Shareholder litigation has been a common aspect of business operations within the United States, but there is a notable rise in such litigation beyond US borders, particularly in the United Kingdom. The groundwork for these legal actions is Section 90A and Schedule 10A of the Financial Services and Markets Act 2000, which furnishes shareholders with the ability to sue UK-listed companies for disseminating misleading market information. This bears a resemblance to Section 10(b) of the US Securities Exchange Act, a longstanding driver of shareholder litigation in the US market (link).
A prominent case that went to trial in the UK involved Serco Group, accused of overbilling the government by monitoring deceased criminal offenders, leading to substantial financial penalties and a share price plunge of approximately 70% in 2013 (link). This litigation trajectory mirrors the US experience where companies frequently face securities fraud actions post any government enforcement activity.
The US commonly sees these “stock drop” suits dismissed early, yet some progress to late stages or settlements involving significant payments to plaintiffs’ lawyers. Companies in other jurisdictions should acknowledge this increasing trend, with notable 10-figure settlements in Europe, such as the €1.43 billion recovered for shareholders in Steinhoff International following massive accounting fraud and €1.3 billion from Fortis N.V. regarding its solvency disclosures (link, link).
Following the Serco settlement, shareholders have lodged a Section 90A claim against UK-listed Entain Plc for losses incurred due to share price drops after bribery allegations involving its former Turkish subsidiary (link). Companies in non-US markets should prepare for potential shareholder litigation by:
- Monitoring shareholder lawsuits locally to comprehend emerging theories of liability and key cases.
- Ensuring all shareholder disclosures comply with local laws to avoid charges of false or misleading information.
- Anticipating possible shareholder actions following any public incident that affects share price.
- Consulting with insurers to better understand coverage options for shareholder litigation.
For additional insights, visit the full article on Bloomberg Law (link).