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The Protection of Minority Investors and the Compensation of Their Losses

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General Reports of the XIXth Congress of the International Academy of Comparative Law Rapports Généraux du XIXème Congrès de l'Académie Internationale de Droit Comparé

Part of the book series: Ius Comparatum - Global Studies in Comparative Law ((GRIA,volume 24))

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Abstract

False disclosures on the capital market can undoubtedly lead to losses being incurred by investors and a civil liability is a conceivable remedy for the aggrieved party in those cases. This report addresses the protection of minority investors in equity and debt by public regulation and private litigation in securities law. It identifies the main factors which have an impact on private enforcement and argues that facilitating investor litigation under securities law may foster the development of capital markets.

Martin Gelter in Martin Gelter and Pierre-Henri Conac (eds.), Global Securities Litigation and Enforcement, 1st Edition (2017); with permission of the rights holder: © Cambridge University Press 2017.

I am grateful to all of the national reporters for their invaluable contributions. I particularly thank Pierre-Henri Conac, Frank Gevurtz and Yuliya Guseva for reviewing the questionnaire at an early stage. Pierre-Henri Conac and Dan Puchniak have been very helpful in identifying a number of potential additional contributors. This version of the report is based on the national reports available in July 2014. Because of space constraints, several sections, many specific pieces of information, and some theoretical debates have been omitted. A revised and more comprehensive general report will be published in a separate volume together with the national reports.

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Notes

  1. 1.

    Evanghelos Perakis (ed.), Rights of minority shareholders (Brussels 2004).

  2. 2.

    Basic v. Levinson, 485 U.S. 224 (1988).

  3. 3.

    John C. Coffee, Jr., http://clsbluesky.law.columbia.edu/2014/06/30/death-by-one-thousand-cuts/.

  4. 4.

    Rafael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, The Economic Consequences of Legal Origins, 46 J. Econ. Lit. 285 (2008).

  5. 5.

    E.g. Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert W. Vishny, Legal Determinants of External Finance, 52 J. Fin. 1131 (1997); Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert W. Vishny, Law and Finance, 106 J. Pol. Econ. 1113 (1998); Raphael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, Corporate ownership around the world, 54 J. Fin. 471 (1999).

  6. 6.

    See in particular the critique by Holger Spamann, The “Antidirector Rights Index” Revisited, 23 Rev. Fin. Stud.467 (2010).

  7. 7.

    E.g. Mathias M. Siems, Legal Origins: Reconciling Law & Finance and Comparative Law, 52 McGill L. J. 57, 62-70 (2007).

  8. 8.

    Mark J. Roe, Corporate Law’s Limits, 31 J. Legal Stud. 233 (2002); Mark J. Roe, Political Determinants of Corporate Governance 162 (2003).

  9. 9.

    Roe, id., at 236-239 (summarizing the theory).

  10. 10.

    John C. Coffee, Jr., The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control, 111 Yale L. J. 1, 7-12 (2001); Mark J. Roe, Legal Origins, Politics, and Modern Stock Markets, 120 Harv. L. Rev. 460, 471-475 (2006).

  11. 11.

    Coffee, id., at 25-39.

  12. 12.

    Rafael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, What Works in Securities Law? 61 J. Fin. 1 (2006); but see Mathias M. Siems, What does not work in securities law: A Critique on La Porta et al.’s methodology, 16 Int’l Company & Com. L. Rev. 300 (2005) (criticizing La Porta et al.’s way of coding law).

  13. 13.

    Howell Jackson & Mark J. Roe, Public and private enforcement of securities laws: Resource-based evidence, 93 J. Fin. Econ. 207 (2009).

  14. 14.

    E.g. Thomas E. Dubbs, A Scotch Verdict on “Circularity” and other Issues, 2009 Wis. L. Rev. 455, 456; Manning Gilbert Warren III, The U.S. Securities Class Action: An Unlikely Export to the European Union, 37 Brook. J. Int’l L. 1075, 1077-1078 (2012) (both quoting former SEC Commissioner Joseph Grundfest).

  15. 15.

    E.g. James J. Park, Shareholder Compensation as Dividend, 108 Mich. L. Rev. 323, 328-329 (2009); see also Janet Cooper Alexander, Rethinking Damages in Securities Class Actions, 48 Stan. L. Rev. 1487, 1502 (1996); Merritt B. Fox, Why civil liability for disclosure violations when issuers do not trade? 2009 Wis. L. Rev. 297, 337; Richard A. Booth, The Future of Securities Litigation, 4 J. Bus. & Tech. L. 129, 139 (2009); see John C. Coffee, Jr., Reforming the Securities Class Action: An Essay on Deterrence and its Implementation, 106 Colum. L. Rev. 1534, 1558 (2006) (giving the example of a pension fund with stakes in 1000 corporations, of which 100 are sued over a certain time period, where the fund is a plaintiff in 50 cases and a holding shareholder in 50 others).

  16. 16.

    Alicia Davis Evans, The Investor Compensation Fund, 33 J. Corp. L. 223, 232-234 (2007); For a summary of the literature, see Martin Gelter, Risk-shifting Through Issuer Liability and Corporate Monitoring, 14 Eur. Bus. Org. L. Rev. 497, 501-504 (2013).

  17. 17.

    See generally Urska Velikonja, The Cost of Securities Fraud, 54 Wm. & Mary L. Rev. 1887 (2013).

  18. 18.

