In recent cases involving the issuance of multiple classes of securities under shelf-registration statements, shareholders who purchased certain classes of securities, but not others, have attempted to assert securities fraud claims on behalf of purchasers in all classes. Certain courts have adopted this liberal view of standing, and widespread adoption of that position raises a clear threat: claimants' attorneys would only need to find a single disgruntled shareholder to bring a potentially massive class action lawsuit that dramatically raises the stakes for defendants and creates insurmountable pressure to settle early.

In In re Countrywide Financial Corporation Securities Litigation (588 F.Supp. 2d 1132, 1164 (C.D. Cal. 2008)) (Countrywide), a shareholder asserted claims under Section 11 of the Securities Act of 1933 based not only on debt instruments it purchased, but also on three classes of notes it did not buy; according to claimant, it had standing to assert claims with respect to all of these securities because they were offered under the same shelf-registration statement.

The defendants moved to dismiss on the ground that the claimant lacked standing with respect to the notes, arguing that the plain language of Section 11 limits claims to "any person acquiring such security" (Countrywide, at 1165). Although acknowledging that the offerings were made under different pricing supplements (and so different registration statements), the Court decided that the claimant nonetheless had statutory standing to assert claims for all the securities at issue, regardless of whether the claimant actually purchased them. The Court explained that "[s]o long as (1) the securities are traceable to the same initial shelf registration statement and (2) the registration statements share common 'parts' that (3) were false and misleading at each effective date, there is Section 11 standing" (Countrywide, at 1166).

While claimants in subsequent suits jumped on the Countrywide bandwagon, several courts have recently rejected that Court's analysis. For example, in Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corporation (658 F.Supp. 2d 299, 303 (D. Mass. 2009)) (Nomura), the Court was presented with the question of whether the claimants could assert claims based on mortgage-backed certificates issued by eight trusts when it had only purchased in two of the offerings. The court held that plaintiffs did not have standing with respect to all of the certificates because each of the trusts was a separate legal entity that issued its own securities backed by different pools of mortgages and the claimants could not therefore "allege an injury caused by the purchase of Certificates that they themselves never purchased." (Nomura, at 303).

Nomura is also noteworthy because the claimant attempted to delay the Court's ruling on standing by arguing that the question should be resolved at the class certification stage (when the Court is asked to decide, among other things, whether the questions of law and fact underlying the claims of the putative class members are sufficiently common), not on the pleadings. Such a delay would cause the defendants to incur substantial costs – federal law only stays discovery until resolution of the defendants' motions to dismiss.

The Court refused the claimant's invitation to postpone consideration of what it considered to be a "threshold inquiry," explaining that the fact "[t]hat a suit may be a class action . . . adds nothing to the question of standing, for even named plaintiffs who represent a class must allege and show that they personally have been injured." (Nomura, at 304). It reasoned that "to hold otherwise would shunt aside the inevitable risk that any plaintiff could sue a defendant against whom the plaintiff has no claim in a putative class action on the theory that some member of the hypothetical class, if a class were certified, might have a claim." (Nomura, at 304).

Two cases decided earlier this year (NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 08 Civ. 10783 (S.D.N.Y. Jan. 28, 2010) and In re Lehman Brothers Securities and ERISA Litigation, No. 09 MD 2017, 2010 U.S. Dist. LEXIS 13856 (S.D.N.Y. Feb. 17, 2010)) also rejected Countrywide and dismissed for lack of standing all claimants' claims based on offerings of mortgage-backed certificates which they did not purchase. Both dismissals were significant for defendants. In Goldman Sachs, the Court dismissed the claimants' claims with respect to 15 of the 17 offerings at issue. And in Lehman Brothers, the Court dismissed the claimants' claims with respect to 85 of the 94 offerings in question. Like Nomura, the courts in Goldman Sachs and Lehman Brothers rejected the claimants' arguments that resolution of the standing inquiry should be delayed until class certification as well as the claimants' theory that allegations of "common" misrepresentation and omissions are sufficient to create standing. Therefore, while the outcome remains uncertain, courts appear to be moving in the direction of dismissal of class claims based on securities that claimants did not purchase.

Beginning in 2009, fiduciaries or the employees of plan sponsors responsible for the administration of large US tax-qualified retirement plans and certain large welfare plans (Covered Plans) will generally face new and extensive requirements related to disclosure of fees paid by the plan to its service providers. Large plans are those that have over 100 participants at the beginning of the reporting plan year. These requirements include changes to Schedule C to Form 5500 (Schedule C and the Schedule C Rules) and are also likely to involve changes to fee disclosure by service providers entering into or amending contracts with a plan and information on fees disclosed to participants. Form 5500 is an annual report on the status of a Covered Plan required by the US Internal Revenue Service and US Department of Labour.

