Crucial Securities Class Actions Pending in the Courts
Valeant Investors Seek to Recover Losses from Deceptive Pricing
Pharmaceutical giant Valeant used a combination of price gouging and deceptive business practices to artificially inflate its stock prices. While investing virtually no money in improving or creating new drugs, Valeant raised prices on its brand-name pharmaceuticals an average of 66% in 2015 alone, often for lifesaving treatments. It paired these aggressive price increases with deceptive pricing and reimbursement, fake accounting, and secretly controlled pharmacies.
In addition to devastating patients, these sham business practices also undermined the company’s reputation and finances. Thousands of investors, as well as government pension plans lost their savings when Valeant’s stock collapsed, from a high of $262 to less than $25 per share. A group of these investors, led by the City of Tucson and Teachers Insurance and Annuity Association of America brought a class action against Valeant and have prevailed over several motions to dismiss.
Exxon Investors Seek Accountability for Massive Write Down
In late 2016, an investigation by the New York Attorney General revealed Exxon Mobil may have defrauded investors by inflating the value of its oil and gas reserves by nearly 20%. The SEC soon opened an investigation, followed by a class action led by the Greater Pennsylvania Carpenters Pension Fund.
Court documents suggest that Exxon lied to investors about how it measured the proxy costs of government action on climate change – claiming to use one set of proxy costs, while swapping in a second, lower estimate in its internal business planning – artificially overvaluing its reserves in an attempt to maintain its AAA credit rating. Once full information about Exxon’s massive write down came out, its stock plummeted, erasing billions of dollars of market capitalization. This class action is now the investors’ last hope to recover their losses, as new SEC leadership dropped its investigation and declined to pursue an enforcement action in August 2018.
Wells Fargo Investors Seek Redress for Scandal Coverup
The many massive scandals at Wells Fargo continue to reverberate across the financial market. But despite evidence that executives and directors made false statements about the fake account scheme in official filings, the New York Times assessed that the “prospect of governmental action appears to be diminishing” under new SEC Chair Jay Clayton.
Wells Fargo famously used arbitration clauses to force its customers and employees into secret arbitration proceedings and cover up its scandal. However, thanks to current SEC precedent, the bank has not been able to keep its investors out of court. A major investor action is moving forward against Wells Fargo, charging that executives “knew or consciously disregarded” the millions of fraudulent accounts created “without those customers’ knowledge or consent.” This is likely to be the investors’ only chance to recover losses stemming from the bank’s historic fraud.
Critical Recoveries in Past Securities Class Actions
Some Petrobras Investors Recover Billions – Others Recover Nothing
Petrobras, a Brazilian oil company, misled investors about financial statements and business operations. When claims were filed, the court parsed two sets of investors: those who purchased securities on the U.S. market and those who purchased securities on the Brazilian stock exchange.
Thanks to U.S. securities law, the first group of investors was able to bring class actions despite a forced arbitration clause in Petrobras’ bylaws. They are set to recover more than 90 percent of the $3 billion fraud settlement. The second group, at the mercy of Brazilian law, was forced into individual arbitration and barred from joining a class action. They are not expected to get a dime.
Household International Investors Recover $1.575 Billion
Household International engaged in a massive predatory lending scheme with illegal sales practices and improper lending techniques. Household’s share price fell more than 50 percent when the company paid $484 million to settle predatory lending claims by state regulators.
Soon after, investors joined together in a class action, claiming that Household manipulated data to give “the appearance that the credit quality of Household’s borrowers was more favorable than it actually was,” in order “to artificially inflate the Company’s financial and operational results.” The class action uncovered evidence of behavior that played a key role in inflating a worldwide speculative bubble that helped lead to the economic crash in 2008. HSBC, as successor in interest to Household Finance, settled these claims in 2016 for $1.575 billion.
AIG Investors Recover $970 Million
American International Group (AIG) is widely considered one of the most egregious corporate actors in the 2008 financial crisis. The company famously handed $165 million in bonuses to executives after U.S. taxpayers shelled out billions to save it from total collapse. Its investors, many of whom had invested because of the insurance industry’s presumed stability, also lost billions when AIG gambled away their investments on a risky derivatives market.
After the Justice Department and SEC closed their investigations without bringing an enforcement action, the State of Michigan Retirement Systems – representing public school employees, state employees, police, and judges – led a class action against AIG for violating the securities laws. They alleged that the company concealed the full extent of its exposure to the subprime real estate market, costing them billions in losses. In 2015, AIG settled these claims for $970.5 million, allowing for a substantial recovery where investors would have otherwise gotten nothing.
Enron Investors Recover a Record $7 Billion
In August 2001, energy giant Enron Corporation was caught in historic fraud that soon led to its collapse. Top executives overstated company earnings by several hundred million. Shares soon plummeted – from $90.75 to just 67 cents. Enron employees and investors, including thousands of state and municipal workers whose pensions were tied to Enron stock, lost everything.
The SEC eventually recovered $324 million of the billions lost by victims of the company’s fraud through enforcement actions. However, private securities class actions later returned more than $7 billion to employees and investors – the largest settlement in U.S. securities litigation to date.