Partner Jamie Hanley and Associate Ryan C. Stieve are the authors of the article "2 Cases May Enlighten UK Funds' Securities Litigation Path" published in Law360.  Hanley and Stieve explore the crucial opportunity for UK pension funds to assert their rights through securities litigation.

In 2024, UK pension funds led the way in at least two U.S. securities cases, demonstrating an increasing willingness of UK pension funds, historically passive, to hold corporate wrongdoing to account and litigate to recover losses, and potentially encouraging other UK funds to pursue legal action to protect their rights.

The cases were: In re: Apple Inc. Securities Litigation and In re: Under Armour Securities Litigation, in which recoveries of $490 million and $434 million, respectively, were secured.¹  Norfolk County Council, administering the Norfolk Pension Fund, acted as lead plaintiff in the Apple case and Aberdeen City Council, administering the North East Scotland Pension Fund, acted as lead plaintiff in the Under Armour case.

UK pension funds increasingly recognize that monitoring and litigation are important parts of their toolkit as a responsible investor, and in particular as environmental, social, and governance concerns increase.  These two cases signify that UK pension funds are taking a more active role in pushing for stronger corporate governance practices.

Key Shareholder Litigation Cases

Key issues in the Apple and Under Armour cases centered around allegedly misleading statements from each respective corporation and financial reporting practices.  Communication from companies to shareholders was allegedly lacking in transparency and accuracy.

Apple Securities Litigation

On April 4, 2019, a complaint was filed against Apple Inc. in the U.S. District Court for the Northern District of California,² alleging violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5 under the Exchange Act.³

These alleged violations affected individuals who purchased stock from Nov. 2, 2018, to Jan. 2, 2019, and were based on allegations of false and misleading statements made in Apple's fourth-quarter 2018 earnings release, 2018 fiscal year-end report, and a November 2018 conference call to investors and analysts.

Certain representations by these reports and by Apple's CEO, Tim Cook, on the conference call included praise of sales driven by new versions of the iPhone, allegedly downplaying pressure in emerging markets due to the ongoing trade war between the United States and China.

This led to inflated expectations of Apple's first quarter in 2019, but in January when Apple disclosed its actual state of affairs, the stock price dropped more than 9% in one day, which created speculation around the reports and statements by Cook.  Plaintiffs would subsequently defeat a motion to dismiss⁴ and a motion for summary judgment,⁵ and the court approved a final settlement of $490 million on Sept. 18, 2024.⁶

Under Armour Securities Litigation

On Oct. 10, 2020, a third consolidated complaint was filed against Under Armour Inc. in the U.S. District Court for the District of Maryland, for violations under the Exchange Act, similar to the Apple case.⁷

The alleged violations occurred from Sept 16, 2015, to Nov. 1, 2019, linked to defendants' 20% growth target from 2010 to 2016, despite waning customer demand and market share loss in September of 2015.

To meet these aggressive goals, Under Armour discounted product and invested in low-margin footwear and international expansion.  These decisions would prove to be insufficient to continue Under Armour's growth streak of 20%.

In 2015 and 2016, defendants allegedly engaged in improper and/or concealed sales and accounting practices that violated U.S. generally accepted accounting principles and U.S. Securities and Exchange Commission regulations.

Defendants also allegedly misrepresented the demand for Under Armour products, sales and pricing, while downplaying issues related to margins, inventory, and retailer bankruptcies.  The court denied a motion to dismiss and a motion for summary judgment, and ultimately approved the final settlement on Nov. 7, 2024, recovering $434 million for the class.

Shareholder Litigation Being Used to Promote Corporate Governance Reform

These settlements underscore the importance of shareholder activism and a focus on executive and director accountability in promoting corporate governance reforms.  Norfolk County Council and Aberdeen City Council used litigation to hold these corporations accountable, potentially encouraging other UK pension funds to pursue legal action to protect their rights.

These cases also signal growing expectations for executives and directors to be accountable for disclosure failures or corporate governance shortcomings.  UK pension funds should demand greater accountability from the C-suite and board members as individuals for misleading disclosures or weak governance safeguards.

Additionally, proactive monitoring of financial practices should promote corporations to be preventative in their governance rather than merely anticipating litigation risks.  The Apple and Under Armour cases exemplify the value of due diligence by investors to demand accurate and timely information.

Both cases had to do with major discrepancies in statements made to the public and the actual reporting of both company's financial information.  Such examples should urge corporations to be more forward-looking in their risk management approaches in governance.

Opening the Floodgates of Litigation in 2025?

These key takeaways from 2024 enlighten the path forward for 2025, with evolving trends becoming clearer.  Although these settlements are only two examples of UK pension funds leading class actions, the large payouts and corporate governance reforms are drawing attention to the opportunity for UK pension funds to assert their rights in the U.S.⁸

Historically passive,⁹ these investors now see the potential for corporate reforms and financial returns.  The first inklings of a call for "enhanced shareholder interaction" did not arise until 1992.¹⁰  It was not until the UK Stewardship Code by the Financial Reporting Council was published in 2010 that there was a true spotlight on the fiduciary duties of institutional investors.¹¹

Further, it was not until publication of the revised UK Stewardship Code in 2012 that there was a push for ongoing engagement and not just episodic activism.¹² Thus, these settlements represent a relatively new development for UK pension funds in asserting their rights in U.S. class actions.

These settlements will likely play a formative role in shaping how UK pension funds approach their investments in the U.S.  As a result, UK pension funds may increasingly consider leading class actions or participating in shareholder derivative suits, driving collective action for governance reforms in 2025.  Additionally, governance in ESG factors will likely gain greater prominence.

In 2025, look for UK pension funds to place more of an emphasis on evaluating the governance quality of potential investments, since poor governance structures were central to the claims asserted against the companies discussed above.

Conclusion

The Under Armour and Apple settlements are expected to accelerate trends toward increased institutional investor activism and focus on corporate governance reforms.  UK pension funds may become more active in securities litigation, advocating for transparency, better risk management, and stronger governance practices.

As institutional investors recognize the risks of poor governance, these settlements could lead to a deeper focus on accountability, transparency, and ESG practices, shaping investment strategies and shareholder activism moving forward.