securities law

2012 saw an interesting and highly unpredictable number of cases pertaining to securities litigation being filed; taking into account the Presidential election, the so-called “Fiscal Cliff,” AND Hurricane Sandy, statisticians and analysts alike are scratching their heads to determine the future of securities litigation.  See, e.g., Suzanne Dawson, “PwC Releases Latest Securities Litigation Study,” PricewaterhouseCoopers (Apr. 9, 2013).  As one securities expert explains:

While the first three quarters of 2012 saw an average of 46 cases, securities litigation filings decreased dramatically in the fourth quarter, to 33 cases—the lowest level since the 30 cases filed in the second quarter of 2009… In the U.S., the last quarter was affected by two pivotal events: the impending presidential election and the political uncertainty inherent in the run-up, and a looming “fiscal cliff” of automatic tax hikes and government spending cuts. …Superstorm Sandy may have played a role by interrupting transportation, shutting down power, and blocking access to the Internet and phone service in the Northeast, thereby disrupting law firms, courts, and financial markets. Id.

Securities litigation, particularly involving foreign firms or entities is by no means a thing of the past and 2012, though an uncertain year, left behind several lessons for attorneys and expert witnesses to pay heed to.

What is certain is that securities law cases are uncertain, in terms of the number that will be filed in 2013, but there are predictable elements of securities litigation that every attorney and expert should be aware of.

First, attorneys should note the types of securities actions that are the most frequently filed and what grounds such cases are based upon.  Many plaintiffs bring suit based upon grounds concerning material misrepresentations made during the course of a financial transaction with a securities firm.  For example, when investments are made by certain parties and then pooled, litigation has arisen, questioning the fiduciary duty of the parties from whom they purchased shareholder’ notes.  Some plaintiffs have, of late, alleged that certain securities-based concerns have made intentional and/or reckless statements, with regards to the value of a particular security, resulting in financial damage to the parties who were initial investors in those securities.

Other commonly brought cases of note include those involving mergers & acquisitions (M&As).  Thirty-six cases, representing twenty-one percent of all securities-based cases filed in 2012, pertained to M&As, particularly where a foreign entity was involved.  See Dawson, supra.

Perhaps most importantly, however, attorneys should not simply glance at the statistics and quantitative data concerning securities litigation but at the qualitative and anecdotal evidence as well.  For example, perhaps one of the best ways for an attorney, whether for a plaintiff or defendant, to learn how to best coach their expert witnesses is to read and review the experiences that securities experts have had and the concerns such experts have expressed.

One law firm released a securities expert’s account of his litigation experience, and it was eye opening, to say the least.  The expert noted that, “After several months, I was called upon to provide a deposition.  Unbeknownst to me, counsel that retained me and opposing counsel had numerous weeks of debate over if I was ever going to be called for a deposition.  Opposing counsel, essentially, had forgotten that there was a need to take my deposition until literally a few weeks before trial.”  Fox Rothschild, LLP, “My Deposition as a Securities Expert Witness,” Securities Compliance Sentinel: Analysis of Cutting Edge Security Issues (Nov. 8, 2011), http://securitiescompliancesentinel.foxrothschild.com/financial-industry-trends/my-deposition-as-a-securities-expert-witness/ [emphasis added].

The expert went on to discuss the lack of preparation by opposing counsel, in stark contrast to the months of efficient and effective testimony review, planning, and assistance that the attorneys who retained him had provided.  Id. Properly coaching and training expert witnesses should by no means be a novel technique for attorneys, but this expert’s experience underscores the need for both sides’ attorneys to prepare themselves and their expert witnesses for not only the probable evidence that may be needed, but also the possible realm of what may transpire during litigation.

While most civil litigation is settled out of court, attorneys should never be lax with respect to expert witness preparation.  Particularly given the uncertain nature of the future number of securities law filings, litigators must, if anything, be more prepared than ever, and so must their witnesses.

As Neil Keenan, principal with PricewaterhouseCoopers (PwC) explained, “The overall level of M&A deal activity continues to remain below the levels seen prior to the financial crisis. …Despite the expectation that M&A cases will continue with some level of activity, it will take another market-driven event to truly fill the void left by these waning market events and trends.” Dawson, supra. Moreover, with the future of securities litigation trends still highly unclear, “companies must cast a wide net for monitoring, assessing, and mitigating risks.” Id.  PwC does a very meticulous job of tracking litigation trends, with special regard for securities law.  They monitor all federal cases that are filed and that claim a violation or violations of the Securities Act of 1933 and Securities Exchange Act of 1934. In order to comprehensively assess such filings, PwC utilizes many sources, including actual case dockets, media and news articles, press releases, concrete SEC filings, and more.

The bottom line for attorneys and experts is twofold: preparation for litigation and preparation for uncertainty.  As Patricia Etzold, a securities litigation partner at PwC concludes,“2012 was a year that implied no clear direction as to where regulators or shareholders may focus in the future – at a crossroads, waiting for a sign. …2013 looks to be a year that could go in many different directions. Future securities litigation may not be foretold by the trends reflected in the cases filed, but rather in considering the possible direction of the new regime of regulators, and the future paths companies may take.” Id.

By: Kat Hatziavramidis, Attorney-at-Law