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Peter Saparoff is a Member in the firm’s Boston office and co-chairs the firm’s Securities Litigation Practice. He is one of the nation’s leading securities litigators and he has represented clients in well over 100 cases, investigations, and proceedings throughout the country. He has successfully defended SEC investigations, class actions, derivative suits, stock exchange proceedings, and state securities investigations, and has handled numerous FINRA arbitrations, among other matters.

The Toshiba Securities Litigation stems from alleged violations of the Exchange Act, as well as the Financial Instruments and Exchange Act of Japan, against Toshiba Corp., in connection with its alleged accounting fraud and accompanying restatements of its financial reports. The plaintiffs represented a class of investors who had purchased Toshiba’s American Depository Shares or Receipts (ADRs) on the over-the-counter (“OTC”) market, rather than direct purchases of Toshiba common stock, which trade in Japan. ADRs are financial instruments, issued by U.S. depository banks, which enable investors in the United States to buy and sell stock in foreign corporations whose common stock is publicly traded on a foreign stock exchange, without having to actually buy and sell on that foreign exchange. They also give foreign companies easier access to U.S. capital markets.

The plaintiffs alleged that they paid artificially inflated prices for the ADRs as a result of Toshiba’s alleged fraud. The district court dismissed the case with prejudice, holding Morrsion precluded the plaintiffs from bringing claims for alleged losses on the ADRs because the OTC is not a “national exchange,” and that there was no transaction, in the United States, between the plaintiffs and Toshiba. The distinction between ADRs and common stock was critical to the district court’s dismissal of the Plaintiffs’ claims.

However, the U.S. Court of Appeals for the Ninth Circuit reversed and determined that the ADR trades were domestic. Toshiba argued that, under the U.S. Supreme Court’s decision in Morrison, its ADRs were not governed by Section 10(b) of the Exchange Act, because the Exchange Act applies only to transactions on a national securities exchange. The court disagreed. It held that the Exchange Act could apply to the Toshiba ADRs because, under Morrison, another category of transactions covered by the Exchange Act is “domestic transactions in other securities.” Acknowledging that Morrison said that the act exclusively focuses on “domestic purchases and sales,” the Ninth Circuit adopted other Circuits’ use of an “irrevocable liability” test to determine when a securities transaction is domestic. The irrevocable liability test looks to where purchasers incurred the liability to take and pay for securities, and where sellers incurred the liability to deliver securities, and not where the alleged misconduct occurred. Noting that the Plaintiffs’ ADRs were purchased in the United States, and that the depository institutions sold the ADRs in the United States, the court held that the Exchange Act could apply to the Toshiba ADRs. Thus, the Ninth Circuit held that purchases of Toshiba ADRs traded on the OTC satisfied Morrison’s requirements to be considered domestic transactions.

Continue Reading Ninth Circuit Holds Transactions in Unsponsored ADRs Can Be “Domestic” Under Morrison

Former U.S. District Judge Gerald Rosen, the Special Master appointed to investigate alleged improper billing by class plaintiffs’ firms in Arkansas Teacher Retirement System v. State Street Bank and Trust Company, recommended that the firms return up to $10.6 million of the $74.5 million in attorneys’ fees awarded to them after reaching a $300 million settlement in the underlying class action. If upheld, the results of the Judge Rosen’s report will likely have both negative and positive impacts. For example, it may create some barriers to the effective prosecution of plaintiffs’ securities cases, but it also may lead to more detailed scrutiny of fee applications to the benefit of class members.

In his balanced Special Master’s Report, Judge Rosen praised the “skilled and dedicated” plaintiffs’ attorneys for six years of work leading to an “excellent” settlement of a complex case in which plaintiffs alleged that State Street engaged in unfair and deceptive practices in conducting foreign exchange transactions on behalf of its customers while failing to disclose mark-ups to clients from which State Street ultimately benefited.

In fact, Judge Rosen found that, “all other things being equal, the attorneys’ fee award [of nearly $75 million] was fair, reasonable and deserved.” However, according to Judge Rosen, “all other things were not equal.” The investigation—which spanned over 14 months, cost $3.8 million, and encompassed written discovery, production of 200,000 pages of documents, 34 witness interviews and 63 depositions—resulted in, according to Judge Rosen, “a mixed narrative of good intentions, great talent, and undeniable accomplishment and result, undermined by serious albeit inadvertent mistakes compounded by a troubling disdain for candor and transparency that at times crossed the line into outright concealment of important material facts.”

