NEW YORK, Nov 9 (Reuters) - Olympus Corp shareholders
burned by the Japanese company's accounting scandal are
unlikely to recover investment losses in U.S. courts and might
not fare much better suing in Japan.
Stockholders and bondholders often turn to U.S. courts in
hopes of winning damages from companies, banding together in
class-action lawsuits that let them sue as a group.
But two recent court decisions may have essentially shut
U.S. courthouse doors to shareholders of the 92-year-old
company, whose stock plunged in the wake of revelations that it
hid losses since the 1990s.
Last year, the U.S. Supreme Court, in a case known as
Morrison v. National Australia Bank Ltd, curbed investors'
ability to sue in U.S. courts over their purchases of
securities on non-U.S. exchanges.
"Post-Morrison, American investors including institutional
investors have effectively no remedy for this type of blatant
securities fraud," said Thomas Dubbs, a partner at Labaton Sucharow who argued on behalf of the Morrison plaintiffs in the
Supreme Court. "They can try to go to Japan -- but good luck."
Olympus shares are listed in Japan. The maker of cameras
and medical imaging equipment also has American depositary
receipts that trade on the Pink Sheets, but these account for
only about 1 percent of its float.
No institutional investor owned even as much as $1 million
of the ADRs as of Tuesday, according to BNY Mellon Depositary
Receipts. This makes it unlikely that ADR investors could
collectively seek a big recovery by suing.
The Morrison decision scuttled a longtime standard that let
U.S. and non-U.S. investors who bought non-U.S. stocks on
non-U.S. exchanges invoke federal securities fraud laws if
significant wrongful conduct took place in the United States.
Since then, U.S. courts have thrown out similar investor
claims against companies such as Switzerland's Credit Suisse
Group AG and UBS AG and Germany's Porsche SE.
In the other case that could limit Olympus lawsuits, a
California federal judge in July struck claims by pension fund
and individual shareholders who lost money after Japanese
automaker Toyota Motor Corp recalled millions of vehicles
linked to unintended acceleration.
FIRED CEO SPEAKS OUT
This week, Olympus admitted that it hid investment losses
dating to the 1990s and in 2008 used a series of overpriced
acquisitions, some of which were quickly written down, to cover
up the losses. One of those purchases also involved exorbitant
payments to financial advisers.
Shares have fallen 76 percent in Tokyo since Oct. 14, when
the company fired Chief Executive Michael Woodford. . He later
later publicly campaigned to get Olympus to explain its
dealmaking, leading to this week's revelations.
The stock decline has wiped out more than $6 billion of
market value at the 92-year-old company, Reuters data show.
Southeastern Asset Management Inc, a Tennessee-based firm
founded by investor Mason Hawkins, is Olympus' largest U.S.
shareholder with a 5.1 percent stake as of June 30, Reuters
data show. A spokesman declined to comment on any litigation
Under the Supreme Court's Morrison decision, the Pink
Sheets "probably" count as a U.S. exchange, which would enable
an Olympus ADR investor to bring claims, Dubbs said.
But, he said, the issue may be academic because of the low
market value of securities involved.
NEW JAPANESE LAW
There may be other ways to hold Olympus responsible for ADR
losses, said Keith Fleischman, founder of The Fleischman Law
Firm in New York. He represents many institutional and
individual investors, and is also a former federal prosecutor
handling financial fraud cases.
"You have to establish the actors had minimal ties with the
United States, perhaps with money being transferred or part of
a scheme being conducted in the country," he said. "It would be
a challenge and it would be difficult."
Investors could pursue claims in Japan under the Financial
Instruments and Exchange Act adopted after some corporate
scandals. That 2006 law is sometimes known as "J-SOX" for its
resemblance to the 2002 U.S. law, Sarbanes-Oxley, which was
passed after Enron Corp's failure.
But unlike in the United States, there is no class-action
litigation in Japan. Shareholders must actively band together
to sue -- they must opt into a lawsuit rather than opt out.
This makes it harder to get large groups of plaintiffs together
to seek bigger recoveries, and keeps legal costs down.
Damages in the Olympus scandal under Japanese law are also
unclear, said Makoto Ikeya, a vice president at NERA Economic
Consulting who studies Japanese securities litigation.
He said statutory damages would be based on the difference
between the average Olympus stock price in the month before and
month after the company made a "corrective disclosure."
"In the case of Olympus, the corrective disclosure date may
be an issue, since the company has not yet made any formal
correction," he said.
Still, shareholders may fare better in Japan after the
Toyota ruling. In that case, U.S. District Judge Dale Fischer
in Los Angeles said that Japanese law claims "substantially"
predominated over U.S. claims and that it made more sense for
Japanese courts to interpret that country's own securities
"Foreign governments have the right to decide how to
regulate their own markets," Fischer wrote. "This respect for
foreign law would be completely subverted if foreign claims
were allowed to be piggybacked into virtually every American
securities fraud case, imposing American procedures,
requirements, and interpretations likely never contemplated by
the drafters of the foreign law."
Another possibility for Olympus investors could be to sue
in U.S. state courts, invoking state rather than federal law to
get around the Morrison and Toyota decisions. But lawyers said
Olympus defendants likely would succeed in arguing that such
cases belong in federal court.
"Judges will still likely view this as a controversy
involving a Japanese company over conduct that occurred in
Japan," said Adam Savett, a securities lawyer who studies
class-action litigation. "They are likely to look at it through
a 'Toyota' lens."
(Reporting by Jonathan Stempel; Additional reporting by
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