Protecting Investors in a Globalized World
POMERANTZ MONITOR | JANUARY FEBRUARY 2021
European Pensions, Europe’s highly regarded information source for pension decision makers and fiduciaries, has honored Pomerantz with its inaugural 2020 Thought Leadership Award. European Pensions selected Pomerantz as the first recipient of this award in recognition that the Firm “has demonstrated the possibility to make a real, material difference to the pension fund space.”
Here, Pomerantz Managing Partner Jeremy Lieberman reflects on the current landscape of global securities litigation and what it takes to protect investors in a globalized world.
In the last several decades, the landscape of global securities litigation has changed dramatically, both in terms of the remedies available to international investors for losses to their portfolios due to fraud and the appetite of investors outside of the United States to pursue litigation.
Since 1995, more than $95 billion has been recovered in securities class actions litigated in the U.S. on behalf of defrauded investors. With landmark recoveries making international news – $6.1 billion in Worldcom in 2005, $7.2 billion in Enron in 2008 and Pomerantz’s $3 billion 2018 settlement in Petrobras – investors outside of the U.S. began to ask: what does this mean for us?
The different rules regarding class action securities litigation in different jurisdictions complicated the path for shareholders around the world wishing to learn about their rights. Further, there were cultural barriers to overcome. Decades ago, many European institutional investors viewed their litigious American counterparts as too aggressive and preferred not to “dirty their hands” in the same way. They tended to accept not being able to participate in recoveries as mere bad luck. While that was the common wisdom then, modern and sophisticated European institutional investors are increasingly proactive. With so much money on the table, they are seeking solutions not just out of best practice but out of fiduciary duty to obtain recoveries for their funds.
In 2010, the U.S. Supreme Court’s decision in Morrison v. Nat’l Australia Bank Ltd. barred use of the U.S. federal securities laws to recover losses from investments in foreign-traded securities. This ruling exacerbated the sense of unfairness already felt by investors outside of the U.S. Their rights would not be protected, nor could they recover losses, if they purchased shares in the very same company on a non-U.S. exchange as investors that purchased on a U.S. exchange.
The first test of how to deal with the Morrison hurdle arrived almost before the ink on the decision had time to dry. On April 20, 2010, BP’s Deepwater Horizon oil rig explosion and resulting oil spill devastated countless lives and caused immeasurable economic and environmental damage. It also impacted investors. Within weeks, the price of BP’s ordinary shares and its American Depository Shares (“ADS”) plummeted nearly 50%, driven down by revelations that BP’s prior statements regarding its commitment to safety and its ability and preparedness to deal with a large oil spill were misleading.
Although the U.S. federal securities laws protected purchasers of BP’s ADS, which trade on the New York Stock Exchange, the same was not true for the purchasers of BP’s ordinary shares, which trade on the London Stock Exchange (“LSE”). For investors that purchased BP common stock on the LSE, they seemed to have no legal options in the U.S. courts.
Pomerantz responded by developing a new legal theory, placing it at the vanguard of ground-breaking litigation. Through a series of hard-fought victories, Pomerantz secured the right of its clients, both foreign and domestic, to pursue English common law claims in a U.S. federal court to recover their losses in BP’s London-traded common shares and its ADS. This marked the first time, post-Morrison, that institutional investors had been permitted to pursue foreign claims seeking recovery for foreign-traded securities in a U.S. court. The case has now been resolved, with favorable recovery for LSE investors that otherwise would have recovered nothing under Morrison.
Morrison had further consequences for investors of dual-listed shares – a staple feature of most global portfolios. Dual-listed shares (shares traded on more than one exchange) afford institutional investors the opportunity to execute trades on the venue offering the most favorable trading hours, pricing and liquidity at any given moment. However, under Morrison, purchasers of the same dual- listed stock, traded at the same time and injured by the same fraudulent misrepresentations and omissions, might have very different remedies, depending on which exchange shares were bought. Those that purchased on a U.S. exchange would be able to join together with other similarly situated investors to collectively seek compensation in a U.S. class action. Investors purchasing on a foreign exchange, under Morrison, were generally left only the expensive and daunting option of pursuing claims individually in a foreign court likely to be less familiar with and less favorable to securities fraud litigation than those in the U.S.
Continuing its pursuit of justice for defrauded European investors, in 2019, Pomerantz set historic precedent for investors in the dual-listed shares of Perrigo Co. plc, when a U.S. federal court certified parallel classes of investors that purchased Perrigo shares on both the U.S. and the Tel Aviv Stock Exchange. The ruling was the very first to certify a foreign purchaser class since Morrison. Since then, Pomerantz also successfully achieved certification for parallel classes of investors in a securities class action against Ormat Technologies, Inc., in which the Firm recently achieved a favorable settlement for investors.
In addition to the barriers to recovery for international investors set by Morrison, there have been efforts by the U.S. Chambers of Commerce – a big-business-supporting lobbying group – and the U.S. Congress, to clip the wings of securities class actions. However, they have unwittingly created a monster, spawning new litigations to protect and vindicate investor rights within and beyond the U.S.
Legal counsel must be creative in handling these issues and arriving at solutions that are favorable for international investors. The answer, in some cases, is to bring securities fraud cases in jurisdictions outside of the U.S. Pomerantz is currently representing international clients in international litigations, including, among others, against BRF S.A. (Brazil), Wirecard (Germany), Deutsche Bank AG (Germany), Danske Bank (Denmark) and Tesco PLC (U.K.).