WTW’s Financial, Executive & Professional Risks (FINEX) Practice collaborates with professionals throughout the directors’ and officers’ liability (D&O) insurance industry to gain perspective into the many facets of our business. In our “D&O Professionals Series,” we feature professionals from various corners of the industry, from executive D&O underwriters to securities litigators to coverage counsel and others. Our objective is to discuss how ever-changing conditions in the broader economy and in business have impacted D&O risk, securities litigation and our industry more broadly.
In this edition, we feature Jay Kasner, Partner, National Head of Securities Litigation at Skadden, Arps, Slate, Meagher & Flom LLP.
WTW: Looking ahead to 2025, do you think that filing volume of securities class actions will go up, down or stay relatively consistent? Do you think that filing volume meaningfully reflects shifts in corporate risks, or else what indicators are more useful?
Jay Kasner (JK): It’s always difficult to predict the future (especially in a presidential election year) but I would expect the volume of securities class actions to stay relatively consistent compared to the past several years. You see clues in the filing statistics. According to recent reports, plaintiffs filed 112 securities class actions in the first half of 2024 — in line with the 1997-2023 average of 113 suits. And stepping back, I think this reflects a broader reality. While you might see fluctuations from year-to-year, generally, the plaintiffs’ bar is opportunistic: if securities suits in one area decline (because of adverse rulings, improved corporate disclosures or otherwise), they often soon find another.
In terms of evaluating corporate risk, I wouldn’t look so much to the overall volume as to what that volume represents — in other words, the kinds of cases being filed. Again, we see that in the data. For instance, from 2020-2023, plaintiffs filed a spate of securities class actions involving cryptocurrency, with such filings reaching a peak of 23 in 2022. During the first half of 2024, by contrast, only three cryptocurrency-related suits were brought. Similarly, from 2021-2023, plaintiffs brought over two dozen SPAC-related federal suits per year; in the first half of 2024, there were just five.
WTW: Do you think that the securities class action playing field has shifted more in one direction than the other in recent years? If so, which way and why?
JK: In recent years, one shift we’ve seen is a willingness, at all levels of the federal courts, to rigorously apply the heightened pleading standards mandated by the Private Securities Litigation Reform Act of 1995. These statutory requirements — including that plaintiffs raise a “strong inference” of scienter and plead their claims of falsity with particularity — are demanding on their own. But they’ve been further strengthened over time through numerous court rulings, including the U.S. Supreme Court’s landmark decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), which articulated a framework for lower courts to use in assessing whether plaintiffs have adequately pled the “cogent and compelling” inference of scienter set forth in the PSLRA.
We see the PSLRA’s profound and lasting impact in dismissal rates. Information is available concerning resolution activity over the past ten years (2014-2023) for federal securities class actions in which purchasers of common stock are class members and in which violations of the Securities Exchange Act of 1934 (Section 10 and Rule 10b-5) or the Securities Act of 1933 (Section 11 and/or Section 12) are alleged. Of those cases where a motion to dismiss was filed and a decision reached, roughly 60% of the motions were granted in full (with or without prejudice), another 20% were partially granted and only 20% were denied in full.
What I believe that this tells us is that while federal securities class actions are not going away any time soon, courts have demonstrated their willingness time and again to act as the threshold gatekeeper that Congress intended.
WTW: What do you think has been the U.S. Supreme Court decision which had the greatest effect on the securities litigation paying field in the last 5 years and why?
JK: Each of the Supreme Court’s decisions under the PSLRA has been significant. In my experience, Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (2015), has had an outsized impact on securities litigation in the past five years. There, the Supreme Court clarified the scope of liability for expressions of opinion, holding that a defendant’s statement of opinion is an actionable misstatement or omission under the federal securities laws only if (1) the speaker did not hold the professed belief, (2) the supporting facts supplied were untrue or (3) the speaker omitted information whose omission made the statement misleading to a reasonable investor.
The case has been addressed repeatedly at both the District Court and Court of Appeals levels, with 469 opinions in the last five years alone. From a practitioner’s point of view, Omnicare has been an effective tool for corporate defendants in challenging opinion-based misstatement and omission claims at the pleadings stage. Justice Kagan herself predicted this, when she observed in her opinion that meeting the Court’s three-pronged test for liability would be “no small task for an investor.” That has proven true in my judgment.
WTW: What case or cases before the U.S. Supreme Court or possibly heading to the Court have the potential to have the greatest effect on the securities class action playing field?
JK: One case that I am closely watching this term is NVDIA Corp. v. Ohman, No. 23-970. It will likely address whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact. The Ninth Circuit held that an expert’s after-the-fact analysis of public information (which concluded that defendants’ disclosures were false) was sufficient to state a claim, where the expert report was supported by a consistent report from another source, confidential witness allegations and subsequent events in the market confirming the “essential correctness” of the expert’s conclusion. This question is important because if the Supreme Court affirms the Ninth Circuit’s holding, it could impact the manner in which plaintiffs seek to satisfy the pleading standards of the PSLRA and the frequency of such expert allegations in securities fraud complaints.
WTW: Strategically, do you consider that there are rules of thumb about how to juggle and resolve concurrent securities class actions, derivative suits and government investigations?
JK: There is no one size fits all approach to defending concurrent securities class actions, derivative suits and investigations, each of which is uniquely fact intensive and situation specific. There are, however, different factors that defense counsel may wish to consider when faced with multiple proceedings. They include, the extent of overlap in the factual allegations underlying each matter and how, if at all, the outcome in one proceeding will impact the resolution of the other proceedings; the anticipated time horizon for each proceeding; the likely discovery that could be sought in each; whether the proceedings are pending in multiple fora (both state and federal); whether the company’s bylaws contain a forum selection provision; whether shareholder demands have been made upon the board and the nature of the response given to such demands; whether any books and records have been demanded; whether the PSLRA’s automatic discovery stay in securities cases is extended to the related actions; whether the litigations should be consolidated or subject to multidistrict litigation; whether individuals are named as defendants and/or the subject of the regulatory inquiries; and whether any of the plaintiffs have requested leave to amend their complaints.
In terms of potential resolutions, like any other case or matter, there are always windows of opportunity to resolve a case or government investigation. Those windows will depend on a variety of factors, such as the parties’ interest in settling and the potential impact of settling one proceeding on the related proceedings.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
This article may contain information or materials created or provided by third parties over whom Willis Towers Watson has no control or responsibility. These third-party information or materials are not under Willis Towers Watson’s control, and Willis Towers Watson is not responsible for the accuracy, copyright compliance, legality, or any other aspect of such third-party information or materials. The inclusion of such third-party information or materials does not imply endorsement of any third parties by Willis Towers Watson or any association of Willis Towers Watson with any third parties.
