Blair Connelly and Colleen C. Smith are partners and Cindy Guan is an associate at Latham & Watkins LLP. This post is based on an article originally published in Bloomberg Law.
Many predicted a wave of securities litigation would follow the stock market plunge during the early days of the pandemic in March 2020, just as it did in the wake of the 2008 economic downturn. But in the months since the onset of pandemic- related economic hardship, only a few cases have been pursued by private plaintiffs, with a roughly equal number of enforcement actions filed by the U.S. Securities & Exchange Commission.
The trend in shareholder litigation is beginning to shift. We are now seeing an uptick in claims challenging public statements made regarding protective measures and financial condition. The SEC has encouraged companies to keep shareholders informed about Covid-19 developments relevant to their businesses throughout the crisis. While this guidance is meant to improve transparency, public companies should not overlook the risk of future shareholder litigation as they adjust to new restrictions on business operations, implement new workplace safety measures, and attempt to best position themselves for success in a period of virtually unprecedented economic uncertainty.
In this post, we examine current securities litigation uniquely associated with the pandemic, predict litigation risks and trends going forward, and offer a summary of best practices for avoiding them.
