Institutional investors are often in the best position to drive change in a company, and they want to hire the best and the brightest legal team to navigate the sophisticated tangle of the markets, regulators, and corporate structures to bring about lasting reform.
Enter: Jeremy Lieberman.
We sat down for a fascinating conversation with this titan of the plaintiffs bar and Managing Partner of securities litigation powerhouse, Pomerantz.
Lieberman was one of the architects for the groundbreaking case against BP on behalf of institutional investors following the Gulf of Mexico oil spill. The case took to task the 2010 U.S. Supreme Court ruling in Morrison v. Nat’l Australia Bank Ltd., which shook the global investment community by prohibiting the use of U.S. federal securities laws to recover losses from investments in foreign-traded securities.
These days, Lieberman continues to fight for the rights of institutional investors from every angle. Current trends in his practice include litigation over the implosion of SPACs, or Special Purpose Acquisition Companies, which have soared in popularity in recent years due to their limited regulatory requirements – a fraud bomb waiting to happen.
The firm is also laser focused on ESG (environmental, social and corporate governance), as these issues are proving increasingly important to the investor community.
Much of Lieberman’s work focuses on the control a majority shareholder has, and whether that control is leading to fraud, insider dealing or profiteering.
Lieberman started his career defending opioid lawsuits, but “I found myself rooting for the plaintiffs,” he says. He knew he needed a change and landed on a plaintiffs securities practice because he was attracted to the sophistication of the work, and the excitement and interest of dealing with the market. Plus, he’s now “on the right side of the law and justice.”
Lawdragon: What trends are you seeing these days in securities class actions?
Jeremy Lieberman: The main trend we're seeing is with SPACs. SPACs were dominating the market in 2020 and 2021, and they're imploding in 2022. What we’re seeing is most of these SPACs are fraudulent. We are lead counsel in the Nikola case, we're lead counsel in the Clover case, both large SPAC companies.
LD: Can you tell us about Nikola?
JL: Nikola got a multibillion-dollar investment from GM. It was an electrical whole truck company and GM was desperate to show some market value and so they put in over a billion dollars in investments. The investment's worth nearly nothing now.
Nikola never had a product to sell. It was complete fraud. The founder had a video of the truck working, driving down the hill, but the engine wasn't on, it was just going in neutral and driving. The car didn't work. He's now being indicted by the U.S. government.
JL: What's amazing is just how corporate America got so caught up in the frenzy without doing due diligence. Amazon just took a $4B impairment on their Rivian investments, and Rivian is also ripe with fraud. Everyone's desperate to keep up with the trends and whatever’s exciting and new, leading to major investments in fraudulent companies.
Now, Goldman Sachs has announced that they won't underwrite a SPAC. If someone would've heard that a year ago, they would've fallen off their chair. It shows you how quickly many SPACs have been shown to be fraudulent.
Environmental issues and sexual harassment are very important. But really, it comes down to how a company is structured and what the rights of the shareholders are in a company. Is there too much power to a controlling shareholder?
LD: That’s fascinating. As a layperson it always seemed to me that companies were so eager to use SPACs simply because they were less regulated, which of course seems ripe for fraud.
JL: Exactly. So the current SEC chair, Gary Gensler, is one of the most proactive chairs that we've had on either side of the aisle since I've been practicing. Even the Democratic-appointed chairmen, who gave lip service to protecting investors and saving them from harm, ultimately bowed to the corporations and let them get away with too much. But Gensler's really been tough on SPACs, he's been tough on crypto, he's been tough on environmental disclosures. We really do have a new sheriff in town with the SEC chair, and investors are more protected than they used to be. He's been good for the market.
LD: I know you’re also seeing a lot of securities work in the ESG space. Can you talk about what areas clients are most focused on?
JL: Environmental issues and sexual harassment are very important. But really, it comes down to how a company is structured and what the rights of the shareholders are in a company. Is there too much power to a controlling shareholder?
We've been involved in a lot of cases lately with Chinese companies where the founding members go on the U.S. markets, they list, make a lot of money. Then at some point they start to depress the valuation of the company in an effort to take it private back on the Shanghai Exchange.
Besides fraud, it's a governance issue because these founders or controlling shareholders have so much power, they can force a favorable vote. So they're going to win the vote on these take-private transactions. They’re manipulating shareholders. There are a lot of bad actors there, and there's a lot of sensitivity in the investor community to those issues.
We’re involved in a number of cases that are creating new law on those issues. We’re setting standards as to, if a company plans on going private in China, at what point they need to disclose that to investors in the U.S., when they try to buy all the shares and take it private. And to what extent they have to inform investors what their future plans are, and what rights the investors have to challenge those plans and block those transactions.
LD: What other types of cases are on your plate these days?
JL: We have a number of cases surrounding data breaches, focused on when the breach is disclosed to investors, whether it’s in a timely fashion. We were involved in the Yahoo! litigation a few years ago where there was a data breach of essentially all of the Yahoo! email users’ personal information. They were working with the FBI on it for three years, but they never disclosed that to investors, nor to their customers for that matter.
There are a lot of problems in that space, with corporations waiting until the next quarter to say, "Oh, by the way, we had a data breach.” It’s clearly important, and you should disclose it as soon as you're alerted to it. Now the SEC is working on that as well. The proposed rule is a required disclosure within 48 hours of the breach.
