Class actions have taken the financial world by storm these past few years, capturing widespread investor, media, and regulatory attention and dominating many corporate governance and legal discussions.
Today, institutional investors are utilizing existing and new class action laws as a corporate governance tool for companies they invest in.[1] Now, these laws stand at the forefront, playing a pivotal role in shaping policies for asset recovery, steering shifts in investor behavior, and creating new focus on ESG policies, as well as influencing other critical factors.[2]
Indeed, total securities-related settlement values worldwide amounted to approximately $13 billion in the last two years alone, and there are over one thousand securities class actions remaining in litigation.[3]
And the rise of such class actions is no longer just a phenomenon in the United States. Significant opportunities now exist outside the U.S., as a wave of collective action litigation across the European Union (EU), the Asia–Pacific region (APAC), and other regions continues to pick up steam.
Growth in Securities Class Actions around the World
As the growing number of securities class action cases outside the U.S. mature and settle, multiple recent recoveries have eclipsed the $1 billion mark, with several high-profile opt-in litigations[4] underway, including claims against Wirecard AG[5] (Germany), Airbus SE[6] (the Netherlands), Glencore Plc[7] (United Kingdom), and Mitsubishi Motors[8] (Japan).
These actions are fueled by new laws and edicts, such as multiple countries’ implementation of the landmark EU Directive on Representative Actions, which was adopted in 2020.[9] Although several EU member states have yet to comply (and are subject to financial penalties in the meantime), prominent shareholder recovery jurisdictions, including the Netherlands and Germany, have already updated their procedures and laws to further improve access to courts and encourage resolution of disputes on a large scale.
Countries outside the EU have followed suit. Recent developments out of APAC include New Zealand, where in 2022 the country’s Law Commission recommended a statutory framework for class actions,[10] and Singapore, whose Monetary Authority highlighted that improving investors’ options to seek redress for losses arising from securities market misconduct is a key issue the country needs to address moving forward in 2023.[11]
This trend across European and APAC countries of enacting new and bolder class action laws ties back to the Supreme Court of the United States’s decision in Morrison v. National Australian Bank in 2010.[12] In that landmark decision in U.S. securities class action jurisprudence, the court held that § 10(b) of the Securities and Exchange Act only applies to U.S. securities or domestic transactions, ending its use for class action claims related to non-U.S. transactions in securities listed on foreign exchanges. Since then, out of necessity for injured parties outside of the United States, the quest for alternative venues has evolved in a full-fledged global movement. And over the last few years, the globalization of class action lawsuits has taken on a life of its own.
Today, business attorneys find themselves navigating a maelstrom of challenges, from the ever-expanding scope of these actions to emergence of new jurisdictions, heightened client interest, and advising financial services firms in their demanding and ever-changing global landscape.
Navigating this dynamic terrain is a challenge and vital responsibility for attorneys in the financial sector.
Complex Asset Classes and Antitrust Class Actions
Traditional equity investments have long dominated portfolios. Likewise, securities-related class actions have historically been dominated by holders of common stock or ordinary shares. This creates additional complexities as new laws emerge: (1) each country’s new class action laws have nuances that must be navigated, and (2) the complexity in recovery is compounded by new, innovative, and sophisticated asset classes.
Technological advancements and the swift flow of information have torn down barriers to entry in the investment world, fueling an appetite for new opportunities. Cryptocurrency, once considered incompatible with risk-tolerant investment strategies, is now capturing institutional attention. This transformation unfolds against a backdrop of maturing regulatory surroundings and evolving market infrastructure across the globe.
In the uncharted territory of cryptocurrency’s financial “Wild West,” asset managers are beginning to utilize class action laws when something has gone wrong.
