How Publicly Traded Companies Can Avoid COVID-Related Securities Litigation
Litigation trends are transforming, as the COVID-19 pandemic presents new legal concerns for businesses across the country. A particular area of concern is the rise of securities and other shareholder-related litigation. Shareholders are suing companies for statements made and actions taken during the pandemic that allegedly resulted in significant financial losses for investors.
As litigators navigate this new normal, it is helpful to pay close attention to how these cases unfold. Acquiring knowledge around pandemic-caused, securities-related litigation will prove valuable as attorneys consult and engage with clients on related matters, ensuring success, and avoiding pitfalls.
Round Table Group has assembled a COVID-19 practice group composed of leading securities and investment management experts. In this article, two of these expert witnesses discuss how companies can avoid litigation, as well as some reasons for developments in this practice area.
What steps should publicly traded companies be taking to avoid litigation arising from COVID-19?
“Corporate boards need to make communication and transparency of financial reporting and disclosures a priority,” says Kerry Campbell, a leading risk management and financial expert. “[Corporate boards] need to convey changes in market conditions and risks faced by their companies. New and emerging risks to their business need to be disclosed, and the assumptions and basic underlying financial forecasts need to be fully explained.”
Mr. Campbell comes to Round Table Group with over 30 years of financial industry experience, running many prospective “what-if” scenarios and exploring the potential impact on sales, cash flow, profitability, and liquidity management. His experience related to the necessity of transparency is exceptionally relevant right now.
Mr. Campbell explains, “Impairments that are taken because of COVID need to be explained and how the changes were calculated. All government assistance (e.g., PPP, EIDL, Main Street Lending) needs to be fully disclosed.”
What is the reason for the disparity in the rise of the stock market and falling employment rates? Who will ultimately be the winners and losers as time passes?
The stock market, although volatile, has generally risen since the start of the pandemic. In contrast, employment rates have fallen, and countless U.S. businesses have struggled and ultimately failed during that same time. Understanding this disparity will inform approaches to future litigation and is necessary for attorneys trying securities-related cases.
“Federal Reserve intervention has pushed down interest rates, and as a result, pushed up stock prices,” says Martin Dirks, investment strategy and analysis expert. Mr. Dirks continues, “In many sectors, there is a substantial disconnect between current stock valuations and “actual value.”
Kerry Campbell builds on Mr. Dirks’s assessment, stating, “The Fed’s actions do not have a strong and immediate impact on the economy, as the Fed cannot change psychology related to things like flying and hospitality. Urban settings (office, residential, and retail) will be the biggest losers, while the biggest winners will be technology-oriented companies.”
Legal teams understand the magnitude of the unfolding events and the importance of their guidance during these times. Businesses expecting litigation related to COVID-19 require an informed perspective, which is easily obtained through access to decades of industry expertise. Finance experts are quickly becoming a precious resource to attorneys, particularly in a consulting role before disputes arise.
Our COVID-19 practice group is at the forefront of all critical pandemic-related issues, which is why attorneys around the country are turning to Round Table Group for guidance. If you would like to retain members of our practice group, or expand your search for related expert witnesses, contact us at 202-908-4500.