US Securities Class Actions Bulletin - Q3 2021

Filings in the Third Quarter Increased

In the third quarter of 2021 the number of securities class actions (SCA’s) against non-U.S. based businesses increased, compared with the first two quarters of the year. 

During the quarter, there were 11 core class actions filed against foreign filers domiciled outside the United States (“non-US issuers”). In comparison to the total number of core SCA’s for the quarter (47), non-US issuers represent 23.4%. While this is a decrease of 42% from the third quarter of 2020, where we saw 19 cases against non-US issuers, it is important to note that 2020 recorded the highest number of filings against non-US issuers in history.  After 7 core class actions against non-US issuers in each of Q1 and Q2 2021, numbers have now risen.  

All filings were core filings and related to IPO liabilities (4), financial disclosures (3), operations (3) and cybersecurity (1). It is interesting to note that one filing was voluntarily dismissed the day after the action was filed. 

Nine cases were brought against issuers trading as American Depository Receipts, all at Level 3 ADRs, and two suits were filed against NASDAQ listed businesses. The majority of actions were brought in district courts in New York (8), followed by Illinois (2) and New Jersey (1).

The industries subject to SCA litigation in the third quarter of 2021 are similar to prior year. In the lead we saw the technology and healthcare industries with three filings each, followed by the financial and services industries with two filings each, and one filing in the consumer sector. 

In terms of geographic spread, the largest number of filings were against Chinese companies (6). The remaining five actions were against companies in Europe and the Middle East. These countries include Ireland (1), the Netherlands (1), Sweden (1), Denmark (1) and the United Arab Emirates (1). These locations are consistent with the regional distribution in FY2020 and H12021.


Directors and Officers Need to Remain Vigilant

Although short term data shows that the number of securities class actions against non-U.S. issuers has declined this year, looking at the broader trend of filings over the last 10 years it is clear that US Securities litigation risk remains a key threat. While SCA filings may be down, settlement amounts continue to climb, evidenced recently by Luckin Coffee Inc. reaching a settlement of $175m, following claims that it fraudulently inflated its share price by falsifying revenue.

The filings in the third quarter also show that no type of business is immune – SCAs reach across a wide range of industries and geographies. As such, it is imperative that directors and officers take proactive measures to mitigate risks. 

In Addition to SCAs There Are Other Risks Emerging

Over the past year, shareholders have filed a number of derivative actions in New York courts on behalf of non-U.S. companies. These are detailed in a joint paper from AIG and Clyde & Co, “Shareholders Increasingly Targeting D&Os Of Foreign Companies In New York Derivative Actions”. For these actions, which are in their early stages, plaintiffs seek to pursue their foreign corporate law claims with the benefits of US litigation. If they are allowed to proceed, shareholders may pursue more derivative claims against D&Os of non-US companies in US courts. Such actions could create additional liability and unexpected exposure for D&Os of foreign companies. Risk managers and D&O insurers should closely monitor these cases and consider the potential risks from this type of litigation.

AIG’s claims team has significant experience assisting international clients in the defense and settlement of securities class actions, providing helpful insight and support when directors and officers need it most.

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