However, the industry is also seeing an increase in the use of class action law globally to recover lost investments from other complex financial products. Often these cases are not brought on traditional securities laws, but rather antitrust or competition laws, further complicating the process. For example, 2023 set a record for the sheer number of antitrust settlements involving publicly traded securities or financial instruments. Indeed, there were nine such settlements collectively exceeding $650 million in aggregate. Two of the larger settlements include $187 million for investors in BBSW-based derivatives[13] and $155.5 million for investors who transacted in SIBOR- and/or SOR-based derivatives.[14]
Thus, the complexities in navigating these cases do not arise solely from novel financial products like cryptocurrencies; they extend to complex financial products such as asset swaps, bonds and floating rate notes, collateralized debt obligations, credit default swaps, forward rate agreements, inflation swaps, interest rate swaps, and total return swaps, just to name a few.[15]
Globetrotting Insights: Navigating International Class Action Trends
Embarking on an active process to reclaim international investments begins with recognizing the distinctive country-by-country demands inherent in such legal battles. The global stage of investment recovery is evolving, and strategic awareness of unique challenges and opportunities is the key to navigating this intricate terrain.
Since Morrison,[16] U.S. courts have not had jurisdiction over what is commonly known as “f-cubed cases.” These cases involve (1) foreign investors pursuing legal recourse against (2) foreign issuers for fraud that (3) transpired beyond U.S. borders. This restriction triggered a surge in foreign class actions, or collective actions, echoing beyond the U.S.
Yet only recently has this caused a wave of collective action litigations to increase across the EU and APAC, as well as other zones, prompting a noteworthy influx of litigation funders, U.S. litigation firms, and mass litigation units into these expanding markets. The driving force behind this expansion lies in evolving jurisdictional landscapes that render the pursuit of such actions legally more feasible.
The past few years have witnessed billion-dollar settlements in various corners of the globe, from Steinhoff[17] and Fortis[18] in the Netherlands to Royal Bank of Scotland[19] (RBS) in the UK. No longer are substantial recoveries confined to the Western Hemisphere, either. In the APAC region, securities class action dockets stand out as some of the busiest beyond U.S. borders, with settlements routinely surpassing the $100 million threshold. Australia spearheaded this trend, and a multitude of investor actions are filed in Taiwan.
The People’s Republic of China (PRC) has also made a notable entrance into this arena, introducing its own collective action legislation through the Provisions of the Supreme People’s Court on Issues Concerning Representative Litigation in Securities Disputes. In a mere twelve months, the PRC courts handed down a substantial $385 million verdict in the Kangmei Pharmaceutical investor action.[20] In December 2023, a securities settlement of 280 million yuan (about $40 million USD) was reached on behalf of 7,195 investors in Essence Information Technology Co., Ltd. in a case in the Shanghai Financial Court.[21]
While guiding clients through the intricacies of international class actions, a pivotal consideration arises—the prevalence of opt-in systems in the majority of jurisdictions. Under these systems, interested parties must actively choose to participate in the litigation, often backed by distinct teams and legal theories from the third-party litigation funders.
Navigating parallel opt-in claims is a common challenge, as seen in Germany, where six separate Wirecard actions demanded assessment. Business attorneys must be adept at steering their clients through nuances of different and competing litigations. In the example of the Wirecard case, a client may opt not to pursue a claim against auditor defendant Ernst and Young, while still seeking recovery against other defendants or taking part in one of several insolvency proceedings.
There are other material differences each investor must navigate as well, from relevant countries’ laws, to each case’s legal and economic damage theory.
For example, in the U.K., a claimant might need to demonstrate “reliance” on misrepresentations made by the company as a condition for certain claims,[22] a departure from the U.S., where there is a well-established presumption of reliance supported by the courts.[23]
Conclusion
As more countries embrace the idea of opening their courts to collective redress actions, it’s evident securities class actions are not just changing but will continue to boom, as institutional investors are keenly watching this wave, pulling the financial services industry along for this important ride. A notable shake up in broker-dealer services and a surge within the custodial business is emerging as they gear up to offer global, comprehensive support. Traditionally, attorneys advising broker dealers focused on notifying individual wealth customers about potential security settlements. But now, they’re stepping into a broader role, diving into holistic claim filing and client asset recovery services. This shift and the dynamic landscape of international class actions demands vigilance and adaptability from legal advisors and the financial services industry around the globe.
