On November 4, 2016, Judge Keith Ellison of the United States District Court for the Southern District of Texas granted preliminary approval of a $175 million settlement in the federal securities class action In re: BP p.l.c. Securities Litigation between BP and Lead Plaintiffs for the “post-explosion” class. While the settlement is still subject to final approval, it resolves allegations that BP misrepresented the seriousness of the Deepwater Horizon explosion and its aftermath—covering investors who purchased BP shares between the date of the first alleged misrepresentation about the amount of oil being released as a result of the explosion (April 26, 2010) and the date on which it was revealed that BP initially misrepresented the spill’s severity (May 28, 2010). In granting preliminary approval of the settlement, Judge Ellison also: (1) rejected 135 institutional investors’ request for exemption from opt-out procedures; and (2) allowed some plaintiffs who timely requested exclusion from the class to withdraw their requests and opt back into the settlement. Continue Reading Court in the BP p.l.c. Securities Litigation Upholds Opt-Out Procedures But Then Allows Individual Action Plaintiffs to Opt Back Into $175 Million Settlement
Angela DiIenno contributed to this article.
Recently, the United States District Court for the Northern District of California (the “Court”) dismissed claims against Yahoo, Inc., holding that a 16-year old exemption granted to Yahoo by the Securities and Exchange Commission (“SEC”) barred the plaintiff’s claims alleging that Yahoo was operating as an unregistered investment company in violation of the Investment Company Act of 1940 (“ICA”). UFCW Local 1500 Pension Fund v. Mayer, et al., No. 16-cv-00478 (N.D. Cal. Oct. 19, 2016).
This litigation relates to a 2000 SEC order granting Yahoo an exemption from registering as an investment company. The SEC granted the exemption because it found that Yahoo was “primarily engaged in a business other than that of investing, reinvesting, owning, holding, or trading securities . . . .” The exemption was predicated on two conditions: “1. Yahoo! [would] continue to allocate and utilize its accumulated cash and Cash Management Investments for bona fide business purpose; and 2. Yahoo! [would] refrain from investing or trading in securities for short-term speculative purposes.”
According to the plaintiff’s complaint, Yahoo’s business has changed substantially since the exemption was issued. The complaint alleges that “in 2000 approximately 57 percent of Yahoo’s income came from its operating business, while approximately 44 percent came from investments.” According to the plaintiff, however, by 2014 operations were responsible for only 1.2 percent of Yahoo’s income, and in 2015, “all of its net income was attributable to its investments.” Additionally, the complaint asserts that “[i]n 2013, Yahoo began considering spinning-off its Alibaba holdings” and registering the spin-off company itself as an investment company.
Due to these “fundamental changes to Yahoo’s business” the plaintiff, UFCW Local 1500 Pension Fund (“UFCW”), filed derivative and direct claims against Yahoo and its directors and officers for the alleged failure to register Yahoo as an investment company in violation of the ICA. UFCW argued that Yahoo had lost the protection of its registration exemption such that Yahoo was required to register as an investment company under the ICA. It further argued that because Yahoo had never so registered, “it had been operating illegally as an unregistered investment company.” Continue Reading Court Dismisses Claims Alleging that Yahoo Is Illegally Acting as an Unregistered Investment Company
We posted earlier about the surprising decision of Judge William Alsup of the Northern District of California not to appoint lead counsel in the LendingClub class action cases at the same time he appointed a lead plaintiff. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who would then move the court—via their current counsel, who was allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
That process has now concluded, and in a short order dated October 28, 2016 (“Op.”), Judge Alsup held that lead plaintiff’s current counsel, Robbins Geller, was an appropriate selection as class counsel. Specifically, “the Court [was] persuaded that the selection of Robbins Geller was within the scope of several reasonable choices and was not influenced by any pay-to-play considerations.” (Op. at 1.)
Angela DiIenno contributed to this article.
On September 27, 2016, the Second Circuit ruled against a value investor in an opt-out action brought in the continuing Vivendi litigation. The recently issued opinion, however, does have positive implications for institutional investor class participants. First, the opinion confirms the availability of the fraud-on-the-market theory of reliance for institutional investors. Second, the opinion restricts the situations in which defendants may successfully rebut the presumption of reliance. Notably, however, institutions that have significant after-class purchases should be aware that such purchases could undercut their ability to rely on the fraud-on-the-market theory of reliance.
