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Securities Class Action filings against companies outside US continued through Q3 2019

16.12.2019

Securities Class Action

Securities Class Action (SCA) filings against companies domiciled outside the US continued at a heightened frequency through Q3 2019.

Continued Plaintiff Bar Interest in International Companies

Companies based outside the US have continued to attract interest from the plaintiffs’ bar in Q3 2019. The vivacity of these plaintiff targets seems to show no sign of abating any time soon. There were 15 class actions against foreign filers in the quarter, out of a total of 112. Further analysis reveals that 13 of these were core filings, out of a total of 60 core filings in the quarter. This results in a rate of class actions against foreign filers of 21.7% of total core filings - notable considering that foreign filers make up only 17% of all U.S. listed companies. This figure is down marginally from the 23% in the first half of 2019, but still is an over-proportional representation amongst the total core filings we would expect for the number of foreign filers.

It is not surprising that the industries attracting the most plaintiff attention remain healthcare, energy and services. What is interesting this quarter is the absence of any filings against foreign firms in the tech space, although there remains a tech centric presence through service firms such as Tencent Music and Farfetch.

Europe maintains its ranking as the top foreign location for filings with seven core filings this quarter – with five of these seven against companies domiciled in the UK. This is greater than the total number of filings against UK issuers in the first half of the year and potentially worrying development for the London Market insurers and insureds given the current trends in US litigation and court awards.

This quarter Canada has leapt above Asia to be the second highest domicile for SCA filings with four to Asia’s one.  Half of these new filings involved cannabis companies (Sundial Growers Inc and Canntrust Holdings). These are the first SCA’s we have seen against foreign cannabis firms this year. It should be noted however that they are not the first cannabis companies with Canadian operations to face US filings. Liberty Health Sciences Inc was subject to a filing in January and Curaleaf Holdings more recently in September. However these companies are headquartered in the US and therefore excluded from Stanford’s foreign filer classification. This is a significant development to note as the US cannabis industry continues to mature and expand as it partners with arguably a more developed market and growers across the border in Canada. Canadian companies, possibly seen as an easier plaintiff target, continue to utilise US equity markets to access capital.

 

Environmental, Social and Corporate Governance Issues

This quarter sees the first SCA against a foreign filer on the grounds of unethical practices. The SCA against Canada Goose alleges it sourced the down and fur used in its clothing products in ways that treated animals in an unethical and inhumane manner.  As a result the company was also alleged to have been non-compliant with relevant FTC (Federal trade Commission) regulations pertaining to false advertising. The recent Extinction Rebellion protests across the world have demonstrated the rapid shift in attitudes towards sustainability and ethical issues, and these changes are affecting expectations about the ways companies should conduct business. This has been evidenced among rating agencies and investment firms. These issues are becoming more prominent in the agendas of shareholders, who are increasingly willing to hold companies accountable for their failings in these areas. As a result companies need to be increasingly cognisant of their own environmental and social impacts and their corresponding responsibilities.

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