    See, e.g. Alexander, supra note 15, at 1497-1498; Donald C. Langevoort, Capping Damages for Open-Market Securities Fraud, 38 Ariz. L. Rev. 646, 646-647 (1996) (both suggesting overdeterrence); contra Jennifer H. Arlen & William J. Carney, Vicarious Liability for Fraud on Securities Market: Theory and Evidence, 1992 U. Ill. L. Rev. 691, 718; Urska Velikonja, Leverage, Sanctions, and Deterrence of Accounting Fraud, 44 UC Davis L. Rev. 1281, 1340 (2011) (suggesting that securities fraud should be deterred completely).

  19. 19.

    Coffee, supra note 15, at 1551; see also Alexander, id., at 1498.

  20. 20.

    See Tom Baker & Sean J. Griffith, Ensuring Corporate Misconduct 72-74 (2010).

  21. 21.

    Ronald J. Colombo, Merit Regulation via the Suitability Rules, 12 J. Int’l Bus. & L. 1, 8 (2013).

  22. 22.

    Roberta S. Karmel, Blue-Sky Merit Regulation: Benefit to Investors or Burden on Commerce, 53 Brook. L. Rev. 105, 105 (1987).

  23. 23.

    US, I.B.

  24. 24.

    See, e.g. Israel, p. 5-6; Spain, 1, p. 2 (noting that the Spanish CNMV is intended to guarantee confidence of investors through open access to information about issuers).

  25. 25.

    Italy, B.1, p. 6.

  26. 26.

    Brazil, 3.1, p. 5.

  27. 27.

    Greece, B.I.1, p. 8.

  28. 28.

    India, III.A, p. 11.

  29. 29.

    Mexico, II.A, p. 9, and III.A.2.a.v, p. 33.

  30. 30.

    Canada, I.B.1-2, p. 9-12.

  31. 31.

    Switzerland, 2.1.1-2, p. 6-10.

  32. 32.

    India, III.B, p. 14-15.

  33. 33.

    Russia, I, p. 3; III.B.2 p. 14-15.

  34. 34.

    US, I.B; for similarly complex rules see also Japan, III.2.1, p. 15-16; see also Korea, III.B.1.a, p. 8-9.

  35. 35.

    Brazil, 4.1, p. 10; China, questionnaire B.2; Finland, B.3, p. 11; Greece, B.I.1, p. 11; Korea, III.B.1.a, p. 8-9; Pakistan, III, p. 8; Poland, I.2; Russia, III.A, p. 11; Serbia, 2.3, p. 12; South Africa, 5.2.1, p. 12; Spain, 1, p. 2.

  36. 36.

    US, I.B.

  37. 37.

    US, I.B.

  38. 38.

    Japan, III.2.2, p. 18-19.

  39. 39.

    US, I.B; Brazil, 4.1, p. 9-10; China, questionnaire B.2; Greece, B.II, p. 18; Korea, III.B.2.a, p. 11 Malaysia, B, p. 4; Morocco, I.B.2.b, p. 8-9; Pakistan, III, p. 8; Romania, B, p. 8; Serbia, 3.2, p. 12; Switzerland, 2.2.1, p. 11; UK, p. 2.

  40. 40.

    US, I.B; China, questionnaire B.2 (semiannual disclosures required by securities, law, quarterly disclosures required by stock exchanges); Greece, B.II, p. 18 (semiannual disclosures); Korea, III.B.2.a, p. 11 (both semiannual and quarterly disclosures); Mexico, III.A.2.a.v, p. 34; Romania, B, p. 8-9 (semiannual and quarterly reports); Russia, III.A, p. 12 (quarterly reports); Serbia, 3.2, p. 12 (both); Switzerland, 2.2.2, p. 14 (half-yearly reporting required by listing rules); UK, p. 2 (noting that quarterly reporting is to be abolished under EU law).

  41. 41.

    (Amended) Transparency Directive, Art. 3(1).

  42. 42.

    2013 Revision to the Transparency Directive, recital 4. See, e.g. Niamh Moloney, EU Securities and Financial Markets Regulation 137 (3rd ed. 2014); Contra Rüdiger Veil, The Reform of the Transparency Regime in European Capital Markets Law, 2013 Eur. Comp. & Fin. L. Rev. 18, 27-28 (arguing that stock exchanges would require quarterly reports in the absence of a legal mandate).

  43. 43.

    E.g. Regulation (EC) 1606/2002 of 19 July 2002, 2002 O.J. (L 243) (EU regulation requiring the use of IFRS by publicly traded from 2005). See also Switzerland, 2.2.1, p. 11; see, e.g. Martin Gelter & Zehra G. Kavame Eroglu, Whose Trojan Horse? The Dynamics of Resistance against IFRS, 36 U. Pa. J. Int’l L. 89, 92-95 (2014).

  44. 44.

    Brazil, 4.1, p. 9-10.

  45. 45.

    Gelter & Kavame, supra note 43, at 99-100 (describing how the SEC dropped the reconciliation requirement for foreign issuers in 2007).

  46. 46.

    E.g. Brazil, 4.1, p. 10 (restricting this requirement to special listings segments, including the Novo Mercado).

  47. 47.

    E.g. Switzerland, 2.2.1, p. 12.

  48. 48.

    E.g. art. 20 of the revised EU Accounting Directive 2013/34/EU.

  49. 49.

