Israeli Tech Firms Targeted in More Class Securities Suits

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By Antoinette Gartrell

Securities class actions against U.S.-listed foreign issuers spiked in 2016, thanks in part to an increasing number of lawsuits against Israeli companies.

The eight filings against Israel-based corporations last year were the most ever and accounted for nearly 20 percent of the 42 U.S. class securities actions against non-U.S. companies.

The nature of the Israeli economy is in large part responsible for the phenomenon, one observer said. “Israel is home to a lot of tech companies, which are generally sued at a higher frequency than the marketplace as a whole,” Kevin LaCroix, executive vice president at insurance broker RT ProExec and author of the D&O Diary blog, told Bloomberg BNA.

The six filings against firms headquartered in Ireland also were the highest on record in 2016, according to a recent Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse report. “There are many life sciences companies in Ireland, which have always been sued more often than the larger universe of publicly traded companies as a whole,” La Croix said.

Class securities suits against U.K. and German issuers also were the highest on record with six and four, respectively, Cornerstone reported. Canadian and European companies also saw an increase in lawsuits in 2016 compared to the average over the last two decades. The expectation after the U.S. Supreme Court narrowed the extraterritorial reach of the federal securities laws in 2010 was that the number of lawsuits against foreign companies would decline—instead the exact opposite has happened, LaCroix said.

While globalization increasingly has prompted foreign issuers to take advantage of the U.S. financial markets, access to U.S. investors comes with a price tag in the form of enhanced regulatory scrutiny and exposure to private securities litigation, Ronald Betman of Ulmer & Berne LLP, Chicago, told Bloomberg BNA. Foreign companies with shares listed on U.S. exchanges have been disproportionate targets of lawsuits since 2011, although Chinese reverse mergers accounted for many of the lawsuits earlier in the decade, LaCroix said. At their peak in 2011, lawsuits against Chinese issuers accounted for more than one-fifth of all securities class action filings in the U.S. With reverse merger cases on the downswing, filings against foreign companies, which are expected to continue to increase, are now due to country-specific factors, LaCroix said.


Canada, for example, saw an increase in the volume of class securities suits—nine last year compared to four in 2015. According to LaCroix, that’s because the Canadian economy is dependent upon mineral, oil and gas companies, which have been hurt by falling commodity prices. Also, several Canadian companies that overextended themselves during the boom years now have an overhang of debt that they can’t service, he said. The nine Canadian companies hit with U.S. securities suits last year encompass several industries, including consumer goods and services, health and technology.

Overseas, European firms altogether saw a record number of filings in 2016—more than double the 1997-2015 average. The increased activity may be industry and country-specific, LaCroix speculated—suits against drug companies in Ireland or automobile companies in Germany, for example. Litigation also may have been prompted by increased regulatory activity, he said, especially in the wake of the financial crisis.

“Facing U.S. securities laws is a cost of doing business—a cost than can promote investor protection,” Stanford Law Professor Michael Klausner said. LaCroix agreed. Despite the rising number of class securities suits against foreign issuers, he said, non-U.S. companies still want to be listed in the U.S. The U.S. markets are viewed as more transparent and as providing greater liquidity, making them more attractive to investors, LaCroix said.

Moreover, according to LaCroix, the vast majority of cases are dismissed or settled. “The calculation of damages is usually a threat to the life of the company, which can’t take the risk of a jury verdict.” To date, only approximately 25 cases have actually gone to trial since the Private Securities Litigation Reform Act was enacted in 1995, he said.

Class suits against foreign companies also tend to settle earlier than those against domestic entities and for less money, Klausner said. In any event, class suits against both foreign and U.S. issuers are thrown out of court approximately 45 percent of the time due to PSLRA’s high pleading standards, Klausner said. The remainder almost always settle, he said.

“These cases are driven by lawyers, who generally get a fee of about 30% of the amount recovered for investors. Unlike traditional lawsuits, lawyers seek out plaintiffs as opposed to plaintiffs seeking out lawyers. The potential for a fee in a successful case provides lawyers with an incentive to bring these cases,” he said.

2017 and Beyond

Moving forward, the number of filings against foreign issuers will probably continue to increase, Betman, who has defended clients in securities class and derivative litigation, predicted.

Many U.S.-listed foreign issuers are in industries such as biotechnology, pharmaceutical, life sciences and health care that have been the focus of plaintiffs’ firms over the past several years. If the past is any indication, companies domiciled in countries such as Ireland, the United Kingdom, Israel and Brazil will probably be targeted in class securities suits in the coming years, Betman said.

To contact the reporter on this story: Antoinette Gartrell in Washington at

To contact the editors responsible for this story: Phyllis Diamond at; Seth Stern at

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