Our clients frequently ask why deadlines in non-US securities cases vary so much. This article explains the reasons and offers several best practices for institutional investors making participation decisions in this environment.

To start, investors must appreciate two concepts:

• Passive versus active participation matters: The former involves representative (often class) actions and/or settlements with administrations and claim distributions. By contrast, active matters require investors to register with funders at the start of litigation and be parties prosecuting their own claims.
• Soft versus hard deadlines: As the terms suggest, soft deadlines may move while hard deadlines typically do not. With the passage of time, soft deadlines become hard.

PASSIVE PARTICIPATION MATTERS

For passive matters, deadlines are always hard. Class closure and/or settlement claim submission deadlines are set by courts and cannot be varied absent further orders.

ACTIVE PARTICIPATION MATTERS

For these matters, deadlines range from soft to hard. There are two primary drivers of hard deadlines: expiring repose dates and group readiness.

• Repose dates: Each country sets time limits for filing claims. Beyond those dates, claims are legally barred. Time limits vary by type of claim. In Germany, for example, the limitations period is the end of the calendar year 3 years after violations of statutory securities laws, and six years after the underlying events for fraud claims. Despite this apparent bright line, exact time limits can vary. Most laws give investors more time to sue if defendants have hidden their wrongdoing. Even if time periods are fixed, claims may still be filed late provided they do not rely on facts or events pre-dating the limit. Most frauds occur over time, perhaps years, and time bars only preclude claims based on misconduct pre-dating and not post-dating bar dates. For investors purchasing securities later in the claim period, losing earlier days in the period may make no difference.
• Group readiness: Funders finance litigation and their commitments are conditioned on investors with pre-set minimum loss amounts registering for their efforts. When registration levels are high enough and the contingencies are met, cases proceed as soon as counsel prepare claims for filing. If investors miss case launches, there may or may not be further chances to register and file. If not, earlier deadlines are effectively hard ones.

There are two secondary drivers impacting deadline firmness: client interest levels and the required lead time to prepare claims.

Interest levels: Registering for group actions is like choosing trains leaving a station. If later trains are expected, missing earlier ones isn’t a problem. But if investors miss the last train, they’re out of luck. When cases get launched, whether there are later opportunities to join them or the efforts of other case organizers (the lawyers and funders), i.e. whether there will be later trains, depends on the number of unregistered claimants still interested in joining. In high profile frauds, there are typically multiple organizers, each filing for clients at different times. Some organizers file multiple waves of client complaints. In these cases, there are plenty of later trains and missing the first ones is no big deal. In other cases, there may be only one organizer and limited numbers of interested claimants. In those matters, if investors are not part of the first complaint, they may be out of luck.

Lead time: Case organizers typically leave themselves lead time to prepare client claims, particularly before a repose date where they can’t afford to file late. Where time limits are more distant in time, organizers can choose to extend their preparation time to accommodate additional investors. After all, more is usually better. From this built-in lead time, it’s often possible for investors to squeeze at least a little more time from organizers, particularly if their losses are large.

PRACTICAL TAKEAWAYS FOR INVESTORS

Investors registering in an environment with varying deadlines should keep four things in mind.

1. Beware of ‘hard’ deadlines that aren’t: Case organizers may give the impression deadlines are hard even if they’re not in order to stimulate interest and convince investors to register early and with their effort rather than that of a competitor. Investors should be sure to understand what’s really behind a deadline and whether it’s soft or hard.
2. Know your options: Investors should stay current on deadlines changes and know if other organizer efforts are still open for registration. As time passes, choices become fewer but if investors miss one train there is often another behind, with the same organizer or others. In short, make sure you always have the most up-to-date train schedules.
3. You can usually get at least a few more days: Even when sincere in giving hard deadlines, case organizers will usually find ways to accommodate clients with large losses requiring more time. Their solutions may include giving additional days or securing client commitments and information needed to prepare claims, with signed paperwork to catch-up later. The key is early communication with the organizers.
4. Don’t cut things too close too often: The registration process is getting more challenging. Besides signing funding agreements and POAs, organizers are increasing requiring additional things from clients including corporate documentation on legal standing to sue, signing authorities, fund structure, and organization good standing. Investors need to start their internal decision process early enough to complete everything before deadlines. Waiting to make decisions too close to deadlines risk situations where time cannot be varied to accommodate their needs. Clients should consider hard deadlines hard and only seek additional flexibility when necessary. Otherwise, they risk getting caught with insufficient lead time and missing valuable opportunities.

NEXT STEPS

To learn how we’re helping clients monitor non-US securities litigation deadlines, please contact your FRT representative or email us to arrange a call with the FRT team.

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