    Art. 6(1) of the EU Market Abuse Directive requires that Member States mandate the disclosure of all “insider information” as soon as possible. Finland, B.3, p. 11; Greece, B.II, p. 19; Portugal, 6, p. 8-9; Romania, B, p. 9; UK, p. 2. See also China, questionnaire B.2; Malaysia, B, p. 4; Mexico, III.A.2.a.v, p. 34; Serbia, 3.5, p. 13; Switzerland, 2.2.2, p. 14-15.

  50. 50.

    EU Market Abuse Directive, art. 1(1) (defining “inside information”).

  51. 51.

    Under the EU Market Abuse Directive, issuers may delay disclosure to protect their legitimate interests, provided that such an omission would not be likely to mislead the markets (art. 6(2)).

  52. 52.

    Brazil, 4.1, p. 10-11; Korea, III.B.2.b, p. 12; Pakistan, III, p. 8-9; Russia, III.A, p. 12; US: Form 8-K. US, 1.B.

  53. 53.

    SEC Rule 13a-11. For a discussion of the content, see, e.g. Thomas Lee Hazen, Treatise on the Law of Securities Regulation § 9.21 (2016).

  54. 54.

    US: Securities Exchange Act, section 13(d); Finland, B.3, p. 12; Morocco, II.A.1.c, p. 11; Romania, B, p. 8; Serbia, 3.2, p. 13; Switzerland, 2.2.3, p. 15.

  55. 55.

    E.g. Portugal, 4, p. 4 (noting that the Portuguese CMVM is above political pressure).

  56. 56.

    See Luca Enriques & Gerard Hertig, Improving the Governance of Financial Supervisors, 12 Eur. Bus. Org. L. Rev. 357, 374 (2011).

  57. 57.

    E.g. Canada, II.A.2, p. 16; Greece, B.I.1, p. 9; Korea, III.1, p. 5.

  58. 58.

    Mexico, III.A.1.a, p. 19-20.

  59. 59.

    E.g. Greece, B.I.1, p. 8-9.

  60. 60.

    Greece, B.I.1, p. 9.

  61. 61.

    Korea, III.3., p. 6.

  62. 62.

    Serbia, 2.4, p. 8 (five-year period).

  63. 63.

    Italy, B.1, p. 7.

  64. 64.

    E.g. Canada, II.A.2, p. 16.

  65. 65.

    Italy, B.1, p. 6 (90.6% coming from supervisory fees for Consob); Canada, I.B.1, p. 9-10; Finland, B.1, p. 5 (reporting that 95% of funds come from supervised entities); Greece, B.II, p. 16-17; Korea, III.A.3, p. 7; Portugal, 4, p. 4; Serbia, 2.3, p. 7.

  66. 66.

    Brazil, 3.1, p. 6; Pakistan, III, p. 6.

  67. 67.

    Mexico, III.A.1.b, p. 21-22.

  68. 68.

    Brazil, 3.1, p. 7.

  69. 69.

    Italy, B.2, p. 8.

  70. 70.

    Russia, III.A, p. 13.

  71. 71.

    Canada, II.A.2, p. 15-16 (discussing the situation in Quebec).

  72. 72.

    Finland, B.2, p. 7; Korea, III.B.2.c, p. 13; Pakistan, III, p. 11; Romania, B, p. 10.

  73. 73.

    Brazil, 4.1.a, p. 13; China, questionnaire B.1.c.; India, C.1, p. 15-16; Korea, III.B.1.b, p. 9; Mexico, III.A.2.a.iii, p. 31; Romania, B, p. 10; Serbia, 2.5, p. 9; Taiwan, IV.a, p. 24.

  74. 74.

    Brazil, 4.1.a; p. 13; India, C.1, p. 16; Japan III.1.2, p. 9; Korea, III.B.1.b, p. 9; Mexico, III.A.2.a.iii, p. 31; Morocco, II.A.1.a, p. 10.

  75. 75.

    Brazil, 4.1.a, p. 13; Canada, II.A.1, p. 13; China, questionnaire B.1.c; Finland, B.2, p. 6; France, C; Greece, B.I.1, p. 11-13; Italy, B.2, p. 9; Japan, III.1.3.b, p. 11; Korea, III.B.2.c, p. 13; Mexico, III.A.2.a.iii, p. 31; Pakistan, III, p. 7; Portugal, 5, p. 6; Romania, B, p. 5, 10; Spain, 1, p. 1.1.1, p. 3-4; UK, p. 3.

  76. 76.

    Japan, III.1.3.b.iii, p. 13-14.

  77. 77.

    E.g. Brazil, 3.2, p. 7.

  78. 78.

    Finland, B.2, p. 9-10; Korea, III.B.1.b, p. 10; Mexico, III.A.2.a.iv, p. 32-33; Portugal, 5, p. 7; Romania, B, p. 6.

  79. 79.

    Mexico, III.A.2.a.iv, p. 32.

  80. 80.

    India, C.4, p. 20.

  81. 81.

    Brazil, 4.1.b, p. 14-15.

  82. 82.

    E.g. Japan, III.2.3, p. 21-28.

  83. 83.

    Brazil, 5.1., p. 20-21; Finland, B.2, p. 10; Israel, p. 6; China, questionnaire B.3; Italy, B.2, p. 11; Korea, III.B.3, p. 15; Mexico, III.B, p. 49; Serbia, 4, p. 13; see also Malaysia, B, p. 14.

  84. 84.

