US Securities Class Actions Bulletin Q2 2020
The number of class action core filings (35) against companies headquartered outside the US in the first half of 2020 was greater than the number filed at the same point in 2019 (29). If this trend continues, it could result in the highest annual total of cases against foreign filers than any previous year since suits against them have been tracked.
The number and frequency (31.5%) of total filings against companies headquartered outside the US is the second highest on record at this point of the year. It is well ahead of the trailing 5-year average of 42 (16%) per year.
Unpicking the data
From a geographical perspective, the largest number of suits continues to be brought against companies located in Asia (16), particularly China. The seven core filings against European companies represent a low not seen since 2017. As the chart on page 2 shows, 11 suits were bought against financial institutions while 35 were against commercial filers. Technology and financial companies account for the largest sectors affected, which is fairly consistent with prior years. The trend of suits against cannabis businesses in Canada since legalisation in 2018 continues, with two more suits filed.
When reviewed against last year’s H1 figures, it is clear that both regions and sectors impacted can rapidly switch within a short period of time proving that no company is immune to the exposures faced.
AIG’s analysis of its own class action data found that the majority of suits (25) were core filings.  These cases related to IPO liabilities and breaches of open-market trading regulations. The rest (14) were non-core merger objection suits, seven of which were settled.
Twenty suits were filed against NASDAQ listed firms; 17 suits were filed against NYSE filers and two were against OTC-BB firms.
Fourteen cases were brought against issuers trading as American Depository Receipts. The rest were a mixture of Level 3 (9), Level 2 (3), plus a Level 1 sponsored issue (Opera Limited) and an unsponsored Level 1 issue (NMC Health).
Cases were brought in courts across the US, including New York (12), Delaware (11) California (10), New Jersey (3), Oregon (2) and Pennsylvania (1).
Implications of increased exposure
Directors and officers have become more aware of the litigation environment for non-US companies and recent developments have only heightened the risk. For example, ADR exposures continue to evolve and there has been an uptick in derivative lawsuits against non US companies. AIG and Norton Rose recently co-authored a paper Limiting ADR liability under US Securities laws on this constantly evolving exposure, highlighting how companies can take practical steps to protect themselves.
The insurance market is also taking action. Premiums and retentions are increasing fairly rapidly as global carriers implement underwriting strategy shifts to reign in capacity and better manage volatility in the deteriorating litigation environment. In extreme cases, carriers are now exiting the sector in an attempt to regroup as the market continues to harden.
Directors and officers should engage with their insurance broker and insurer early in the D&O renewal process to set expectations and discuss the options available. An insurer with plenty of claims experience will have a good understanding of the processes, participants and strategies deployed in class actions and assist in a building a robust defence, saving valuable management time during litigation and, potentially, reducing costs.
AIG’s claims team has significant experience assisting international clients in the defence and settlement of securities class actions, providing helpful insight and support when directors and officers need it most.
 The 7 non-public cases relating to cryptocurrency are not included in the review, although they are on the list on page 5, and are being treated as outliers