See generally Connor Boehme & Domenico Minerva, Investor Alert: Litigation as a Tool for Achieving ESG Goals, Labaton Keller Sucharow (Mar. 28, 2023) (describing how investors have leveraged litigation to achieve ESG goals); ESG and Stakeholder Engagement, Woodsford (last visited Feb. 12, 2024) (detailing ESG-related securities litigation). ↑
E.g., Verbandsklagenrichtlinienumsetzungsgesetz [VRUG] [Act Implementing Directive (EU) 2020/1828 on Representative Actions for the Protection of the Collective Interests of Consumers and Repealing Directive 2009/22/EC and Amending the Capital Investor Model Procedure Act (Collective Actions Directive Implementation Act], Oct. 8, 2023, Bundesgesetzblatt Teil I [BGBl I] at 272 2023 I (last visited Feb. 12, 2024) (Ger.) (Germany’s new law reorganizing the German collective redress system via the Verbraucherrechtedurchsetzungsgesetz, or Consumer Rights Enforcement Act (VDuG), including a third extension of Kapitalanleger-Musterverfahrensgesetz, or Capital Investor Model Procedure Act (KapMuG), which until the passing of VduG was Germany’s only procedure for shareholder asset recovery in a class-wide opt-in basis); Securities Law of the People’s Republic of China (promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 28, 2019, effective Mar. 1, 2020) 2019 P.R.C. Laws (establishing new class action regime under China’s New Securities Law); Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, (ASP 10) (last visited Feb. 12, 2024) (Scotland’s implementation of a hybrid U.S.-style class action regime). ↑
2022 Global Class Action Annual Report, Broadridge Financial Solutions (last accessed Feb. 12, 2024); 2023 Global Class Action Annual Report, Broadridge Financial Solutions (last accessed Apr. 9, 2024) (together finding that settlements exceeded $7.4 billion in 2022 and $5.5 billion in 2023, and reporting more than one thousand pending securities and financial antitrust class and collective actions worldwide). ↑
Depending on the phase of opt-in litigation or the particular legal jurisdiction, court dockets might not be available to the public. Additionally, multiple opt-in claims may be progressing simultaneously, representing various groups ranging from a few individuals to tens of thousands. When possible, we include a non-exhaustive citation to the original case(s) filed for each litigation; otherwise, we cite to the firms or litigation funders bringing such claims. ↑
Landgericht München [Reg’l Ct. of Munich] Mar. 14, 2022, Wirecard AG/Ernst & Young: Order for Reference under the KapMuG, 3 OH 2767/22 KapMuG (3 O 5875/20) (order for reference pursuant to the Capital Investor Model Procedure Act (KapMuG), the first step under Germany’s collective redress regime for shareholder claims). ↑
Airbus SE (Netherlands), DRRT (last visited Apr. 9, 2024); Holding Airbus to Account and Delivering Recompense to Shareholders, Woodsford (last visited Apr. 12, 2024). ↑
Abduit 2002 Sicav SA and another v. Glencore plc and others, Case No. FL-2022-000027 (EWHC filed Sept. 28, 2022) (Eng.); Wirral Council as administering authority to Merseyside Pension Fund and another v. Glencore Plc, Case No. FL-2022-000029 (EWHC filed Sept. 29, 2022) (Eng.); abrdn OEIC I in relation to abrdn UK Equity Fund and others v. Glencore Plc, Case No. FL-2022-000026 (EWHC filed Sept. 28, 2022) (Eng.); Phoenix Life Ltd. and others v. Glencore Plc, Case No. FL-2022-000025 (EWHC filed Sept. 28, 2022) (Eng.). ↑
