In the complex world of securities trading, disputes and violations can arise, leading to legal actions that seek to hold wrongdoers accountable and provide recourse for affected parties.
In recent years we have seen an increase in actions from investors towards listed companies, shareholders vs the so-called issuers in the region. Notable cases are OW Bunker, Danske Bank in Denmark and more recently Ericsson in Sweden.
Securities litigation serves several important purposes in the financial ecosystem, namely:
- Protecting Investors: Securities litigation helps investors in their fiduciary responsibility to seek financial compensation for losses resulting from securities fraud or misconduct. By holding wrongdoers accountable, it deters fraudulent activities and promotes market integrity.
- Enforcing Compliance: Securities litigation enforces compliance with securities laws and regulations, ensuring that companies and individuals adhere to disclosure requirements and ethical standards in their financial dealings.
- Promoting Transparency: Securities litigation can uncover hidden risks, misrepresentations, or conflicts of interest that may impact investors’ decisions. This transparency is essential for maintaining trust in the financial markets.
- Enhancing Corporate Governance: Securities litigation can target corporate governance failures, such as breaches of fiduciary duty or conflicts of interest among corporate insiders. Holding company officers and directors accountable can lead to improved governance practices.
Securities litigation in Sweden can be done in various ways, through class/group actions, derivative actions, or regulatory enforcement actions (by authorities). Case law in the sphere of private enforcement is historically scarce but will now hopefully start to emerge. A historic reason is probably that Sweden as a civil law country lacks statutory rules regulating civil liability in relation to improper securities activities.
In the Ericsson case, 37 institutions are claiming roughly $200 million from the issuer in the district court of Solna, Sweden. The claimants state they have suffered investment losses since Ericsson withheld information about potential bribes paid to the terrorist organisation ISIS in Iraq, that caused the share price to fall. The claimants are all large (non-Swedish) institutional investors, and the case is funded by a third-party funder (not Deminor). The case will be tried in the first instance court in 2025.
The legal community expects to see an increase in litigation related to securities in the coming years, to paint a picture in 2021 there where was one (1) initial public offering every second day (157 in total). In 2022-23 there were only a handful of initial public offerings each year. Sweden has a disproportionate number of listed companies compared to other EU countries and it is considered a national sport to invest in the stock market. A majority of listed shares are held by local and foreign sovereign wealth funds, they seldom engage in litigation locally but often participate in international cases in the US and elsewhere. The economy is currently in a recession which has historically always led to an increase in the number of disputes.
Deminor is the only international funder with a local presence that focuses on securities litigation. On paper there are plenty of opportunities in Scandinavia, but in practical terms cases are often too “small” meaning the quantum of the potential loss the investor has suffered is not sufficient to initiate the litigation. Or which is more often the situation, the investors that do hold a significant part of the shares (the loss) are not willing to engage in litigation for various reasons. The claimants that are willing to lead the way in terms of creating the much-needed case law is the types we see in the Ericsson case, foreign institutional investors.
We could summarize the situation with a phrase coined by the advertising industry for when there was a minute of silence before the next add was supposed to run – watch this space!
