco plc agreed to settle a probe by regulators and pay a £129 million fine along with an additional £85 million to compensate its shareholders. Tesco is the U.K.’s largest retailer. The Financial Conduct Authority found Tesco performed “market abuse” in relation to public statements, including a release on August 29, 2014, which overstated Tesco’s expected profits as a result of its accounting irregularities.
As the market leader in helping institutional investors and pension funds maximize recoveries, Securities Class Action Services (“SCAS”) is working closely with many of its clients to assist with the claims filing process surrounding this incredibly large and complicated settlement. In fact, in terms of investor recoveries, this specific F/X case will likely be the largest antitrust settlement with a claim deadline date during the 2018 calendar.