A recent study from Cornerstone Research and Stanford Law School shows that securities class action lawsuits were down in 2014, hitting an eight-year low. And, while this may seem like big news and some would imagine that it signals the beginning of the trend, some like Stephanie Scharf, partner at Scharf Banks Marmor LLC, believe that it is too early to tell if this report marks the harbinger of actual change.
“Securities fraud class action cases follow the money,” she explains. “When stock prices go up, companies are not a great target for securities fraud. When the market is doing well, people who file those cases turn their attention to more industry-specific segments that are not doing as well.”
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In addition, she explains, companies are slowly but surely growing more forthcoming about disclosures. Still, in spite of recent statistics showing a drop in these types of cases, Scharf is not convinced it is a trend. She points out that we have yet to see the impact of the Halliburton v. Erica P. John Fund ruling, which will change the way investors bring suits. Scharf is interested to see how lower and appellate courts will react to the ruling, and what type of evidence will be used in future cases.
The Halliburton decision should incite quite a few fights on the trial level, she believes, as it is “interesting to those of use who love evidence and working with experts.” Scharf expects quite a lot of jockeying about technical aspects of the ruling, such as what evidence is allowed in order to rebut the presumption of impact.
Another issue that Scharf sees in the realm of securities class action suits has to do with the fact that the world is getting flatter. “As foreign corporations become more active in the United States, securities class actions could become more difficult to pursue,” she says, noting that she is keeping her eye on the Alibaba class action suit, which raises a number of questions. For example, Alibaba is a Chinese company, and its articles of association include fee-shifting provisions that require losing plaintiffs to reimburse attorneys fees. “Will that provision be enforced even if there is no such thing in the U.S.?” Scharf asks. With more and more foreign companies doing business in the U.S., more questions of this nature will arise.
Scharf has also taken note of happenings in the 7th Circuit, noting that Judge Richard Posner’s ruling regarding attorney’s fees in the case of Redman v. Radio Shack. She believes that this ruling could have an impact on class action suits, and that further courts will be looking at future cases that will be filed and who stands to gain from those cases.