While securities-fraud lawsuits against U.S. companies have waned in recent years, shareholders' lawsuits against deep-pocketed foreign firms are gaining momentum and may be the next legal flashpoint between businesses and investors.
Litigation involving foreign companies reflects the global explosion of financial markets and multinational corporations — plus a growing cast of U.S. and foreign investors willing to sue multinationals suspected of securities fraud.
Attorneys say there's no data yet on securities lawsuits worldwide against companies. But in U.S. federal courts, 16 securities lawsuits have been filed this year against foreign businesses as of early October — three more than in all of 2006, says Patricia Etzold, a partner at PricewaterhouseCoopers.
Shareholders' lawsuits have been filed against L.G. Philips in South Korea, Xinhua Finance Media, a subsidiary of Xinhua Finance Ltd. of China, GlaxoSmithKline in the United Kingdom, Alvarion in Israel and others, according to PricewaterhouseCoopers.
Shareholders have agreed to several huge settlements with foreign firms, including a $2.2 billion settlement last year with Nortel Networks of Canada, a $1.1 billion settlement in 2005 with Royal Ahold in the Netherlands and a $300 million settlement with DaimlerChrysler of Germany in 2003.
"Cross-border litigation is a reality today," says attorney Mark Wegener at the Howrey law firm in Washington, D.C., "and it will only expand and accelerate over the next five to 10 years and beyond."
Wegener says that it's not unusual for one securities lawsuit to involve shareholders, lawyers, judges and regulatory agencies in three or four different countries. "It's complexity squared," he says.
Why are securities lawsuits involving foreign firms and foreign investors rising now?
It's a growth business
Global civil litigation of all stripes is growing, according to attorneys and legal scholars who specialize in international law.
In addition to securities-fraud lawsuits, more international cases are emerging in antitrust, intellectual property and consumer protection law.
Another factor: U.S.-style regulatory practices are being exported overseas. The Securities and Exchange Commission has agreements with dozens of countries to prosecute fraud, and that's leading to tougher oversight and enforcement of foreign firms.
In the United Kingdom, for instance, 81% of companies surveyed by international law firm Fulbright & Jaworski said they have received SEC inquiries this year, compared with 25% of firms last year.
Moreover, plaintiffs' law firms are actively seeking to bring cases on behalf of foreign institutional investors with holdings in U.S. companies, says Gerry Pecht, a partner at Fulbright & Jaworski.
"It's a small but growing number of U.S. cases that's occurring with greater tenacity now," Pecht says.
Only Canada, Australia, the United Kingdom and a few other countries allow class-action-type or "collective action" lawsuits for shareholders to sue and recover losses as a group. So shareholders in most nations must go it alone, which can lead to a legal morass. In Germany, 754 law firms have filed 2,100 claims against Deutsche Telekom alleging fraud, according to attorneys Wegener and Peter Fitzpatrick of the Howrey law firm.