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Publicly held companies face a greater risk of being sued compared to several years ago, says an expert, basing his conclusions on a research report issued last week.
Other major trends include more litigation filed against non-U.S.-based companies, and against smaller companies, said Kevin LaCroix, executive vice president at RT ProExec, a division of R-T Specialty L.L.C. in Beachwood, Ohio.
Plaintiffs brought 85 new federal class action securities cases in the first half of 2015, which was a decrease from the 92 filed during last year's second half, according to the report issued last week by Boston-based Cornerstone Research at the Stanford Law School Securities Class Action Clearinghouse in Stanford, California.
Mr. LaCroix said while this suggests there has been a decrease in the amount of litigation filed, this fails to take into account the smaller number of publicly held companies.
The report notes that from 1997 through the first half of 2015, the total number of companies listed on major U.S. exchanges fell by about half.
In fact, he said, as the report itself notes, with 170 filings expected this year based on the current rate, a total of 3.4% of publicly held companies will be subject to litigation, compared to an average of 2.94% during the 1997-2014 period.
Insurance buyers could make the assumption based on the lower number of lawsuits being filed that premiums should be going down, “but in fact the chances of any given company having a lawsuit is actually elevated, according to the historical level, and arguably, rates should be going up,” said Mr. LaCroix.
The total number of lawsuits alone “just doesn't tell you everything you need to know,” he said.
Chinese firms targeted
Mr. LaCroix said the increase is attributable to the higher number of lawsuits being field against non-U.S. companies, as well as more litigation being field against smaller firms.
According to the Cornerstone report, foreign filings accounted for 24% of all filings in 2015's first half, compared with 20% for the full year of 2014, while over the past 17 years, foreign filings have generally increased in frequency despite year-to-year variation.
The most commonly targeted foreign issuers in the first half of 2015 were China-headquartered firms. Filings against Chinese and other Asian firms accounted for 55% of total foreign filings, according to Cornerstone.
Mr. LaCroix said one reason for the large number of lawsuits filed against non-U.S firms is Chinese firms “seem to have problems with the accounting requirements of U.S. companies.”
Furthermore, “a number of foreign companies are involved in corruption scandals or other types of regulatory scandals, so there's been this rash of lawsuits involving non-U.S. companies.”
Mr. LaCroix noted also that more smaller firms are being sued. The Cornerstone report notes, for instance, that on an annualized basis, on average from 2001 through 2014, one in 18, or 5.5% of S&P 500 companies were the subject of a class action filing, while the annualized figure for 2015 was one in 63.
“There are a number of smaller plaintiff firms who are perfectly happy to file lawsuits against smaller companies,” said Mr. LaCroix.
He pointed to “D&O Discourse,” a blog published last week by Douglas W. Greene, a shareholder at law firm Lane Powell P.C. in Seattle, which states that smaller plaintiffs firms initiated the wave of cases filed against Chinese issuers in 2010, and “thus built up a head of steam that has kept them going, even after the wave of China cases subsided.”
MasterCard Inc. will make a payment of $61 million to UK-based retailer Tesco P.L.C. to settle a lawsuit over credit card fees, reports Bloomberg Business.