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Securities Litigation

What is it? And what is its objective?

Essentially, securities or shareholder litigation is all about disclosure and transparency. It is a relatively new type of litigation in the UK, but it has been part of the litigation landscape in jurisdictions like Canada, Australia and the USA for several decades. The key ingredient is a UK publicly listed company (‘PLC’) which (1) has not properly or adequately disclosed a material piece of information to the market in a timely fashion, and which (2) suffers an impact to its share price when the ‘true’ information is disclosed.

In the UK, securities litigation is a creature of statute, with the causes of action found in either section 90 or section 90A of the Financial Services & Markets Act 2000 (‘FSMA’). These provisions seek to enshrine norms of good corporate behaviour, to permit and encourage the efficient and transparent operation of the stock market, and thereby to let the market set the proper price for a PLC’s shares.

How does it achieve its objective?

The legislation seeks to encourage good corporate governance and behaviour by making PLCs liable to pay compensation to investors in the following circumstances:

1. If PLCs issue prospectuses or listing particulars which:

a. include misleading or untrue information; or

b. do not include information required to be included,

and the investor acquires the securities in question and suffers loss (s90 FSMA); or

2. If PLCs publish information to the market which:

a. includes misleading or untrue information, when a person discharging managerial responsibilities (‘PDMR’) knows the information is untrue or misleading or is reckless as to that fact;

b. does not include information required to be included, when a PDMR knows the omission to be a dishonest concealment of a material fact;

and the investor relies on that information and buys, holds or sells shares in the PLC in question and suffers loss (s90A/Schedule 10A FSMA, paragraph 3); or

3. If PLCs delay publishing information to the market, when a PDMR acts dishonestly in doing so and the investor buys, holds or sells shares in the PLC in question and suffers loss as a result of the delay (s90A/Schedule 10A FSMA, paragraph 5).

Why is it growing?

As a major economy, the UK is the headquarters or primary operating centre of many of the world’s largest companies, including but not limited to financial institutions, and many of these are publicly listed on the main market of the London Stock Exchange or on AIM. The UK is also the home of or an investing destination for many of the world’s largest and most sophisticated institutional investors. Until recently, however, securities litigation against misbehaving PLCs did not occur in the UK. But this has changed, and in the last 5-7 years we have now seen 3-4 major cases in this area.

Whether co-incidentally or not, securities litigation in the UK has begun to grow at a time when the availability of third party funding and of innovative alternative fee arrangements has also developed. This has allowed institutional investors who have suffered a loss to participate in securities litigation, if they choose, with no downside risk and no cost to their balance sheet.

It is also apparent that there is regulatory and policy support for securities litigation, as policy makers and corporate regulators in the UK and internationally recognise the positive benefits of private securities litigation in driving deterrence objectives, encouraging better corporate behaviour and governance, and enabling investors to obtain redress. This is especially so in circumstances where regulators are sometimes stretched to discharge their functions and can see private securities litigation as being both complementary and supplementary to the investigatory and enforcement actions which they have the capacity to undertake.

How can Fox Williams help you?

Fox Williams can advise on the full spectrum of issues arising from the growth of securities litigation in the UK, including the potential availability of recovery opportunities (compensation) for institutional investors and major shareholders in UK public companies.

Andrew Hill (who heads up this practice area at Fox Williams) has been at the forefront of developing securities litigation in the UK. He drove the launch of the UK’s first such claim against a PLC for issuing allegedly untrue or misleading statements to the market – the high profile case against Tesco PLC for a large group of institutional investors, following Tesco’s admission of a profit overstatement in late 2014. The Tesco case was ranked as one of The Lawyer’s Top 20 cases for 2017 and is ongoing. He has also considered a number of other potential cases, and he and the rest of the Fox Williams dispute resolution team have substantial experience in working with third party litigation funders, and of considering innovative alternative fee arrangements with clients and funders, enabling institutional investors to participate in securities litigation with no downside risk or no cost to their balance sheet.


Recent news, articles and deals:

Group litigation orders: Sharing the spotlight – Gavin Foggo and Andrew Hill write in New Law Journal more
Gavin Foggo and Andrew Hill write in The Law Society Gazette: Securities litigation - the third limbmore


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Andrew Hill
Partner
Direct dial: +44 (0)20 7614 2551
ahill@foxwilliams.com


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