FALL 2018 TODAY’S GENER AL COUNSEL
BACK PAGE FRONT BURNER
Trend Sharply Up for Securities Litigation By Robert R. Long and Elizabeth Gingold Clark
F
64
ederal class action securities fraud cases against publicly traded companies are being filed at record levels in the United States. In the first six months of 2018, there has been more than double the historical average number of filings from the last 20 years. Indeed, if you are the general counsel for an S&P 500 company, there was a nearly 10 percent chance that your company was named as a defendant in the first half of 2018 for alleged violations of the federal securities laws. So what’s going on here? Are the incidents of fraud getting more frequent? Unlikely. Are we seeing successors to the Milberg Weiss firm finally emerging, paying kickbacks to plaintiffs, and suing companies and their insurers in hopes of an easy settlement? Also unlikely. Instead, industry-specific factors such as media hype and regulatory uncertainty seem to have made companies in certain industries vulnerable to these types of actions in the current bull market. When investors lose faith in an industry that had been an investor darling, the companies in that industry see stock volatility and, thus, securities class acRobert Long is a tions. This is particularly apparent in an partner at Alston & industry that focuses on new technoloBird and the leader gies. For example in 2015 the market of the Securities grew wary of 3D-printing companies Litigation Group. He has substantial after they had enjoyed several years of experience as lead explosive growth and corresponding counsel in matters market cap growth. Even though there regarding shareholdwere no findings of corporate fraud, the er disputes, fiduciary leading 3D-printing companies found duties and numerous federal agencies. He themselves the target of shareholder also advises corporaplaintiffs eager to recoup losses caused tions on director by the market correction. and officer insurance Similarly, healthcare companies coverage issues. and pharmaceuticals, subject to rapidly robert.long@ alston.com changing United States healthcare regula-
tions, can have otherwise promising new products swiftly sidelined by regulatory decisions. Economic uncertainties created by such regulatory decisions can lead to investors losing faith in a company’s stock value. This is reflected in the securities class actions filed to date in 2018. The greatest number was filed against biotechnology, pharmaceutical and healthcare companies whose stock prices are tied to regulation. One industry in particular, cryptocurrency, is facing both intensive media coverage and regulatory uncertainty. Cryptocurrency companies make digital tokens with computer algorithms that can be used as encrypted electronic money to purchase goods and services. There are around 1,300 cryptocurrencies in circulation, but the largest are Bitcoin, Ethereum, Ripple, and Litecoin. Because cryptocurrencies are decentralized and have no issuing government authority, regulations governing the cryptocurrency market are in their infancy. Even the SEC isn’t quite sure what to make of them and is proceeding with caution. Thanks to this uncertainty and developing regulations, there have been significant swings in stock prices for Elizabeth Gingold cryptocurrency companies. Not surprisClark is a senior ingly, this has attracted the attention of associate in Alston the plaintiffs’ bar; more than 10 crypto& Bird’s Securities currency securities actions have already Litigation Group. She been filed in the first half of 2018. These focuses her practice on representing actions may well be only the first round publicly traded comagainst cryptocurrencies and their execupanies and financial tives. As the legal situation evolves, we institutions in securiwill likely see shareholders attempt to ties class actions, use the federal securities laws to recoup shareholder derivative suits, M&A litigalosses generated by market excitement tion, and government and uncertainty. ■
investigations and enforcement actions. elizabeth.clark@ alston.com