LD: You work primarily with institutional investors. Would you say that group is in a uniquely powerful position to change corporate behavior?
JL: It’s a good question. There will always be bad actors, but what you can do is challenge behavior, and stick up for yourselves and for your other class members. When an institutional investor leads a lawsuit, it's done responsibly, and with sophistication. You have the resources of the institution. We can ask them, "What does your analyst think about our allegations of fraud? Do they have the ability to pay more money in the settlement or do they not?" You have a much savvier steward of the case when it’s an institutional investor.
Many institutional investors and their fiduciaries are concerned about ESG issues, and the courts are a great place to bring these up. Whether you're challenging sexual harassment conduct, an unfair bylaw, or control of a shareholder, and whether it's done under a securities fraud context or if you want governance reform – either way, there's a lot of power in the institutional investor. They can bring these issues to the fore, shine light on them, expose them. That is clearly to the benefit of the investment community and to the market generally.
In the Petrobras case, for example, had the institutional investors been able to effectively get good oversight over the company, a lot of the fraud and damage to investors would not have happened, or would've been discovered much earlier.
LD: You had such a stunning result in the BP case, which set a precedent that has been used by others many times over. Can you talk about the results that build on that win?
JL: It was a very successful result and we added to that success in the Perrigo case and in the Teva case. In Perrigo, we convinced the court to take supplemental jurisdiction over the shares purchased on an Israeli exchange, and the court certified the class there. It went through the entire market analysis of whether or not the Tel Aviv Stock Exchange is an efficient market. It found it was, and the court took jurisdiction. Now there are two certified classes in the Perrigo case: There's a U.S. certified class and a Tel Aviv Stock Exchange certified class.
What's amazing is just how corporate America got so caught up in the frenzy without doing due diligence. Everyone's desperate to keep up with the trends and whatever’s exciting and new, leading to major investments in fraudulent companies.
The same thing in the Teva actions, the court took supplemental jurisdiction over the Israeli shares under Israeli law and is now applying Israeli law to the Israeli shares.
LD: It seems like you’re still correcting the Supreme Court ruling from 12 years ago in Morrison v. Nat’l Australia Bank Ltd.
JL: It’s part of our work and duties to the investor community that when bad laws are passed or precedent adjudicated, like Morrison, there needs to be a response. Morrison really was such an antiquated ruling. It's asking, in the 21st century, "Where does a stock transaction occur?" It's just a ridiculous question.
I mean, where does the transaction occur? It occurs in the ether, it occurs in space. I don't know where the satellite's located that pings the data. With a transaction there are obviously at least two parties involved. So we're trying to come up with a response, a solution for investors. If there's no remedy in the United States and for some reason there's not a factual nexus in the U.S. to bring these claims, then we look elsewhere.
We've been involved in bringing cases in Brazil, as with Brazilian arbitrations in the BRF case. We've been involved in bringing cases against Tesco in England, Wirecard in Germany, Airbus in the Netherlands. We've been involved in organizing these cases outside of the U.S.
The U.S. is still the most developed system, and the most efficient system to bring a claim. You can bring a case on a contingency fee basis, there is no, "Loser pays." So if we can find any hook in the U.S., we go for it. But if not, then the claims will proceed outside the U.S.
Morrison really boomeranged because the Chamber of Commerce created more activity by foreign institutional investors in these cases. Because they all woke up and said, "Hey, I'm not being treated fairly. My U.S. counterpart gets a recovery and I don't, and it's the same company? We need to do something.” Foreign investors became much more active, in the U.S. and also outside the U.S. The Chamber of Commerce triggered all these cases that are now taking place outside the U.S., because they convinced the Supreme Court that they should be taking jurisdiction. In the end, securities fraud creates a problem which requires a solution, and trying to snuff it out isn't going to work.
LD: You have such stunning success with this work, with such large recoveries. At what point do the corporations straighten up proactively and say, “Hey we better get in line here before we get these big suits?”
JL: I don't know if ever or to what extent these securities cases throughout the decades have a deterrent effect. I think it's a debate because there have been securities class actions for about 50 years and there's still a need, so obviously it hasn't cleaned up the corporate space. What it does do, though, is provide an effective challenge to these corporations. It says to them, "Listen, it's not OK what you're doing, it's not right. You can't just get away with this. You're going to have a day in court.”
From our perspective, that's important. It's important to give that voice where corporations understand, "Hey, there's going to be accountability. You're going to have to answer for these issues.” Does it stop bad behavior? Perhaps to some degree, because the boards are learning to be more cautious and proactive in ousting bad conduct.
Our work is about addressing these issues and allowing a spotlight to be put on this behavior. On that score, we're proud of these cases and the results.
LD: Can you tell me what you admire about your partner Jennifer Pafiti?
JL: Jennifer's done tremendous work in increasing the firm's international exposure. She has onboarded a lot of important clients. She's heightened the level of professionalism of the firm, and expanded our global institutional investor reach. She's still a young mother with three children and doing fantastic work, taking care of her family at the same time, juggling those two important tasks, and she does it all phenomenally. She’s an advocate for women’s rights and an impressive role model.