    China, questionnaire B.3.

  85. 85.

    Brazil, 5.1., p. 21.

  86. 86.

    Switzerland, 2.3, p. 16.

  87. 87.

    Ronald J. Gilson, Henry Hansmann & Mariana Pargendler, Regulatory Dualism as a Development Strategy: Corporate Reform in Brazil, the United States, and the European Union, 63 Stan. L. Rev. 475 (2011).

  88. 88.

    Brazil, 3.3, p. 7-8, and 5.1., p. 21.

  89. 89.

    US, I.B.

  90. 90.

    E.g. Italy, B.2, p. 8; Israel, p. 6; Japan, III.1.2, p. 9, III.1.3, p. 10; Russia, III.B,1 p. 13-14.

  91. 91.

    Finland, B.2, p. 6; Greece, B.I.2.c, p. 14; Korea, III.B.1.b, p. 10; Mexico, III.C, p. 52; Portugal, 5, p. 6.

  92. 92.

    Malaysia, B, p. 6; Pakistan, III, p. 11; Poland, I.2; Portugal, 5, p. 6; South Africa, 5.1.2, p. 11, and 5.2.3, p. 16; Spain, 1.1.2, p. 4-5.

  93. 93.

    US, I.B.

  94. 94.

    Canada, II.B.1, p. 17.

  95. 95.

    E.g. Russia, III.B,1 p. 13-14 (noting that only administrative penalties are applied to corporations).

  96. 96.

    See generally Jennifer Arlen & Reinier Kraakman, Controlling Corporate Misconduct: An Analysis of Corporate Liability Regimes, 72 NYU L. Rev. 687, 699 (1997).

  97. 97.

    Canada, II.B.2, p. 18-19.

  98. 98.

    India, C.3, p. 19.

  99. 99.

    Infra note 279 and accompanying text.

  100. 100.

    US, I.B.

  101. 101.

    Portugal, 5, p. 7 China, questionnaire B.1.d, f; India, C.2, p. 17; Malaysia, B, p. 10. The following countries report that disgorgement is not possible: Greece, B.I.2, a 14; Japan, III.1.3,b, p. 11; Korea, III.B.1.b, p. 10; Romania, B, p. 6.

  102. 102.

    India, C.2, p. 17-18; Malaysia, B, p. 12.

  103. 103.

    Public Law 107–204, July 30, 2002.

  104. 104.

    US, B.7. See Urska Velikonja, Public Compensation for Private Harm: Evidence from the SEC’s Fair Fund Distributions, forthcoming in 67 Stanford Law Review (2015). A similar system has been proposed in France. See France, C.

  105. 105.

    Italy, B.2, p. 10.

  106. 106.

    E.g. Brazil, 4.1.d, p. 19-20.

  107. 107.

    E.g. Korea, IV.A.2, p. 18.

  108. 108.

    US, II.A.

  109. 109.

    E.g. Malaysia, C., p. 17; South Africa, 5.1.1, p. 10.

  110. 110.

    Brazil, 4.2, p. 11-12; France, I.A, II.A; Mexico, D.2, p. 61; Poland, II; Romania, C., p. 13.

  111. 111.

    US, II.A.

  112. 112.

    Canada, III.B.1, p. 20-25; India, IV.A, p. 23-28; Pakistan, IV.i., p. 14-16 (discussing Section 59 of the 1984 Ordinance).

  113. 113.

    E.g. §§ 21-23, 25 Securities Prospectus Act (Germany). Germany, II.2; TUF (Italy) art. 94; Italy, C.2. p. 14-15; Switzerland, 3.2., p. 18 (citing art. 752 OR).

  114. 114.

    See also South Africa, 5, p. 10-21.

  115. 115.

    Directive 2003/71/EC, 2004 O.J. (L 345) 64.

  116. 116.

    Art. 13(1), 18(1) 21-2, 25(1) FIE Act (Japan); Japan, IV.2., p. 31-34.

  117. 117.

    E.g. Switzerland, 3.3.3.1, p. 29-30; But see Finland, C.1, p. 13; Greece, C.I.1, p. 24; Korea, IV.A.5.a, p. 23-25; Malaysia, C, p. 19; Spain, II.2, p. 8-9, and III.1, p. 17; Taiwan, II.a, p. 4-5, and II.b.(1), p. 6-7; UK, p. 1, and 1 (all reporting that there is an explicit legislative basis both for prospectus liability and for liability for false subsequent disclosures).

  118. 118.

    Steve Thel, Taking Section 10(b) Seriously: Criminal Enforcement of SEC Rules, 2014 Colum. Bus. L. Rev. 1.

  119. 119.

    US, II.A.

  120. 120.

    Canada, III.B.2.a, p. 25-26.

  121. 121.

    Directive 2004/109/EC, 2004 O.J. (L 390) 38.

  122. 122.

    Directive 2003/6/EC, 2003 O.J. (L 96) 16.

  123. 123.

    Philipp Koch, § 19 Disclosure of Inside Information, in European Capital Markets Law ¶ 122 (Rüdiger Veil ed. 2013).

  124. 124.

    Germany, III.3.

  125. 125.

    E.g. §§ 37b, 37c Securities Trading Act (Germany). See Germany, III.1.

  126. 126.

    Germany, IV.2. Disclosures that have been made as ad-hoc disclosures, but were in fact made through other means such as press releases can still be subject to liability rules for ad-hoc disclosures analogously. Germany, III.2.a), p. 19-20.