Mitsubishi Shareholder Litigation, Kessler Topaz Meltzer & Check, LLP (last accessed Apr. 9, 2024). ↑
Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on Representative Actions for the Protection of the Collective Interests of Consumers and Repealing Directive 2009/22/EC, 2020 O.J. (L 409) 1. ↑
Te Aka Matua o te Ture | Law Commission, NZLC R147, Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa | Class Actions and Litigation Funding (2022). ↑
Monetary Authority of Singapore, MAS Enforcement Report January 2022 to June 2023 (Sept. 19, 2023). ↑
Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010). ↑
Dennis v. JP Morgan Chase & Co., No. 1:16-cv-06496 (LAK) (S.D.N.Y. settlement approved Nov. 2, 2022). ↑
Fund Liquidation Holdings LLC. v. Citibank, N.A., No. 1:16-cv-5263 (AKH) (S.D.N.Y. settlement approved Nov. 29, 2022). ↑
See, e.g., Joint Declaration of Vincent Briganti and Christopher McGrath in Support of Plaintiffs’ Consolidated Motion for Conditional Class Certification for Purposes of Class Action Settlements at Ex. 1 (Stipulation and Agreement of Settlement as to Defendant Australia and New Zealand Banking Group Ltd.) 4–5, Dennis (No. 1:16-cv-06496 (LAK)), ECF No. 490-1 (“‘BBSW-Based Derivatives’ means any financial derivative instrument that is based or priced in whole or in part in any way on [the Bank Bill Swap Rate (]BBSW[)] or in any way includes BBSW as a component of price . . . including, but not limited to: (i) Australian dollar foreign exchange (‘FX’) derivatives,” forwards, Australian dollar FX swaps, Australian dollar currency options, Australian dollar futures contracts and options on such futures contracts; “(ii) BBSW-based interest rate derivatives, including interest rate swaps, swaptions, forward rate agreements (‘FRAs’), exchange-traded deliverable swap futures and options on those futures, 90-day bank accepted bill (‘BAB’) futures and options on those futures, and other over-the-counter (‘OTC’) contracts or publicly traded vehicles that reference BBSW; (iii) Australian dollar cross-currency swaps; and (iv) any other financial derivative instrument or transaction based in whole or in part on BBSW, or that in any way incorporates BBSW as a component of price.”). ↑
Morrison, 561 U.S. at 261–266 (finding that the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 do not extend to securities transactions outside the U.S.). ↑
Nqobile Dludla, South Africa’s Steinhoff Starts Payouts in $1.62 Billion Settlement, Reuters (Feb. 15, 2022, 9:50 AM). ↑
Grant & Eisenhofer P.A., Grant & Eisenhofer Announces Fortis Investors to Receive $1.5 Billion in Largest Court-Approved Settlement in European Securities Case, PR Newswire (Jul. 13, 2018, 2:35 PM). ↑
RBS Settlement with Majority of Claimants in 2008 Shareholder Rights Issue Litigation, NatWest Group (formerly Royal Bank of Scotland) (Dec. 05, 2016). ↑
Chinese Court Rules Against Kangmei in ‘Milestone’ Case, Reuters (Nov. 12, 2021, 11:58 AM). ↑
Court Wins Compensation for Thousands of Investors, Information Office of Shanghai Municipality (Dec. 26, 2023). ↑
Section 90A FSMA Claims: Who Can Bring Them?, Simmons & Simmons LLP (Oct. 21, 2020) (“Section 90A/Schedule 10A of FSMA holds issuers liable to a person who ‘acquires, continues to hold or disposes of the securities in reliance on’ the issuer’s misleading published information (paragraph 3(1)(a) of Schedule 10A).”). ↑
Basic v. Levinson, 485 U.S. 224 (1988) (finding a rebuttable presumption of reliance in securities fraud cases based off the “fraud-on-the-market” theory). ↑