In GAMCO Investors Inc. v. Vivendi, S.A., GAMCO brought an individual action asserting Section 10(b) and Rule 10b-5 claims against Vivendi, alleging Vivendi made material misrepresentations regarding its liquidity. First, the U.S. District Court for the Southern District of New York held that Vivendi was estopped from denying any elements of GAMCO’s Section 10(b) claim other than reliance. After a bench trial on the reliance issue, the Court entered judgment for Vivendi, holding that Vivendi had successfully rebutted the fraud-on-the-market presumption of reliance. Continue Reading In GAMCO v. Vivendi, the Second Circuit Affirms that Value Investors Can Rely on the Fraud-on-the-Market Presumption Unless Specific Facts Establish Non-Reliance
As detailed repeatedly in this space, the Canadian court system has issued a number of decisions which have altered the practice of bringing – or defending against – a securities class action for secondary market misrepresentation. In its recent decision in Mask v. Silvercorp Metals, Inc. (“Mask”), the Court of Appeals for Ontario further clarified the evidentiary standard to be applied on a motion for leave and certification of a proposed class action. Its decidedly defendant-friendly decision is relevant to any entity which finds itself defending against such a claim in Ontario. Continue Reading Canadian Appellate Court Confirms That Judges Must Consider Evidence From Both Parties when Deciding a Motion for Leave to Bring a Class Action
In a recent decision in the now-consolidated LendingClub class action cases, Judge William Alsup of the Northern District of California appointed a lead plaintiff but unexpectedly declined to appoint lead counsel at the same time. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who will then move the court—via their current counsel, who is allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
Although this blog is focused typically on opportunities for institutional investors to recover losses as class members or plaintiffs, we think this decision in Youngers v. Virtus Investment Partners, Inc., may also be of interest. In that case, the plaintiffs brought, on behalf of a putative class of purchasers of various mutual funds issued by Virtus Opportunities Trust (the “Virtus Trust”), claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as well as derivative state law claims. The case stems from alleged misstatements made by the Virtus Trust’s investment advisor, Virtus Investment Partners (“Virtus Partners”), regarding the performance history of its AlphaSector Index trading strategy. Specifically, the complaint alleges that certain Virtus Trust registration statements were misleading because they stated that “the Index inception date is April 1, 2001,” and did not disclose that the AlphaSector strategy was not used to manage real assets prior to October 2008 and that the represented results prior to October 2008 were back-tested. Judge Pauley of the U.S. District Court for the Southern District of New York denied the motion to dismiss filed by Virtus Partners, holding, among other things, that the plaintiff had sufficiently pleaded loss causation with respect to his Section 10(b) claims.
The United States is a popular location for securities class actions, due in large part to its reputation as a generally plaintiff-friendly system. A key contributor to that reputation is the acceptance of the “fraud-on-the-market” presumption of reliance. However, in the wake of a recent decision by the Supreme Court of New South Wales, Australia is poised to become another popular location for “fraud on the market” actions. Continue Reading After Adopting the “Fraud-on-the-Market” Presumption of Reliance, Australia is Poised to Become a Plaintiff-Friendly Venue
There have been several recent and interesting updates to the In re Petrobras Securities Litigation, 14-cv-9662 (S.D.N.Y.) that we have discussed several times on this blog. First, the Second Circuit has decided to accept review of the class certification question. Second, Judge Jed Rakoff denied a motion to stay the underlying proceedings (including the impending trial) pending the Second Circuit appeal in a decision that called the class action “arguably secondary” to the numerous opt-out proceedings. Finally, several plaintiffs have voluntarily dismissed their claims with prejudice—but without explanation.
On June 29, 2016, the Dutch Court of East Brabant dismissed a foundation’s claims against Rabobank Group for alleged unlawful selling of interest rate swaps because it failed to meet the requirement of the Dutch Claim Code that a foundation sufficiently safeguard the interests of its members. While it is a lower court decision likely to be appealed, this dismissal depicts the increased scrutiny that foundations may face, particularly in the wake of the €1.2 billion settlement reached by the foundation in the Fortis case earlier this year. There will likely be an increase in the number of defense challenges to the ability of foundations to pursue litigation on behalf of members. Therefore, before joining a Dutch foundation, institutional investors should carefully scrutinize the foundation’s organizational documents and governance structure.