June 3, 2019

“Here Come the Lawsuits:” The Rise of IPO-Related Securities Litigation

A feature piece from Inc. Magazine documents the rise of IPO-related securities litigation, and whether or not it’s deterring companies and startups from going public in the first place.

According to data from ISS Securities Class Action Services, IPO-related lawsuits have doubled since 2013 and have focused on the tech industry. Priya Cherian Huskins, a senior vice president at the Woodruff Sawyer brokerage firm with a focus on director and officer liability, said she is “seeing that companies are starting to question whether or not it makes sense to go public.”

To help stem the tide, companies have lengthen the risk sections of their IPOs. According to the article, Amazon’s risk factor section was only eight pages long when it went public in 1998. Lyft, which went public this years, had 41 pages worth of risks.

“Painting a pessimistic picture of what could happen in the future can only help in the event of a lawsuit,” Tim Loughran, a finance professor at teh University of Notre Dame, told the publication.

But that can only do so much. The U.S. Supreme Court recently ruled that these cases may be brought in state courts. The result, Huskins said, is that “all 50 states are open for business of litigation,” which means the cost of going public “is much higher because you can be sued in state court.”

Read the full story here.

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