Continue Reading Special Master Recommends Return of $10.6 Million in Attorneys’ Fees to Class Members

On Tuesday, February 6, 2018, United States District Judge Jed S. Rakoff denied class counsel’s request to file under seal three supplemental agreements to a $2.95 billion settlement in the Petrobras Securities Litigation, and made the side agreements part of the public record. (See Memorandum Order – Petrobras (2-6-18)).  This included making public the supplemental agreement that Petrobras could back out of the settlement if more than 5% of the class members opted out.  In his order denying the request, Judge Rakoff could not help but find irony in the fact that plaintiffs’ counsel, “who have premised their claim of fraud on defendants’ alleged failure to disclose material information,” was “seeking to keep secret three agreements that are a material part of the settlement.” However, the existence of the supplemental agreements, and the fact that Petrobras could terminate the settlement if an undisclosed “Opt-Out Threshold” was met, were disclosed publicly in the stipulation of settlement.  Keeping secret the percentage of opt-outs needed to “blow up” a settlement is standard practice, and publishing it can embolden opt-out proponents and threaten the stability of settlements.

Continue Reading Petrobras Court’s Denial of Plaintiffs’ Request for Confidential Treatment of Opt-Out Provisions Could Undermine the Settlement Process

First there was Libor.  Next came credit default swaps and foreign exchange.  Now, highlighted by the over $2 billion settlement reached in the Foreign Exchange Antitrust Litigation, plaintiffs are pursuing a number of additional antitrust class actions against financial institutions alleging anti-competitive behavior in a number of markets affecting institutional investors. These include: the ISDA interest-rate benchmark litigation, the Euribor antitrust litigation, the U.S. Treasuries antitrust litigation, the stock lending antitrust litigation, and the gold and silver antitrust litigation.  Some defendants in some of these cases have agreed to settlements, including the over $2 billion in FX settlements, as well as partial settlements in the Libor, ISDAfix and Euribor cases for approximately $830 million combined.  Institutional investors who are active participants in these markets may be in-line for significant recoveries, and the claims filing deadlines are fast approaching.

Of course, it is axiomatic that a claimant has to file a claim before it can recover.  Mintz Levin’s Institutional Investor Class Action Recovery Practice is uniquely positioned to manage the claims filing process on behalf of institutional investors. The claims filing processes for these cases can be complex, and present an entirely new set of variables from typical securities cases.  Indeed, custodians and other service providers that typically handle claims filing for institutional investors in securities settlements may not be able, or willing, to file claims in these antitrust settlements. Please contact Peter Saparoff or Joel Rothman to learn if Mintz Levin could efficiently and effectively manage filing claims in these antitrust matters for you.

Douglas Greene, one of the United States’ most well-known securities litigators – on either side of the bar – recently wrote a four-part treatise, titled Who is Winning the Securities Class Action War – Plaintiffs or Defendants?, in which he discussed the various ways in which the defense bar is losing the “securities class action war.”  Greene’s thorough analysis is well-worth reading in full, but we will briefly summarize and comment on his piece here. Continue Reading Is the Defense Bar Losing the “Securities Class Action War?”

Recently, in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Limited (“Treasury Wine”), the Full Court of the Federal Court of Australia considered a primary judge’s class closure order which broke new ground in group action practice in Australia.  The Treasury Wine case is part of a growing trend in Australian securities litigation toward class proceedings similar to the U.S. model, where investors do not have to be a named plaintiff to participate in a recovery.  Rather, in this case, prior to the issuer and the representative plaintiff mediating the case, investors needed to “register” by submitting their transaction data.  When the case settled after mediation, those who registered could recover from the settlement fund, but those who did not register were shut out of the settlement.  Registering was not without risks, however, as the mediation could have failed.  Some investors may have feared that by submitting their transaction data they were exposing themselves to the defendants and potential discovery in the event the case did not settle.  However, the case did settle after mediation, and those who registered were rewarded.

