Securities Class Actions: Effects on Investor Confidence

Frequency and Nature of Securities Class Actions

Securities class actions are frequent, with over $100 billion returned to investors in the past 20 years. Specialized law firms and services monitor and inform investors about these actions, highlighting their prevalence and the legal support available.

"In fact, federal securities class actions have returned over $100 billion to defrauded investors in the past 20 years alone." --- (TSLA, press release, 2024/06/11)

"The Schall Law Firm represents investors around the world and specializes in securities class action lawsuits and shareholder rights litigation." --- (MSFT, press release, 2024/08/03)

"Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions." --- (TSLA, press release, 2024/07/24)

"There is No Cost to You. We represent investors in class actions on a contingency fee basis." --- (MSFT, press release, 2024/07/30)

"portfolio legal monitoring and a settlement claim filing service, which does research related to shareholder issues and informs investors of securities class actions, settlements, judgments, and other legal related news to the stock/financial market." --- (TSLA, press release, 2024/05/14)

Legal Process and Costs Involved

JPMorgan Chase estimates potential legal losses up to $1.7 billion, highlighting significant financial exposure. Wells Fargo emphasizes ongoing regulatory compliance efforts, reflecting the complexity and cost of legal processes. Morgan Stanley reports reduced legal expenses, while Citigroup notes increased costs due to legal settlements, illustrating the varied financial impacts of securities class actions.

"The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $ 0 to approximately $ 1.4 billion at March 31, 2024." --- (JPM, sec filing, 2024/Q1)

"While we see clear forward momentum, it's up to our regulators to make their own judgments and decide when the work is done to their satisfaction.Progress has not been easy, but tens of thousands of my partners at Wells Fargo have now worked tirelessly for years to deliver the kind of change necessary for a company of our size and complexity, and we will not rest until we satisfy the expectations of our regulators and the high standards we have set for ourselves.While we have made substantial changes and have meaningfully improved our control environment, the industry operates in a heightened regulatory oversight environment, and we remain at risk of further regulatory actions." --- (WFC, earning call, 2024/Q2)

"Efforts are evidenced by the year-over-year reduction in professional services and marketing and business development spend, lower legal expenses further supported the improvement in efficiency ratio." --- (MS, earning call, 2024/Q1)

"The underlying growth in both businesses is a result of our continued investment in product innovation, client experience, and platform modernization that we highlighted during our Services Investor Day last month.Expenses increased 9%, largely driven by an Argentina-related transaction tax expense, a legal settlement expense, and continued investments in product innovation and technology." --- (C, earning call, 2024/Q2)

"The Firm believes the estimate of the aggregate range of reasonably possible losses, in excess of reserves established, for its legal proceedings is from $ 0 to approximately $ 1.7 billion at June 30, 2024." --- (JPM, sec filing, 2024/Q2)

Long-term Effects on Company Reputation

Boeing's commitment to improving safety and quality, along with its cautious optimism about long-term prospects, highlights efforts to restore its reputation. Wells Fargo's enduring relationships with major clients and Pfizer's recognition as an admired company underscore the potential for maintaining a positive reputation despite past securities class actions.

"The deliberate actions we're taking demonstrate our commitment to improve safety and quality, and we continue to manage the business with a long-term view." --- (BA, earning call, 2024/Q2)

"And so over a long period of time, we've served most of the Fortune 500, including the largest companies in this country for a long period of time through what people have thought of as traditional balance sheet products and treasury services products." --- (WFC, conference, 2024/05/29)

"1 of the most admired companies by Fortune, which was for the 3rd year in a row and one of America's greatest workplaces to work by Newsweek." --- (PFE, event transcript, 2024/04/25)

"We remain cautiously optimistic about the long-term prospects of our defense business, and we believe we can progress toward a more historical level of performance over time." --- (BA, earning call, 2024/Q2)

"The occurrence of any of the risks identified below, in the Item 1A. Risk Factors section in our 2023 Form 10-K or within MD&A, or other risks currently unknown, could have a material adverse effect on our business, financial condition or results of operations, or we may be required to increase our accruals for contingencies." --- (PFE, sec filing, 2024/Q2)

Impact on Investor Sentiment

Investor sentiment is significantly influenced by concerns over short-term earnings potential, belief in a company's strategic direction, and regulatory risks. Meta's costly expansions and regulatory challenges, Tesla's autonomy goals, and Amazon's investment impacts all shape investor confidence and perceptions of financial health.

