May / June 2021

the VOLUME 18, ISSUE 3 MAY/JUNE 2021 Do Those Billions of Dollars Left on the Table Belong to You? Once an investor is aware that a potentially recoverable In 2020, as courts and law firms adapted to operating during the pandemic, the number of securities class ac- claim exists, navigating the claims filing process requires INSIDE THIS ISSUE tions filed in federal and state courts was 22% lower than knowledge, experience and patience. To successfully in 2019, according to Cornerstone Research. Its report, recover assets in securities related actions requires ex- 1 Do Those Billions of Securities Class Action Filings: 2020 Year in Review, re- pertise beyond simply gathering all one’s holdings and Dollars Left on the Table veals that “the 2020 total [334 new cases], however, is transactions into a spreadsheet and filling out a form. Belong to You? still 49% higher than the 1997-2019 average.” Even with a favorable settlement The Risks of Investing 2 In the last decade, there has been a significant spike in hand, investors should assess in SPACs in securities class actions brought outside the United the fairness of its terms, particu- States, in response to the U.S. Supreme Court’s 2010 larly where their losses are sig- 4 The Value of Saber-Rattling nificant. In some instances, the Proposals to Break the Shield decision in Morrison v. National Australia Bank, which barred recovery for losses in foreign-traded securities plan of allocation may not ade- of Business Judgment under the U.S. federal securities laws. This trend contin- quately compensate certain class 5 Q&A: Linda Kellner ues to expand. Canada, Australia, and the Netherlands members whose claims may are becoming experienced in the class action process. be stronger than those of other 6 85 Years: A Seismic Shift Other jurisdictions, such as Poland, the U.K., Japan, Is- class members. A classic exam- in Assessing Losses rael, and Saudia Arabia are moving towards that end by ple would involve claims arising enacting class action or collective action laws to protect under both Section 10(b) of the ® 7 PomTrack Update shareholders. Germany and Brazil, as well as other juris- Securities Exchange Act of 1934 dictions, have become host to opt-in litigations. and Section 11 of the Securities Act of 1933. Section 10(b) prohib- The Pomerantz Monitor may be considered to be attorney According to ISS Securities Class Action Services LLC, its any act or omission resulting advertising under applicable there were 133 approved monetary securities-related in fraud or deceit in connection rules of the State of New York settlements worldwide in 2020, with a total of $5.84 bil- with the purchase or sale of any lion recovered for defrauded investors. Investors, howev- security. Section 11 imposes strict er, do not receive any money from a settlement unless liability against newly public com- they file a claim as part of the settlement administration panies for misstatements, even process. In 2005, Professors James Cox and Randall unintentional, in their registration Thomas, in a seminal article in the Stanford Law Review, statements and permits recovery reported that, as evidenced by their empirical research, for any decline below the stock’s initial offering price. Since Section Jennifer Pafiti, more than two-thirds of large institutional investors failed Partner and Head of Client Services to file claims in securities class action settlements. Al- 11 claims, unlike Section 10(b) though the number of institutional investors that do file claims, do not require proof of scienter—that is, the in- claims is likely larger today, billions of dollars continue to tent or knowledge of wrongdoing—they are stronger and be left on the table. should be treated more favorably under a plan of allocation. However, this is not always the case, and, in such Due to the opt-out nature of American securities class situations, a fund may be well-advised to file an objection actions—in which individuals and entities that fall with- to the plan of allocation. in the class definition are automatically class members unless they take affirmative steps to opt out—damaged Pomerantz’s keen oversight of settlements’ fairness to investors frequently have their rights vindicated in court our clients has, over the years, led to concrete results. without even knowing they are members of the class or, For example, in the St. Paul Travelers Companies secu- indeed, anything else about the litigation. That is why it rities fraud litigation, Pomerantz challenged the formulae is essential that institutions have access to a robust re- used to calculate recognized losses in the settlement search and monitoring system to ensure they do not miss terms. Consequently, lead counsel revised the plan of al- out on opportunities to recover assets. location, resulting in a 60% increase in recognized losses Continued on page 2 POMERANTZ LLP NEW YORK CHICAGO LOS ANGELES PARIS TEL AVIV www.pomlaw.com Continued from