Continue Reading Treasury Wine Decision Confirms Shift in Class Action Closure Process

In a June 13, 2017, ruling on a motion for partial summary judgment in the Ocwen Financial Corp. Securities Litigation (the “Ocwen Litigation”), the United States District Court for the Southern District of Florida determined Ocwen materially misrepresented in its securities filings and other public statements that its Executive Chairman would recuse himself from Ocwen’s transactions with companies in which the Executive Chairman also served as Chairman and thus had a direct financial interest.  The Court concluded that although Ocwen and the Executive Chairman definitively stated the Executive Chairman would recuse himself according to company policy, there was in fact no company policy requiring recusal, nor had the Executive Chairman recused himself.  The Court further concluded these statements by Ocwen and the Executive Chairman was materially false and misleading as a matter of law.  Thus, while class plaintiffs still must prove the remaining elements of their Section 10(b)/Rule 10b-5 claim at trial, the Court found the class plaintiffs were entitled to judgment as a matter of law on the first element of their claim – that the statements concerning the Executive Chairman’s recusal were materially false and misleading.

Continue Reading Phantom Recusal Policy Leads to Partial Summary Judgment for Plaintiffs in the Ocwen Securities Litigation

We have been following defendants’ motions to dismiss in the In re Lending Club Securities Litigation class action, No 3:16-cv-02627-WHA, in the United States District Court for the Northern District of California (“the Lending Club Litigation”).  Plaintiffs brought claims under both Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, alleging that Lending Club misled shareholders about (1) the company’s internal controls over financial reporting, (2) its relationship with Cirrix—a company formed for the sole purpose of purchasing loans from lending club, (3) its data integrity and security, and (4) its loan approval process.  The Court’s decision on defendants’ motions to dismiss provides a roadmap for plaintiffs’ bringing Section 11 claims based on failure to disclose weaknesses in internal controls.

Continue Reading Lending Club Decision Provides Guidance For Bringing Section 11 Claims Based on Weaknesses in Internal Controls

On May 9, 2017, the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) affirmed in part and reversed in part an earlier decision from the U.S. Court of Federal Claims, which had held that aspects of the Government’s bailout of AIG constituted an illegal exaction. This case stems from two steps the Government took as part of its bailout of AIG. First, the Government issued a loan to AIG in exchange for preferred shares that were convertible to common shares representing an 80% equity interest in AIG. Second, AIG executed a 1:20 reverse stock split that enabled AIG to have enough unissued and authorized common shares to enable the Government to convert its preferred shares, without the need for AIG shareholder to vote in favor of authorizing enough common shares to allow for the Government’s conversion.  This case proceeded as an “opt-in” class action, and many institutional investors opted in to the class.

Briefly stated, AIG’s largest shareholder, Starr International Co. (“Starr”) asserted claims based on the Government’s acquisition AIG equity (the “Equity Claims”) and claims based on the reverse stock split (the “Stock Split Claims”). With respect to the Equity Claims, Starr alleged that the Government’s acquisition of AIG equity was an illegal exaction because Section 13 of the Federal Reserve Act did not authorize the Government to take equity as consideration for its bailout loan. Additionally, through the Stock Split Claims, Starr maintained that the Government engineered a reverse stock split to enable it to convert the preferred shares it obtained as consideration for the bailout loan into common shares without a shareholder vote, depriving Starr of its ability to block the resulting dilution. In sum, the Federal Circuit (a) reversed the Court of Federal Claims decision that Starr had standing to pursue its Equity Claims, holding those claims were solely derivative; and (b) affirmed the Court of Federal Claims decision that denied relief for the Stock Split Claims, holding the court did not clearly err in finding that the primary purpose of the stock split was to prevent delisting by the NYSE, not to avoid a shareholder vote.

Continue Reading Federal Circuit Rules that Starr International Lacks Standing to Pursue Class Claims Stemming from the U.S. Government’s Acquisition of AIG Equity

We have been keeping up with the In re LendingClub Securities Litigation class action, No. 3:16-cv-02627-WHA in the Northern District of California (“LendingClub”), in regard to Judge William Alsup’s unusual decision to require additional briefing from the class plaintiff before agreeing to the class plaintiff’s choice of class counsel.  Now, as the LendingClub Plaintiffs oppose the Defendants’ motions to dismiss, Plaintiffs’ counsel is highlighting a recurring trend in motion to dismiss practice: defendants arguing facts at the motion to dismiss stage, particularly in complex cases.

Continue Reading LendingClub Update: Class Plaintiffs Claim Defendants Are “Arguing Facts” on a Motion to Dismiss