  127. 127.

    Italy, C.1.

  128. 128.

    US, II.B.1; Romania, C, p. 15; Spain, II.3.1, p. 9, and III.2.1., p. 18-19; Switzerland, 3.2.2, p. 21-22; Taiwan, II.b, p. 13; UK, p. 1.

  129. 129.

    E.g. US, II.B.1; Canada, III.B.a, p. 21; Finland, C.1, p. 16; Malaysia, C, p. 20 (saying that statements can be false or misleading to give rise to a suit); Mexico, D.1, p. 59; Romania, C, p. 15; Spain, III.2.1., p. 19; UK, p. 1. An exception seems to be Greece, where merely misleading information does not give rise to liability if it is factually correct. Greece C.I.4, p. 30-31.

  130. 130.

    Germany, II.2.a, p. 6; see also Korea, IV.A.5. (b).1.

  131. 131.

    Switzerland, 3.2.2, p. 22.

  132. 132.

    Canada, III.B.1.a, p. 21-22; Finland, C.1, p. 15-16.

  133. 133.

    For the US, See Santa Fe Indus. Inc., v. Green, 430 U.S. 462 (1970); US, II.B.1.

  134. 134.

    US II.B.1.

  135. 135.

    E.g. China, IV.B.1, p. 14; Japan, IV.2, p. 33; Pakistan, IV.i, p. 15; Romania, C, p. 15; but see Spain, 3.1 (using the term “relevant”).

  136. 136.

    US II.B.2. E.g. Basic v. Levinson, 485 U.S. 224 (1988).

  137. 137.

    E.g. Canada, III.B.a, p. 21; Korea, IV.A.5. (b).1, p. 24 (requiring a significant impact on the investor’s reasonable judgment).

  138. 138.

    BGH 18.9.2012, BGHZ 195, 1; Germany, II.2.a, p. 5.

  139. 139.

    Finland, C.1, p. 17.

  140. 140.

    Russia, IV.A.1, p. 19.

  141. 141.

    US II.B.2. Basic v. Levinson, 485 U.S. 224 (1988); see also Geltl v. Daimler, Case C-19/11 (2012) (discussing materiality under EU law’s insider trading prohibition.

  142. 142.

    US II.B.2. In Re Donald Trump Casino Securities Litigation, 7 F.3rd 357 (3rd Cir. 1993).

  143. 143.

    Sec. Exch. Act. § 21E. 15 U.S.C. § 78u-5; US II.B.2.

  144. 144.

    US II.B.5; Blue Chip Stamps Co. v. Manor Drug Stores, 421 U.S. 723 (1975); Brazil, 5.1.b, p. 23; Canada, III.B.2.b, p. 27; Finland, C.I., p. 15; Germany, III.2.b, p. 20; Italy, C.4, p. 17; Korea, IV.A.5.d.2, p. 27; Malaysia, C, p. 20; apparently also Greece, C.I.3., p. 26; South Africa, 5.3.2.1.1., p. 17.

  145. 145.

    E.g. Greece, C.I.3, p. 27; India, IV.A, p. 23-24; Serbia III.1.3, p. 16; Taiwan, II.a, p. 6.

  146. 146.

    Taiwanese Securities Exchange Act, art. 20-1.

  147. 147.

    Taiwan, II.b., p. 15-16.

  148. 148.

    France, I.A.

  149. 149.

    Germany, III.2.b, p. 20.

  150. 150.

    Canada, III.B.1, p. 20; Germany, II.2.c, p. 8; Greece, C.I.3., p. 28; India, IV.A, p. 25; Italy, C.2, p. 14; Korea, IV.A.5.c.1, p. 25; Malaysia, C, p. 20; Portugal, 9, p. 11; Romania; C., p. 17; Serbia, III.1.2, p. 15; Spain II.2, p. 9; Switzerland, 3.2.2, p. 21; Taiwan, II.a, p. 4.

  151. 151.

    Germany, II.2.c, p. 8; Japan, IV.2, p. 34; Greece, C.I.3., p. 28; Portugal, 9, p. 11; Serbia, III.1.2, p. 15.

  152. 152.

    Canada, III.B.1, p. 20; France, II.A; Germany, II.2.c, p. 8; Greece, C.I.3., p. 28; Italy, C.2, p. 14; Japan, IV.2, p. 34; Korea, IV.A.5.c.1, p. 25; Malaysia, C, p. 21; Portugal, 9, p. 11; Serbia, III.1.2, p. 15; Spain II.2, p. 9; Switzerland, 3.2.2, p. 21; Taiwan, II.a, p. 4.

  153. 153.

    Germany, II.2.c, p. 9 (controlling shareholders); India, IV.A, p. 25 (using the term “promoters”, which typically includes the controlling shareholder); Malaysia, C, p. 21 (promoters); Portugal, 9, p. 11 (promoters).

  154. 154.

    Canada, III.B.1, p. 20; India, IV.A, p. 25; Romania; C., p. 17; Spain II.2, p. 9.

  155. 155.

    France, II.A; Greece, C.I.3., p. 28-29; Japan, IV.2, p. 34; Korea, IV.A.5.c.1, p. 25; Portugal, 9, p. 11; Serbia, III.1.2, p. 15; Spain II.5.2.7, p. 16; South Africa, 5.2.2.2.2, p. 15; Taiwan, II.a, p. 4-5.

  156. 156.