"stock price. This response underscores investor concerns about the short-term earnings potential being overshadowed by costly expansions." --- (META, press release, 2024/05/10)

"If you ask the wrong question, then the right answer is impossible. So I mean, if somebody doesn't believe Tesla is going to solve autonomy, I think they should not be an investor in the company." --- (TSLA, earning call, 2024/Q1)

"I think we're at the stage now where we're doing both at the same time continually, so we are more apt to talk about the specific investments that we're making and how that might impact our short-term outlook." --- (AMZN, earning call, 2024/Q1)

"And the risk to investors is already clear and present. On April 17, 2024, the EU privacy watchdog, the European Data Protection Board, stated that Meta and other very large online platforms should give users an option to use their services for free without targeted advertising." --- (META, event transcript, 2024/05/29)

Regulatory Responses and Implications

Investors are closely monitoring potential earnings sources as regulatory restrictions lift (WFC). However, uncertainty about forthcoming regulatory changes (C) and an onslaught of new regulations (JPM) are significant concerns. Proactive preparation for new regulations (BAC) and evolving standards, especially related to climate risk (GS), are crucial for maintaining investor confidence.

"But externally, investors are clearly spending much more time evaluating the different potential sources of earnings or return uplift once these regulatory restrictions are eliminated, whether it's deposit recapture, growth in trading book and reduction in that elevated risk and control spend." --- (WFC, earning call, 2024/Q1)

"And a lot of that is to do with the uncertainty about the forthcoming regulatory changes." --- (C, earning call, 2024/Q2)

"And looking forward, we expect loss rates to be relatively stable. Lastly, let's look at the changing regulatory environment. As you can see from the page, the industry is facing an onslaught of regulatory and potential legislative change." --- (JPM, Investor Day, 2024/05/20)

"So it's a really important business for us. We've been we've targeted some countries where we want to look at the regulatory framework opportunities and crowd in more resources to really be best in class and anticipate some of the new regulations that are coming in other countries to make sure that we're fit and ready for that as well." --- (BAC, conference, 2024/05/08)

"A ratio calculated by the bank itself not third parties would be more reliable and decisionally useful for investors. The Board also opposes disclosing its ratio because it expects regulatory standards related to climate risk and the climate transition will continue to involve." --- (GS, AGM, 2024/04/24)

Preventive Measures for Companies

Companies like Meta and Microsoft are implementing preventive measures such as enhancing content moderation, driving sustainability in supply chains, using non-GAAP financial measures for transparency, and assessing the impacts of political advertising bans to avoid legal issues and maintain investor confidence.

"I'm pleased to move shareholder proposal 8. Our proposal calls on Meta to address significant and an urgent issue: content moderation on Facebook and Instagram, specifically in the 5 largest non U. S. Markets.The proposal requires that Meta report to shareholders on the effectiveness of its measures to prevent and mitigate human rights risks related to hate speech, disinformation and incitement to violence on Instagram and Facebook." --- (META, AGM, 2024/05/29)

"So it's even more critical that companies like Microsoft and our partners that we really remain steadfast in our commitment to drive and accelerate the sustainability progress in our supply chain and value chain to help those around the world accelerate their progress as well." --- (MSFT, Fireside Chat, 2024/08/05)

"We believe this non-GAAP financial measure provides investors with useful supplemental information about the financial performance of our business, enables comparison of financial results between periods where certain items may vary independent of business performance, and allows for greater transparency with respect to key metrics used by management in operating our business." --- (META, sec filing, 2024/Q2)

"Proposal 13 calls for the preparation of a publicly available report to assess the impacts of prohibiting all political advertising and reinstating the protective measures taken in 2020. Let us not" --- (META, event transcript, 2024/05/29)