Securities

Report Shows 2016 Record-Setting Year for Class Action and SEC Settlements

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Last week, proxy advisory firm Institutional Shareholders Services (“ISS”) published its semi-annual report of the top 100 U.S. securities class action settlements and top 50 SEC settlements of all time, as of December 31, 2016. The report adds thirteen new class action settlements from last year – making 2016 the most represented year in the report’s settlement rankings – along with two new top SEC settlements.

The ISS report ranks, among other things, the top 100 shareholder class action settlements ever reached in the U.S. for actions filed on or after January 1, 1996, when the Private Securities Litigation Reform Act was implemented. ISS’s June 2017 report reflects that there were 137 court-approved securities class action settlements in the US in 2016, remaining steady with 2015. Notably, however, 13 of the 137 class action settlements were among the top 100 shareholder class action settlements, resulting in a total approved settlement fund of over $5.6 billion, the largest in a single year. The largest of these 13 settlements was in Lawrence E. Jaffe Pension Plan v. Household International, Inc., et al., Case No. 02-CV-05893 (N.D. Ill.), which was based on claims of fraudulent misrepresentations concerning allegedly illegal sales techniques, predatory lending practices, and accounting manipulations. In December 2016, the Northern District of Illinois approved a final settlement fund of $1.58 billion, resulting in the seventh largest securities class action settlement in U.S. history. READ MORE →

Ninth Circuit Smells a Rat and Reinstates Claim That Pharmaceutical Company Failed to Disclose Cancers in Animal Testing

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The Ninth Circuit recently revived a securities class action against Arena Pharmaceuticals, issuing a decision with important guidance to pharmaceutical companies speaking publicly about future prospects for FDA approval of their advanced drug candidates. The court’s opinion reemphasizes the dangers of volunteering incomplete information, holding that a company that touts the results of trials or tests as supportive of a pending application for FDA approval must also disclose negative test results or concerns expressed by the FDA about those studies—even if the company reasonably believes the concerns are unfounded and are the product of a good faith disagreement.

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FINRA Issues Largest Fine Regarding Variable Annuities Contracts

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Gavel and Hundred-Dollar Bill

On May 3, 2016, the Financial Industry Regulatory Authority announced that MetLife Securities, Inc. agreed to pay $25 million to settle allegations that the company misled its customers in tens of thousands of variable annuity replacement applications.  The sanction represents FINRA’s largest fine related to variable annuities.

Variable annuities (“VAs”) are highly complex and highly regulated insurance contracts that guarantee their holders—typically retirees—a minimum payment at the end of an accumulation stage.  When a consumer seeks to replace one VA for another, her broker must complete an Annuity Replacement and Transfer Disclosure (ARTD) setting forth the comparative cost and guarantee information about existing and proposed annuity contracts.  In New York, brokers must also complete a “Regulation 60 Disclosure,” which contains a hypothetical illustration of death benefits and surrender values for existing and proposed contracts under various hypothetical market growth rates.

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Overstock Digital Wars: A New Market Awakens

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On the eve of the much anticipated release of Star Wars: The Force Awakens, the SEC approved Overstock Inc.’s plan to issue digital shares.  The online retailer plans to issue company stock via bitcoin blockchain–an enormous database running across a global network of independent computers that tracks the exchange of money.  Just as the original Star Wars movies released in the late 1970s and early 1980s signaled a monumental shift in special effects in film, Overstock’s plan to issue digital shares may herald a significant shift in the way securities are distributed and traded in the future.

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Investing in the Next “Big Thing” Just Got Easier – SEC Promulgates New Crowdfunding Rules

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On October 30, 2015, the United States Securities and Exchange Commission (“SEC”) moved forward in implementing Title III of the JOBS Act and adopted new rules permitting companies to offer and sell securities to all potential investors through crowdfunding.  Crowdfunding is the use of small amounts of capital from a large number of investors to finance new business ventures.  This method of investment, typically conducted over the internet, is aimed at assisting smaller companies with capital formation by accessing a greater pool of potential investors.  The SEC had previously opened crowdfunding investment to “accredited investors” (investors meeting certain net worth and/or investment experience criteria) but these rules permit non-accredited investors, i.e., everyone else, to participate while providing them with additional protection under the federal securities laws.  Title III and these rules come in response to the enormous growth of equity crowdfunding through financing platforms such as GoFundMe, Kickstarter or Indiegogo.

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