Financial Times: Court and spark
25 November 2009, 2:52 pmLitigation is part of America’s DNA. So investors wanting compensation for alleged securities infractions have good reason to seek out the US courts. Should changes buried within a regulatory reform bill pass into law, so-called “F-cubed” claimants – foreign investors, in foreign companies, on foreign exchanges – might find it easier to seek compensation in the US.
Good news, then, for litigious investors. The US allows “no win, no fee” arrangements and lots of poking around pre-trial. It also, through the assembly of class action lawsuits, offers potential for much larger pay-outs. But greater access for foreigners to the American court system could prove expensive and time-consuming for global companies. They are already seeing more lawsuits brought against them on US soil, though true F-cubed cases remain rare.
The new legislation would establish that cases can be heard in US courts provided “significant steps” towards a violation occurred within the US, even where the securities transaction and its investors are abroad. That would codify a single standard, whereas courts have previously had varying opinions on whether to hear F-cubed cases. Moreover, it would arguably set a lower standard than that established by the influential Second Circuit Court of Appeals, which in 2008 held that jurisdiction depended on the location of the “heart of the alleged fraud”.
The sheer volume of proposed legislation overhauling US financial regulation means significant changes could slip through largely unnoticed – especially where there is no natural political constituency to argue the case and with so many higher-profile fights to pick. True, courts would have to interpret any new standard. But “significant steps” towards an alleged fraud could encompass all manner of US-based advisers and subsidiaries. No wonder the European Commission has apparently already signalled its alarm. For rapacious US plaintiffs’ attorneys, a change would be just another reason to try their luck.