    Switzerland, 3.2.2, p. 21.

  157. 157.

    India, IV.A, p. 25.

  158. 158.

    Italy, C.2, p. 14.

  159. 159.

    Germany, II.2.c, p. 9.

  160. 160.

    US, II.B.6.

  161. 161.

    US, II.B.6. SEA § 20(e).

  162. 162.

    China, IV.B.3, p. 18; see also Greece, C.I.3., p. 29-30 (holding individuals responsible for misrepresentations liable); Taiwan, II.b, p. 10 (describing the controversy whether individuals in charge of disclosures are liable in addition to the issuer).

  163. 163.

    Italy, C.1, p. 12; Korea, IV.A.5.c.2, p. 26; Spain II.4.1, 4.2, p. 21; Poland, IIl.I.2; see also France, I.A (mentioning only directors).

  164. 164.

    Germany, III.2.c, p. 20-21; similarly Poland, II.2.

  165. 165.

    Switzerland, 3.3.3.1, p. 30.

  166. 166.

    South Africa, 5.1.1.2, p. 11.

  167. 167.

    Greece, C.I.3, p. 28 (submitting that liability would not be a problem under Greek legal capital principles); Italy, C.2, p. 15-16; Korea, B.5.c.3, p. 26 (noting that some scholars have proposed subordination, but that the issue has not been addressed by the courts); Poland, 1.2 (explaining that an investor becomes a creditor with his liability claim, thus ruling out a possible violation of legal capital rules); Romania, C, p. 14-15, and Serbia, 1.3, p. 16-17 (both noting the absence of any special treatment of these claims under current legislation).

  168. 168.

    U.S., B.7. Specifically, claims by defrauded security holders are subordinated to those of other claimants having priority or having the same rank.

  169. 169.

    Brazil, 5.1.b, p. 24; Malaysia, C, p. 23.

  170. 170.

    Supra notes 104-105 and accompanying text.

  171. 171.

    In re Adelphia Commc’ns Corp., 327 B.R. 143, 168-170 (Bankr. S.D.N.Y. 2005); Ad Hoc Adelphia Trade Claims Comm. v. Adelphia Commc’ns Corp., 337 B.R. 475, 478 (S.D.N.Y. 2006); SEC v. WorldCom, 273 F. Supp 2d 431, 434 (S.D.N.Y 2003); Official Comm. Unsecured of Creditors of WorldCom Inc. v. SEC, 467 F.3d 73, 85 (2d Cir. 2006). For an overview, see Wendy S. Walker, Alan S. Maza, David Eskew & Michael E. Wiles, At the Crossroads: The Intersection of the Federal Securities Laws and the Bankruptcy Code, 63 Bus. Law. 125, 141-145 (2007).

  172. 172.

    For critical appraisals, see Walker et al., supra note 172, at 141, 145.

  173. 173.

    E.g. Germany, II.2.c, p. 8.

  174. 174.

    Second Council Directive 77/91/EEC, 1976 O.J. (L 26/1), recently replaced by Directive 2012/30/EU, 2012 O.J. (L 315/74).

  175. 175.

    Germany, II.2.c, p. 8 n.59.

  176. 176.

    OGH GesRZ 2011, 253; OGH GesRZ 2012, 254.

  177. 177.

    BGH NJW 2005, 2452; see also BGH NZG 2008, 387.

  178. 178.

    Gelter, supra note 16, at 525-528.

  179. 179.

    US II.B.4.a.

  180. 180.

    From a legal perspective, see generally Ronald J. Gilson & Reinier Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549 (1984); Ronald J. Gilson & Reinier Kraakman, Market Efficiency after the Financial Crisis: It’s Still a Matter of Information Cost, 100 Va. L. Rev. 313 (2014).

  181. 181.

    US II.B.4.a.

  182. 182.

    Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398 (2014).

  183. 183.

    US II.B.4.a.

  184. 184.

    China, IV.B.2, p. 15-16.

  185. 185.

    Taiwan, 2.b, p. 10-11.

  186. 186.

    Canada, III.B.2.f, p. 34.

  187. 187.

    Israel, p. 15.

  188. 188.

    Japan, IV.2, p. 37.

  189. 189.

    Korea, 4.A.5.2.f, p. 28.

  190. 190.

    Finland, C.1, p. 20; India, IV.A, p. 24; Malaysia, C, p. 17; Portugal, 9, p. 12; Romania, C, p. 16.

  191. 191.

    Italy, C.4, p. 17.

  192. 192.

    Italy, C.5, p. 20-21.

  193. 193.

    Germany II.2.d, p. 9-10.

  194. 194.

    Switzerland, 3.2.3.4, p. 25.

  195. 195.

    Switzerland, 3.2.3.4, p. 25.

  196. 196.

    Spain, II, 3.2., p. 11.

  197. 197.

    Spain, III, 2.2., p. 19.

  198. 198.

    US, B.4.b.

  199. 199.

    Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).

  200. 200.

    US, B.4.b.

  201. 201.

    Serbia, III.1.6, p. 20.

  202. 202.

    Canada, II.B.g, p. 34; China, IV.2.a, p. 16; Japan, IV.2, p. 39; Korea, IV.A.5.g, p. 29.

  203. 203.

    Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).

  204. 204.

    US, B.3.a.

  205. 205.

    China, questionnaire, C.7.

  206. 206.

    § 23 WpPG. Germany, II.2.e, p. 10.

