A group of Wilmer Hale attorneys in California noticed there was an absence of information on securities litigation and SEC enforcement actions in the state and beyond. So they set off to compile data on trends in California and other Western states, using lots of data and the expertise of partner Randall Lee, himself a former Regional Director of the SEC.
Among their findings:
- A California public company was 63 percent more likely to be sued than the average domestic issuer.
- There were 44 public companies sued in 2007 in the Western United States, a 56 percent increase over 2006.
- The median West Coast settlement in a private action dropped to $6 million, nearly 40 percent below the national median.
Basically, there are more suits brought in California, but they settle for less.
That could be because of the predominance of tech companies here, industries that tend to attract more litigation, said Jonathan Shapiro, a partner in Wilmer Hale’s Palo Alto office and member of the securities department. Shapiro worked on the project along with Lee and two other attorneys.
The survey (.pdf) found that more than two-thirds of the SEC’s federal court enforcement actions involved the technology and financial services industries — industries that are often more reactive to negative economic trends, Shapiro theorized.
And California’s higher figures could have to do with the higher concentration of tech companies in the state. That could have to do with the disclosure practices of companies here.
“It may be that West Coast companies are more willing or are more quickly reporting bad news,” he said.
The good news, the survey found, is that it has been consistently cheaper to settle class actions on the West Coast, the study of a three-year period found.
Shapiro attributes that to the smaller size of companies in California, and the possibility that all the lawsuits aren’t strong ones. Higher dismissal rates add to the mix, increasing scrutiny in the courts.
Other insights the group gleaned through their research included a recent increase in emphasis on the Foreign Corrupt Practices Act.
“The idea that GCs and corporate counsel of U.S .companies need to be so intimately familiar with law and customs of foreign governments to stay clean in the U.S. is a real additional burden,” Shapiro said.
While the SEC was increasing attention in areas such as FCPA, they weren’t pushing their other work aside, the survey found.
“They were pushing a lot of bread and butter enforcement, revenue recognition, insider trading —while they were also bringing new and novel cases,” he said.
The group used a lot of existing data, including every publicly active SEC action nationwide to compile the results.
“In terms of securities enforcement, there’s more work now than ever,” he said. “Having a sensitive ear to what regulators are doing helps when dealing with clients’ problems.”
So, Legal Pad wondered, why is Wilmer Hale sharing their time-consuming research with the rest of us?
“The defense bar in California is strong, and we welcome the chance to be part of the discussion,” Shapiro said.
But, he added, they’re not sharing it all; they’re saving some of the juicy morsels for themselves — and their clients.
— Kellie Schmitt
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