International: securities suits hit foreign registrants.

The long arm of the lawyer is reaching overseas regularly these days. And while the actual number of class-action suits against foreign firms registered in the U.S. fell last year, those numbers are rising again, thanks to ongoing accounting scandals involving companies like Ahold NV, the Dutch supermarket firm, and Italian milk giant Parmalat SpA.

A survey of such litigation in recent years by PricewaterhouseCoopers found that federal cases against foreign registrants--which peaked in 2002 at 23--have risen from 6 in 1997 to no less than 14 in each year since 2000 (see table). The inclusion of foreign firms in the widening mutual fund scandals and the global approach to investigations by U.S. regulators "is likely to increase overall securities regulatory risk for foreign filers," PwC noted.

What's more, according to Grace Lamont, a Securities Litigation Partner at PwC, the incidence of suits aimed at foreign companies is likely to hit a new high this year; it had hit 21 by mid-September.

Looking at the 2003 numbers geographically, almost half of the suits filed were against European companies, a marked shift from years past, in which European firms generally accounted for no more than a third of the suits. Four of the seven suits involved companies based in the Netherlands. Canada and Bermuda account for most of the suits filed against non-European corporations.

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Lamont says it's difficult to explain the blip in the Netherlands number, but adds, "Quite often, if there's light shown on an industry or a country, you will see follow-on actions."

There's also been a shift in recent years in the nature of the suits. Two-thirds of them in 2003 were filed over accounting practices; that percentage was even higher, at 83 percent, in 2002. In three of the first five years beginning in 1996, when PwC started its survey, accounting troubles represented less than half of the actions. But the percentage related to financial restatements has been dropping, to 20 percent in 2003 from 40 percent in 2001.

High-tech also was in the lawyers' cross-hairs far less often last year: 27 percent of the lawsuits were aimed at tech companies, down sharply from 61 percent in 2002 and 75 percent in 2001. Financial services firms also accounted for 27 percent of the suits filed last year.

Lamont expects more U.S.-based suits against mutual funds to include foreign registrants. "One lesson is that no one is really immune any more. Other foreign players will probably be roped into the investigations. It's fair to say that the investigations are much more global, and there's a great deal more cooperation among regulators."

Looking at the overall picture, converging trends and issues suggest more suits ahead for foreign companies. "I don't expect a decline in the short term," Lamont says. "If anything, we'll probably see an increase for a few years. 2003 was the first year that Europe had its own mega-scandals," referring to blowups at Ahold and Parmalat.

She adds that there are ongoing challenges for which no one can predict the consequences, such as registrants' struggles to comply with Sarbanes-Oxley requirements, especially Section 404. The impact of the convergence of international accounting standards in 2005 may also spawn legal actions, she notes, since a host of differences remains.

U.S. Suits Against Foreign Registrants

1999  11
2000  14
2001  16
2002  23
2003  15
2004  21*

* through 9/15
Source: PricewaterhouseCoopers