Plaintiffs' counsel have been trying to bring underwriters,
bankers, auditors and other advisers into securities class actions
as defendants, particularly where an issuer is unlikely to be able
to satisfy a judgment. Plaintiffs often seek to add advisers after
the action has been commenced. Monitoring new actions will give
advisers advance notice of where they might be at risk of being
added as defendants.
While securities class actions may result from sudden and
unforeseen events, these are in the minority. The time to start
thinking about defending a securities class action is when you
first recognize that it may be necessary to disclose information
that could be seen as "bad news" by the market.
Develop a Long-Range
The progress of statutory class actions through the courts is
relatively slow given the leave and certification requirements,
with the result that even a frivolous claim could impact your
organization for years. Savvy defendants work with their counsel to
develop a timeline for defence of the action, to understand when
significant events will occur, when public attention will be
greatest, and when organizational time and resources will be most
Understand Your Insurance
Insurance policies should be reviewed at the first indication that
a securities class action could be initiated so that your
organization understands when insurers need to be notified, what is
covered, and what is not covered. Some policies may cover pre-claim
expenses such as internal investigations and public relations
Defendants have little control over the province in which a
securities class action is commenced against them. Inter-listed
issuers also face actions in the United States. Canadian defence
counsel that can defend an action in multiple provinces and work
collaboratively with U.S. defence counsel will provide a more
effective defence on all fronts.
Taking early measures to preserve all potentially relevant
documents and records ensures that your organization will have all
of the evidence that it needs to tell its story. Ensure that any
departing employees who have relevant knowledge understand their
post-employment confidentiality obligations and, if possible, agree
to assist with the defence of the action if needed.
Consider Early Case
While securities class actions move slowly, fully investigating and
understanding the action at an early stage can make subsequent
stages of the defence easier and less costly. Consider conducting
interviews of key witnesses, reviewing key documents, and obtaining
an estimate of damages exposure early on to know what barriers need
to be overcome.
The slow pace of securities class actions can delay the
defendants' opportunity to tell their side of the story.
Waiting for the appropriate time to frame the defence's
position will avoid revealing the defence strategy too early and
will reduce the risk of fuelling further allegations.
Securities class actions are often accompanied by securities
regulatory investigations of the same facts. Understanding
securities regulatory exposure will allow formulation of a class
action defence that will minimize risk on both the class action and
Early case assessment will help your organization to gauge the
level of investment that should be made in the defensive options
that are available. There is temptation to fight at every
opportunity, but fighting every battle can exhaust resources for
little marginal benefit.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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