Fiduciaries or other responsible administrators of Covered Plans (collectively, the Plan Administrators) must now disclose on Schedule C to Form 5500 each service provider that received US$5,000 or more in total compensation from the plan during the plan year. Before the 2009 plan year, disclosure on Schedule C was limited to the top 40 service providers to the plan.

Investment funds, asset managers and broker-dealers have a new set of privacy directives on the horizon geared at the development of more formal, documented programmes to maintain and safeguard their customers' information. These initiatives – five are discussed below – stem from not only US Federal regulators but from the US States as well. Both the new and proposed rules will apply to businesses irrespective of where they are located and (in some cases) irrespective of whether they are registered with the US Securities and Exchange Commission (SEC).

The first of these developments is the SEC's adoption of Regulation S-AM – with a compliance date of 1 June 2010 – targeting information used by business affiliates. Under the final version of the regulation, securities firms and investment companies are prohibited from using specific types of information to make marketing solicitations to consumers (defined as natural person clients and fund investors) unless they fully disclose that the information may be used for marketing campaigns and the consumer has been given the opportunity to opt out. Information protected by Regulation S-AM is referred to as "eligibility information," broadly defined as information that bears on a person's creditworthiness or credit standing as well as personal identifiers such as names, addresses, and so on. In many cases, the adoption of Regulation S-AM will require covered firms to develop and distribute new privacy notices and procedures to address the expanded disclosures and opt-out rights. The final rules provide examples of privacy notices tailored to the new requirements.

Regulation S-AM expands on the rules set out in the better known Regulation S-P, which likewise has a new set of proposed rules. The Regulation S-P proposals, in limbo since 2008, primarily focus on expansion of the scope of information and parties covered under the Regulation as well as the development of documented "data breach" response protocols. The proposed rules also go further than current practice in addressing guidelines for departing employees when contacting former clients, but have not yet been adopted.

Other Regulation S-P proposals have in fact been adopted, as have parallel rules by other regulators, including privacy rules adopted by the US Federal Trade Commission (FTC) for hedge funds, private equity funds and unregistered investment advisers. As of 31 December 2010, the current guidance or safe harbour provisions related to the form and substance of privacy notices will be phased out in favour of a new standardised formulation. Although no changes in practice are required, many institutions relying on the guidance or safe harbours will be modifying their notices throughout the year.

Also drawing attention is the FTC's new "Red Flags" Rule. Starting on 1 June 2010, covered firms (defined as financial institutions offering "transaction accounts" or "creditors" (a term broad enough to include broker-dealers extending margin credit)) will have an obligation under Federal law to maintain data security measures aimed at identifying evidence of identity theft or any other irregularities in a client's account information.

Lastly, the State of Massachusetts has developed a new security directive (in effect as of 1 March 2010) related to the protection of personal information. Any entity that owns, licenses, stores, or maintains the personal information of a resident of Massachusetts – a category of businesses that will include many investment advisers, broker-dealers or investment companies having US clients, employees or investors – must develop a comprehensive written information security policy meeting an extensive laundry list of requirements. This is a sharp reminder that within the world of US privacy laws, certain State laws may avoid pre-emption by Federal laws (for example, under certain circumstances when State law provides greater protections than Federal law). Consequently, the onus falls on firms, operating nationally, to be conscious of both Federal and State rules.

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Rule 2019 of the Federal Rules of Bankruptcy (Rule 2019) has been the subject of three recent conflicting decisions of Third Circuit bankruptcy courts. The decisions have garnered attention from financial institutions and investment funds because they deal with whether creditors acting as a group in a chapter 11 case must divulge information about the nature and amount of their debt holdings, including when such holdings were acquired and at what price – information that is often a closely guarded secret.

Whether to compel disclosure implicates two competing interests:

In the relevant part, Rule 2019 provides that "every entity or committee representing more than one creditor or equity security holder… shall file a verified statement setting forth" various information, including "the nature and amount of the claim or interest and the time of acquisition thereof… ."

Before the current trio of cases, Rule 2019's application to ad hoc committees was unclear; requests for disclosure of individual members' confidential information were granted in two bankruptcy cases, while, in another, a similar request was denied. (See In re Northwest Airlines Corp., 363 B.R. 701 (Bankr. S.D.N.Y. 2007) and In re Northwest Airlines Corp., 363 B.R. 704 (Bankr. S.D.N.Y. 2007) (collectively Northwest) (ordering disclosure). See also In re Scotia Development LLC, No. 07-20027 (Bankr. S.D. Tex. 2007) (Scotia Pacific) (disclosure not required) and In re Accuride Corporation, No. 09-13449 (Bankr. D. Del. 2009) (Accuride) (ordering disclosure). Since written opinions were not issued in either Scotia Pacific or Accuride, most scrutiny has centred on the Northwest, WaMu, Six Flags and Philadelphia decisions.)

Unfortunately, Rule 2019's application is no clearer today following the three latest decisions.