  207. 207.

    Germany, III.2.d, p. 21.

  208. 208.

    Germany, II.2.e, p. 10.

  209. 209.

    Germany, IV.2, p. 26-27.

  210. 210.

    Brazil, 4.2., p. 11; Finland, C.1., p. 13; France, I.A; Greece, C.I.5, p. 33-34; Italy, C.III, p. 16; Malaysia, C, p. 22; Portugal, 9, p. 10; South Africa, 5.1.1.1, p. 10; Spain, II.3.4, p. 12, and III.2.4, p. 20-21; Switzerland, 3.2.2, p. 22-23.

  211. 211.

    Poland, II.1, II.I.1.

  212. 212.

    China, IV.B.1, p. 14; Japan, IV.2, p. 36; Serbia, III.1.5, p. 19.

  213. 213.

    US II.C.

  214. 214.

    US II.C. (citing Fed. R. Civ. Proc. 23(b)(3)).

  215. 215.

    US II.B.4.a.

  216. 216.

    E.g. Manning Gilbert Warren III, The U.S. Securities Class Action: An Unlikely Export to the European Union, 37 Brook. J. Int’l L. 1075, 1082 (2012).

  217. 217.

    Canada, III.3, p. 38-41.

  218. 218.

    India, IV.B.2, p. 30-32.

  219. 219.

    Id., p. 29.

  220. 220.

    Id., p. 30.

  221. 221.

    See Public Consultation: Toward A Coherent Approach on Collective Redress, at http://ec.europa.eu/competition/consultations/2011_collective_redress/index_en.html.

  222. 222.

    Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law, 2013/396/EU, 2013 O.J. L 201/60.

  223. 223.

    Commission Recommendation, id., art. 13, 21, 29-31; see also Warren, supra note 217, at 1112 (summarizing the results of the public consultation responses).

  224. 224.

    Switzerland, 3.5.2.1, p. 36.

  225. 225.

    Law 84/95, dated August 31, 1995.

  226. 226.

    Portugal, 12, p. 16.

  227. 227.

    Russia, IV.B, p. 29-30.

  228. 228.

    Russia, IV.B, p. 30-31.

  229. 229.

    Korea, 4.B.1.a, p. 30.

  230. 230.

    Korea, 4.B.1.a, p. 31.

  231. 231.

    Korea, 4.B.2.a, p. 33.

  232. 232.

    Korea, 4.B.1.b.2, p. 34.

  233. 233.

    Korea, 4.B.2.a, p. 33.

  234. 234.

    Kapitalanleger-Musterverfahrensgesetz ˗ KapMuG (Act on Model Investor Litigation), BGBl I S. 2437. The Act was reformed in 2012 (BGBl. I S. 2182).

  235. 235.

    Germany, VI.1, p. 29-30.

  236. 236.

    Germany, VI.3.a, p. 31-32.

  237. 237.

    Germany, VI.3.b, p. 32.

  238. 238.

    Germany, VI.3.a, p. 32-33.

  239. 239.

    § 24 KapMuG.

  240. 240.

    Germany, VI.3, p. 34.

  241. 241.

    Taiwan, II.a, p. 18-19.

  242. 242.

    Taiwan, II.b, p. 19-20.

  243. 243.

    Taiwan, II.c, p. 21.

  244. 244.

    Taiwan, II.c, p. 21.

  245. 245.

    Brazil, 5.3.c.3, p. 28.

  246. 246.

    India, IV.B.3, p. 33.

  247. 247.

    Law 7913/89.

  248. 248.

    Brazil, 5.3.c.1, p. 25.

  249. 249.

    Brazil, 5.3.c.2, p. 27.

  250. 250.

    Brazil, 5.3.c.1, p. 25-27.

  251. 251.

    US, C.

  252. 252.

    E.g. India, IV.B.3, p. 32-33; Malaysia, D, p. 24-25; Russia, IV.B, p. 27; Pakistan, IV.ii, p. 18-19; Portugal, 11.5, p. 14-15.

  253. 253.

    This is e.g. the case in Germany (VI.4, p. 33), where they are limited to situations where financial need would otherwise prohibit the pursuit of legal claims, but this does not address the collective action problem in multiparty litigation.

  254. 254.

    Israel, p. 13.

  255. 255.

    Canada, III.3, p. 41.

  256. 256.

    Greece, B.1., p. 41 n.118.

  257. 257.

    China, III.B.2, p. 9-10.

  258. 258.

    China, III.B.3, p. 11.

  259. 259.

    China, V.1, p. 23.

  260. 260.

    See, e.g. Greece, B.1., p. 40; Italy, D.2, p. 23; Malaysia, D, p. 24-25; Russia, IV.B, p. 27.

  261. 261.

    Canada, III.3, p. 41 (note that this concerns only “legal fees and disbursements”, which does not include extrajudicial fees such as attorneys’ fees); Germany, VI.4, p. 33; Israel, p. 13; Romania, C., p. 20; Switzerland, 3.5.4.1, p. 43.

  262. 262.

    Germany, VI.4, p. 33; Serbia, 2.3, p. 25.

  263. 263.

    Romania, C., p. 20.

  264. 264.

    India, IV.B.3, p. 32.

  265. 265.

    Portugal, 11.5, p. 14.

  266. 266.

    Switzerland, 3.5.4.1, p. 43.

  267. 267.

    Germany, VI.4, p. 33-34.

  268. 268.

