Law Times

PAGE 12 FOCUS May 10, 2010 • Law TiMes emanating from the courts have piqued the interest of lawyers practising securities law. Many are following the de- Goldman, securities class actions high on lawyers' radar R BY DARYL-LYNN CARLSON For Law Times ecent developments involving both regula- tory issues and trends velopments around Goldman Sachs Group Inc.'s troubles af- ter the U.S. Securities and Ex- change Commission launched a civil lawsuit against the global investment giant alleging it had created and sold a product that was expected to fail as a result of the mortgage crisis develop- ing south of the border. "This is getting a lot of atten- tion because it's the first high- profile case involving the struc- tured products that were at the centre of the credit crisis," says Andrew Matheson, a partner in McCarthy Tétrault LLP's litiga- tion group in Toronto. "In the past, we've seen that where the SEC has brought their Litigators will be closely watching Morrison v. National Australia Bank in the United States, says Andrew Matheson. resources to bear, other regula- tors have followed suit. So one wonders whether there's a paral- lel here in the structured prod- ucts area and whether the SEC's focus on this will lead to investi- gations in other jurisdictions." Matheson notes that while there are many similarly struc- tured securities products on the market, there aren't any in Canada that reflect those that drew the SEC's attention. Still, he points to Coventree Inc., a financial services company fac- ing disciplinary proceedings by the Ontario Securities Com- mission and the Investment Industry Regulatory Organiza- tion of Canada over its involve- ment in the asset-backed com- mercial paper market. Several other Canadian financial in- stitutions reached settlements with authorities to pay penal- ties and costs stemming from similar investigations. "It's not the same thing that is at issue in the Goldman mat- ter, but some of the assets un- derlying the ABCP are similar," Matheson says. Additionally, the Goldman situation could prompt a law- suit or even a class action by in- vestors, perhaps even by share- holders, he suggests. "When a regulator on either side of the border takes action, O E S Y OUR D ONLINE LEG AL Y OU A C CESS T O A C TU AL RESEARCH TOOL GIVE COUR T D O CUMENTS? ONLY WESTLAW® CANADA GIVES YOU REAL PLEADINGS, MOTIONS AND FACTA More than just forms, you get real court documents from selected leading cases. Access court documents that have been court tested. Get all of the actual pleadings, motions and facta filed in leading cases and link to them directly from the case. Get Better Results Faster with Westlaw® Canada www.westlawcanada.com Untitled-1 1 www.lawtimesnews.com 4/27/10 10:22:34 AM often civil suits will follow. The investors may be the most likely ones to sue rather than the shareholders of Goldman Sachs as I think it would be speculative to think sharehold- ers could sue. But they might; it's not out of the question." Matheson notes, however, that depending on the outcome of the SEC action, there could be incentive for shareholders to litigate based on conflict of interest and disclosure. The matter could also prompt oth- er jurisdictions to at least in- vestigate any related activities within their purview. "This is significant because it could signal a new focus for reg- ulators in the U.S. and possibly other jurisdictions, such as the U.K. and possibly in Canada," Matheson says. "We're all going to be watching this one." Class actions against securi- ties issuers are also being tested in Canada. Particularly notable was the decision by an Ontario court earlier this year to certify a global class in the matter of Silver v. Imax Corp. The case was the first to test changes in- troduced under the Ontario Se- curities Act, which created civil liability for secondary market disclosure. Several class actions against Imax are also pending in the United States. "On the global class theme, there is an interesting parallel happening in the U.S. before the Supreme Court there," Matheson says, pointing to a case called Morrison v. National Australia Bank in which the high court will hear arguments on whether foreigners can pro- ceed with a U.S.-based class ac- tion to comprise a global class. "We as litigators are watch- ing the case because it will affect what will happen here," he says. Yet there have been relatively fewer securities-related class ac- tions initiated during the past year in courts south of the bor- der, says Brian Radnoff, a part- ner at Lerners LLP who practises complex commercial disputes, securities, and class actions. Radnoff cites a recent survey by PricewaterhouseCoopers that shows there were 99 class action suits initiated in 2008 related to the credit crisis. That compares to only 51 last year. Radnoff says it's important to note that U.S. defendants can, under class action provisions, bring forward a motion to strike a class action early on in the case without producing evidence. That could prompt litigants to initiate matters in Ontario, which requires defendants to provide ev- idence at a certification hearing to block a class action. "In Ontario, under s. 138 of the Securities Act, the plaintiff brings a motion for certification and evidence is put in front of the court, so this brings opportunity to bring evidence at an early stage of the litigation," Radnoff says. "So given the difference in the legislation and following the Imax decision, it's possible we might be seeing more secondary market claims brought in Ontario." Radnoff also says that while most securities cases to date have come from individual rather than institutional inves- tors, because Ontario has a rep- utation as a jurisdiction that's receptive to class actions, that, too, could change. "I think we might start to see institutional investors bringing class actions in Ontario also." Radnoff adds that, perhaps as a sign of the times, clients who find themselves in Ponzi or pyr- amid-type investment schemes continue to consult him. Still, the cases are tremendously difficult matters that don't often achieve a positive result for plaintiffs. "From the plaintiff perspec- tive, we're not dealing with people who have money for le- gal fees, and secondly, it's hard in most cases to find assets from the offenders." The prevailing lesson in those types of cases, he says, is this: "People should never in- vest in anything they don't un- derstand." LT

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• Plaintiff Rights
• Dangerous Conflicts
• Focus On Securities Law