page 1 for our client. The Risks of Investing If a fund’s damages are significant, it might choose to opt out of the class to pursue its own, individual claims. in SPACs To reach this decision, it must weigh the likelihood of in- creased recovery against giving up a guaranteed payout By Brandon M. Cordovi from successful litigation, the risk of no recovery if the case fails, and the costs of litigation. Special Purpose Acquisition Companies (“SPACs”) burst onto the Wall Street scene, seemingly from nowhere, as To properly monitor portfolios and to receive maximum the COVID-19 pandemic swept the world by storm in 2020. recovery, at least a basic understanding of the substan- Their rise to prominence has been so profound that it has tive laws involved in the class action is necessary. This garnered the attention of the SEC and the plaintiffs’ bar. has become increasingly complex, as nontraditional The glamour of SPACs has even drawn superstar athletes, case allegations emerge: for example, antitrust class such as Serena Williams and Alex Rodriguez, as well as actions in which the underlying anticompetitive conduct entertainers, such as Jay-Z and Ciera, to take on promi- impacted the price of publicly traded securities and com- nent roles as investors and advisors. plex financial products; litigation related to the trading of credit-default swaps and foreign exchange products; and What is this seemingly newfound investment opportunity claims concerning cybersecurity, cryptocurrency, special that everyday investors and celebrities alike have flocked Jack Lo, Director of Financial Analysis purpose acquisition companies (SPACs), and #MeToo to? A SPAC is a publicly traded company that is set up by allegations. investors with the sole purpose of raising money through an IPO to acquire an existing company. The SPAC itself For many institutional investors, the task of professional, does nothing at all. Typically, its only asset is the money active portfolio monitoring is too complex, too time-con- raised through the IPO to fund a targeted acquisition. suming, and too expensive to do in-house. In response to their needs, Pomerantz offers our clients PomTrack®, These shell companies are usually formed by a team of a proprietary, complimentary global portfolio monitoring institutional investors. At the time the shell company goes service that notifies fiduciaries when assets they oversee public, it is not certain what existing company it is seeking to acquire. After the money is raised through an IPO, it is suffer a loss that may be attributable to financial miscon- placed in an interest-bearing account until the acquisition duct. can be made. The SPAC generally has up to two years to identify a target company to acquire. Once a target com- Spearheaded by Partner and Head of Client Services ® pany has been identified and an agreement is in place, the Jennifer Pafiti, PomTrack provides one of the larg- acquisition must be approved by the SPAC’s shareholders est global portfolio monitoring services in the United through a vote. States—currently monitoring for over 100 of the most influential institutional investors worldwide with combined ® Once the acquisition is completed, shareholders are left assets in excess of $6.8 trillion. The PomTrack team with the choice of either converting their shares of the comprises attorneys and forensic economists, damage SPAC into shares of the acquired company or redeeming analysts, claims filing specialists, and paralegals, as well their shares and receiving their investment back plus the as a dedicated team of senior and junior support staff. accrued interest. If the SPAC fails to identify a target com- Sydney N. Castro, Damages Analyst pany within the two-year time limit, the SPAC is liquidated, For nearly two decades, Pomerantz has been providing with all shareholders receiving their original investment this portfolio monitoring service at no cost to our clients. back along with accrued interest. The service includes the preparation of customized, monthly PomTrack® Reports that advise clients of every Since SPACs have risen to prominence only recently, settlement in which they might be eligible to participate, many investors assume they are new. In fact, SPACs have and the deadlines for objecting and filing proofs of claims. been around for decades but have scarcely been used. They became more prevalent recently due to the extreme For a modest fee—a percent of the assets a client re- market volatility caused by the COVID-19 pandemic. Exist- covers in a settlement—the PomTrack® team also offers ing companies looking to go public were left with a choice: expert claims filing services for all stages of the process: either postpone their IPOs due to the uncertainty, or merge filing the claim, working with the Claims Administrator to with a SPAC. cure any deficiencies, and ensuring that the client re- ceives the recovery to which it is entitled.

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