2022 Developments in U.S. Securities Fraud Class Actions Against Non-U.S. Issuers
Non-U.S. Companies Remain Popular Targets for Securities Fraud Litigation
In 2022, plaintiffs filed 34 securities class action lawsuits against non-U.S. issuers.1
- As was the case in 2021 and 2020, the Second Circuit continues to be the jurisdiction of choice for plaintiffs bringing securities claims against non-U.S. issuers. Roughly 80 percent of these 34 lawsuits (28) were filed in courts in the Second Circuit. A majority (20) of these lawsuits were filed in the Southern District of New York, followed by the Eastern District of New York (8). The Third (3), Ninth (2), and Fourth (1) Circuits followed.
- Continuing the trends in 2021 and 2020, most non-U.S. issuer lawsuits were against companies with headquarters and/or principal places of business in China. Of the 34 non-U.S. issuer lawsuits filed in 2022, 11 were against non-U.S. issuers with headquarters and/or principal places of business in China, followed by the United Kingdom (6), Canada (4), and Switzerland (3).
- Pomerantz LLP led with the most first-in-court filings against non-U.S. issuers in 2022 (10), followed by The Rosen Law Firm, P.A. (8), and Robbins Geller Rudman & Dowd LLP (7). Although Pomerantz and The Rosen Law Firm jockey for the most active plaintiff’s law firm, in 2022 Pomerantz took the top spot that The Rosen Law Firm had occupied from 2018 through 2021. Also, like the trend of the last several years, The Rosen Law Firm was appointed lead counsel in the most cases in 2022 (with 6), followed closely by Pomerantz and Levi & Korsinsky, LLP (with 4 each) and Robbins Geller (with 3).
- A slim majority of securities class actions against non-U.S. issuers (18 of 34) were filed in the first and second quarters of 2022, a departure from 2021, where the majority of lawsuits were filed in the third and fourth quarters.
- Although the suits cover a diverse range of industries, the largest portion of the suits involved the education and schooling industry (5), the retail industry (4), and the software and programming, money center banks, and biotechnology and drug industries (3 each).
An examination of the types of cases filed in 2022 reveals the following substantive trends:
- Five cases were filed against online Chinese tutoring companies alleging misrepresentations in connection with China’s regulatory requirements and/or approvals.
- Compared to the prior three years, 2022 saw relatively no change in the number of dispositive decisions issued in securities fraud cases against non-U.S. issuers. In 2022, courts rendered eight dispositive decisions in favor of defendants in cases filed in 2020 and 2021.
- Although it is hard to discern trends from eight dispositive decisions, the courts’ reasoning underlying the dismissal orders is still instructive for non-U.S. issuers that find themselves defending a securities class action. In the dismissal orders issued in 2022, most courts held that plaintiffs failed to allege an actionable misstatement or omission, while several courts also held that plaintiffs had failed to allege a strong inference of scienter.
Though the overall number of securities class actions has gone down in 2022, the proportion of cases against non-U.S. issuers has not changed significantly.
A company does not need to be based in the United States to face potential securities class action liability in U.S. federal courts. As such, it is imperative that non-U.S. issuers take steps to mitigate their risks in not only their home jurisdictions but also in the United States.
non-U.S. issuers should be particularly cognizant when making disclosures or statements to:
- speak truthfully and to disclose both positive and negative results;
- ensure that a disclosure regimen and processes are well-documented and consistently followed;
- work with counsel to ensure that a disclosure plan is adopted that covers disclosures made in press releases, SEC filings and by executives; and
- understand that companies are not immune to issues that may cut across all industries.
non-U.S. issuers should work with the company’s insurers and hire experienced counsel who specialize in and defend securities class action litigation on a full-time basis. Finally, to the extent that a non-U.S. issuer finds itself the subject of a securities class action lawsuit, the bases upon which courts have dismissed similar complaints in the past can be instructive.
*The authors would like to thank Andrew Stahl and Austen Boer for their contributions to this report.
1 Unless otherwise noted, the figures in this white paper are based on information reported by the Securities Class Action Clearinghouse in collaboration with Cornerstone Research, Stanford Univ., Securities Class Action Clearinghouse: Filings Database, Securities Class Action Clearinghouse (last visited January 6, 2023), http://securities.stanford.edu/filings.html. A company is considered a “non-U.S. issuer” if the company is headquartered and/or has a principal place of business outside of the United States. To the extent a company is listed as having both a non-U.S. headquarters/principal place of business and a U.S. headquarters/principal place of business, that filing was also included as a non-U.S. issuer.