Securities litigation and enforcement activity often surge in times of crisis. Indeed, bedrock federal securities regulations were borne out of an extended crisis: the stock market crash of 1929 and the decade-long Great Depression that followed.
COVID-19 has already set off a wave of securities litigation. These private lawsuits and putative class actions have been based on allegedly misleading statements in securities filings and public statements. But issues surrounding proof in the COVID-19 era, including demonstrating the “price impact” of alleged misrepresentations for purposes of reliance and loss causation, limit the viability of these claims.
As public companies anticipate the next wave of securities activity they should expect limitations on private lawsuits to prompt the Securities and Exchange Commission (SEC) to ramp up civil enforcement. The Department of Justice (DOJ) may even launch related criminal investigations in high-profile cases.
We discuss below recent COVID-19-related securities litigation and enforcement trends, special issues with reliance and loss causation, and best practices to avoid the expected onslaught of SEC enforcement and DOJ investigations.