What investors need to know about participating in non-US Securities cases

With the growing number of global collective redress mechanisms for investors to recoup investment losses, participation in non-US-litigation actions requires specific considerations, making it important for investors to have the full picture before they make a decision.

By Trip Chong, Director, Business Development, Broadridge

What are the opportunities for investors outside of the US?
To put this into context, the US continues to be the jurisdiction with the largest number of securities class action litigation cases and settlements. For this reason, filing eligible claims in US class action settlements is an important part of recovering investment losses. However, if an investor is not considering collective actions outside of the US, they may be missing other potential recovery opportunities.

It is important for an investor to recognise there may be more than one avenue for redress. For example, a single issuer with securities listed on multiple exchanges, may result in opportunities for the investor to also recover on those exchanges. The Petrobras case is a good example of this – the US offered two separate settlement processes but there were also opportunities in the Netherlands and Brazil. Ensuring an investor has the full picture of all recovery routes is a good starting point for considering participation and whether a case warrants further investigation.

At Broadridge, we monitor all jurisdictions where there is a collective mechanism in place and are seeing around 30-40 cases globally, that are either investigated or filed in any given year. With that, the key jurisdictions where we are seeing participation from our clients are Canada, Australia, the Netherlands, Germany, and the UK. Recent legislative developments in these jurisdictions and others, including new laws that require countries to have some group litigation mechanism, promoting increased participation by investors, will open further channels for investment loss recovery. We expect further growth in jurisdictions specifically in the Asia-Pacific countries in the future, therefore understanding the legal and practical procedures of each of these jurisdictions is vital in any investor’s decision-making process.

How should an investor decide where and when to participate outside of the US?
The globalization of investment means that investors are now more likely to be impacted by laws in other jurisdictions, so investors will ultimately be guided by their portfolio investments. Having the ability to monitor those jurisdictions where you are invested is essential and this will usually be driven by internal policy – is there a process in place to be able to consider these potential actions? Many investors, whilst comfortable to participate in US class action settlements may decide to monitor potential non-US actions at arm’s length.

Monitoring multiple jurisdictions and understanding the complexities of each can be challenging for an investor. As part of our comprehensive, global service, we monitor over 35 jurisdictions and ensure our clients are made aware of all global recovery opportunities. We guide our clients through the options that are available to them, providing full information before any participation decision is made. This is an important step, particularly as we are often dealing with multiple competing claims against the same company. The ability to effectively navigate through the proposals presented and the level of input required from a client will be key initial considerations.

What are the main considerations in participating?
Having the full picture is imperative to a client’s decision. At Broadridge we assist our clients in every step of their decision-making processes. Some of the key considerations are:

  • Jurisdiction: Is this is an established jurisdiction and if so, what does the actual registration/legal process look like?
  • Size of Loss: Does the level of estimated loss warrant participation?
  • The Defendant: Is this a strategic relationship?
  • Timing: Is there a Statute of Limitation deadline or is this flexible?
  • Resources: What will the level of participation require?
  • Documents: What documents will the investor need to produce to support the claim?
  • Anonymity/Reputational Risk: Is there a chance the client identity will be publicly accessible? Equally, consider also that it is often the case that the claimant may want to be known (and viewed by the public) as a responsible party seeking to maintain market discipline, and shareholder litigation is one such way to protect assets.

In addition to these key considerations, there are two other aspects to mention. The first being the attention now given to ESG issues. The majority of cases that are being brought outside of the US now tend to have an ESG element and are holding Defendants accountable for failing to meet ESG standards. For investor recovery opportunities, the primary question to ask is, does ESG form part of the overall case strategy? Given the increased appetite of ESG cases, investors are now going one step further and considering bringing direct action against companies as reported recently in the ClientEarth action. This case is a clear indicator of investors using litigation as a tool to put pressure on companies to push for corporate governance change.

The second additional point to mention here, is the success rate of opt-in cases. We have seen some significant settlements in the UK (RBS, Tesco), Netherlands (Royal Dutch Shell, Fortis, Steinhoff), Japan (Olympus), Germany (Deutsche Telekom, Hypo Real Estate), China (Kangmei Pharmaceuticals) to mention a few. Recovery levels will vary by each jurisdiction, but we are already recording higher levels of recovery in percentage terms than those recovered from US settlements. As more of these cases settle, the more established these jurisdictions become, resulting in greater investor confidence.

How relevant/important is litigation funding in terms of clients participating in securities group investor actions outside of the US?
Litigation funding is now commonplace, particularly with securities litigation cases outside the US. It was recently noted that litigation funding in the UK had hit £2.2bn, a doubling of funding over the past three years. One of the biggest drivers here are consumer cases, such as Mastercard (2016), Apple Inc (2021) and Google UK (2021). Equally, funding opportunities for anti-trust cases, such as the FX cartel claims, affecting financial institutions is a realistic proposition. What this means is that funders are able to invest a lot of capital, attracting a vast number of consumers and investors to join and provide a recovery opportunity which would have otherwise not been available.

This access to justice paves the way for propelling these cases into real recovery opportunities. From an investor perspective, litigation funding reduces the risks and burden which provides greater opportunities for investors to i) seek legal redress and ii) potentially drive corporate governance changes within the company. So, litigation funding will continue to grow as long as there is a demand in terms of realistic, viable securities litigation opportunities.

What key points do investors need to look out for when reviewing funding options?
Most active opt-in jurisdictions will offer a funding element, which means all costs will be borne by a third-party litigation funder who will then take a percentage of the settlement upon successful conclusion.

Due diligence is crucial so in the first instance, there are some key points that investors should look out for:

  1. Perhaps the most important point is who is the funder? Does the funder have previous experience and are they a reputable organisation?
  2. Do they have the means to be able to fund the case to conclusion? This can be important, particularly if the funder is backing multiple cases at the same time.
  3. What are the funding options? Does this include all costs and fees? Are there any exceptions to this? Are there any circumstances where you may be on the hook for costs?
  4. What are the fees of the funder? These can vary, so are they competitive?
  5. If there is a loser pays rule, such as in the UK, is there adequate insurance provision and does this offer sufficient coverage?

Are there any risks an investor should be aware of?
For those jurisdictions like the UK where there is a loser pays rule, funders will offer an ‘after the event’ insurance policy or indemnity to meet any potential costs order should the claim be unsuccessful. Ensuring sufficient coverage is in place to meet any liability is imperative along with the ability to extend this coverage if needed. If, for example, the case goes to trial, have the costs been forecasted?

As we are now seeing more competing actions, it is important that investors ensure these initial questions are covered. We have a well-established network at Broadridge and work closely with the funders to get a full picture of what those funding options look like. Acting as the intermediary in those conversations, we make sure all red flags are checked, and we can present those findings to our clients and make sure they are comfortable before any decision is made.

As the opt-in landscape continues to evolve and become more complex, it is pertinent to investors to have a good grasp of how their portfolios are being impacted globally, either through robust internal policies or fully outsourced to a specialist provider. Investors should be looking to strike the right balance between recovering investment losses through automated processes like the US, and seriously considering active participation in opt-in jurisdictions, not only for higher monetary rewards but also to protect long term investments.

©2022 funds europe



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