    Switzerland, 3.5.3.2, p. 40.

  269. 269.

    Russia, IV.A.4, p. 26-27.

  270. 270.

    US, B.3.b. (citing Sec. Exch. Act § 21D(b)(2)).

  271. 271.

    Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551308 (2007). See US, II.B.3.b.

  272. 272.

    Germany, II.2.e, p. 10; Germany, VI.2, p. 30.

  273. 273.

    Germany, VI.2, p. 30-31; see also Spain, 3.4,1 p. 12-13, and Japan, IV.1, p. 31, and IV.2, p. 36, where similar techniques are used.

  274. 274.

    Italy, C.3, p. 16-17.

  275. 275.

    Italy, D.2, p. 24.

  276. 276.

    Brazil, 5.1.b, p. 24; Switzerland, 3.2.2, p. 23; Greece, B.2, p. 42.

  277. 277.

    E.g. Switzerland, 3.5.3.3, p. 40-43.

  278. 278.

    China, II.B, p. 4-5.

  279. 279.

    Switzerland, 3.5.5, p. 46-47.

  280. 280.

    Italy, D.2, p. 10, 24; Malaysia, D, p. 25-26.

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Authors and Affiliations

  1. Fordham University School of Law, New York, NY, USA

    Martin Gelter

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Editors and Affiliations

  1. Department of Civil Law, University of Vienna, Vienna, Wien, Austria

    Martin Schauer

  2. Department of European, International and Comparative Law, University of Vienna, Vienna, Wien, Austria

    Bea Verschraegen

Appendix: List of National Reports

Appendix: List of National Reports

  1. 1.

    Argentina: Professor Emeritus Raul Anibal Etcheverry, Universidad de Buenos Aires

  2. 2.

    Belgium: Professor Yves De Cordt, S. Wolff & A. Lecocq, Université catholique de Louvain

  3. 3.

    Brazil: Professor Viviane Muller Prado, Fundaçao Getulio Vargas Law School, São Paulo

  4. 4.

    Canada: Professor Stéphane Rousseau, Université de Montréal

  5. 5.

    China, Professor Robin Hui Huang, Chinese University of Hong Kong

  6. 6.

    Finland: Dr. Ville Pönkä, Senior Lecturer, University of Helsinki

  7. 7.

    France: Professor Pierre-Henri Conac, University of Luxembourg

  8. 8.

    Germany: Professor Dirk A. Verse, Johannes-Gutenberg University Mainz

  9. 9.

    Greece: Assistant Professor Emmanuel P. Mastromanolis, University of Athens Law School

  10. 10.

    India: Professor Umakanth Varottil, National University of Singapore

  11. 11.

    Israel: Professor Uriel Procaccia, IDC Herzliya

  12. 12.

    Italy: Professor Guido Ferrarini, University of Genoa, and Professor Paolo Giudici, Free University of Bozen-Bolzano

  13. 13.

    Japan: Dean Eiji Takahashio, Law School, Osaka City University, and Associate Professor Tasuya Sakamoto, Law School, Shizuoka University

  14. 14.

    Korea (Republic of): Professor Kyung-Hoon Chun, Seoul National University

  15. 15.

    Malaysia: Professor Aiman NAriman Mohd Sulaiman, Faculty of Laws, International Islamic University Malaysia

  16. 16.

    Mexico: Eugenio J. Cárdenas, Stanford Law School (USA)

  17. 17.

    Morocco: Professor Mourad Bousetta, Faculty of Law, Kadi Ayed University, Marrakech

  18. 18.

    Pakistan: Syed Imad-ud-Din Asad, Lahore University of Management and Technology

  19. 19.

    Poland: Professor Mariola Lemonnier, Faculty of Law, Olsztyn

  20. 20.

    Portugal: Professor Paulo de Tarso Domingues, Faculty of Law, University of Porto

  21. 21.

    Romania: Dr. Gherghe Buta, “Academy Andrei Rǎdulescu” Legal Research Institute of the Romanian Academy; Head of the Litigation and Arbitration Department of Muşat & Associaţii S.p.a.r.l.

  22. 22.

    Russia: Professor Yuliya Guseva, Rutgers School of Law – Newark (USA)

  23. 23.

    Serbia: Professor Mirko Vasiljevic, University of Belgrade – Faculty of Law

  24. 24.

    South Africa: Professor Piet Delport, Department of Mercantile Law, University of Pretoria

  25. 25.

    Spain: Professor Mónica Fuentes, Universidad Complutense de Madrid

  26. 26.

    Switzerland: Professor Rashid Bahar, Xenia Karametaxas & Joël Tawil, University of Geneva

  27. 27.

    Taiwan: Professor Wang-Ruu Tseng, College of Law, National Taiwan University

  28. 28.

    United Kingdom: Iris H.-Y. Chiu, Reader in Laws, University College London

  29. 29.

    United States: Professor Franklin A. Gevurtz, University of the Pacific, McGeorge School of Law

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Gelter, M. (2017). The Protection of Minority Investors and the Compensation of Their Losses. In: Schauer, M., Verschraegen, B. (eds) General Reports of the XIXth Congress of the International Academy of Comparative Law Rapports Généraux du XIXème Congrès de l'Académie Internationale de Droit Comparé. Ius Comparatum - Global Studies in Comparative Law(), vol 24. Springer, Dordrecht. https://doi.org/10.1007/978-94-024-1066-2_14

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