NERA Releases Update to Report on Securities Litigation Trends in Japan
2 August 2010
Tokyo -- Total damages from misstatements in securities litigation cases rose to a record 45.9 billion yen in 2009 from 9.9 billion yen in 2008 according to NERA Economic Consulting's report, Trends in Securities Litigation in Japan: 2009 Update, released today. The 45.9 billion in 2009 is in fact larger than the aggregate amount of securities litigation damages determined by court decisions in Japan for the entire previous decade.
The average damage award per judgment, also a record high, reached 1.9 billion yen in 2009. While damages may have increased, the 14 judgments in litigation claiming damages from misstatements in 2009 remained essentially flat over the 15 judgments in 2008. Judgments in 2009 consisted of many large cases including Livedoor and Seibu Railway, in which most judgments were in favor of plaintiffs.
The report Trends in Securities Litigation in Japan: 2009 Update reviews 300 "judgment cases" from 1998 to 2009 identified by NERA as securities litigation based on the Financial Instruments and Exchange Act (formerly the Securities and Exchange Law). The report analyzes trends by items including type of litigation, industry, and damages amounts.
Appraisal Right Trends
In recent years, there have been an increasing number of securities cases where shareholders dissenting from a company reorganization exercise their appraisal right to require that the reorganized company purchase back its shares. In 2009, there were 11 such cases, with the aggregate judged fair purchasing price of acquired companies totaling 6.2 billion yen. Driving this increase in cases has been an uptick in petitions for appraisal of stock purchase price, as a result of recent amendments to the Companies Act in 1999.
Misstatement Case Outlook
Japan could see an increase in future misstatement cases due to a variety of factors, including the introduction of new accounting standards, more rigorous audits, and disclosure of quarterly reports, all of which have added disclosure responsibilities and burdens to companies and increased awareness of responsibility of trustees of institutional investors.
However, many of the recent misstatements detected by the Securities and Exchange Surveillance Committee, Japan’s securities regulator, have involved emerging companies with small market capitalization, and these companies have not been sued for damages. As notable cases such as Livedoor and Seibu Railway, which involved a large number of individual shareholders and institutional investors, are resolved, there may be a short-term decrease in the number of judgements and judged damages from misstatements in 2010.
Additional Trends
- From 1998 to 2009 there have been 300 court decisions in cases involving securities litigation.
- The total number of securities cases in 2009 was 39.
- Broker-dealers litigation was the largest component of securities cases in 2009, at 23 cases.
- Of these cases, cases concerning unlisted stock trading continued to be the most frequent type of case, with 12 cases.
- The percentage of cases in which 50% or more of the claimed amount was awarded—that is, cases where the ratio of judged amount to claimed amount is 50% or above—increased to 45% of the total number of cases in 2007-2009 from 33% in 2004-2006.
- The finance industry constitutes the majority of securities litigations during 2007-2009 at 72 cases, a substantial increase from 2004-2006.
Trends in Securities Litigation in Japan: 2009 Update was authored by NERA Economic Consulting Vice President Makoto Ikeya and Consultant Satoru Kishitani. Previous reports in our series on securities trends in the United States, Canada, and Australia may be viewed at www.securitieslitigationtrends.com.
About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.
NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.
