Recently, a U.S. District Court judge ruled that three class action lawsuits against Seadrill Ltd. will be consolidated. Seadrill is an offshore drilling contractor based in Bermuda. The lawsuits arose after the company announced a suspension of its annual $4-per-share dividend in November, which caused an immediate and significant drop in its share value.
Rule 10b-5 Violations
The plaintiffs claim the company violated Rule 10b-5, which makes it unlawful “to employ any device, scheme, or artifice to defraud, to make any untrue statements of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of a security.”
The Securities and Exchange Commission (SEC) adopted Rule 10b-5 pursuant to §10(b) of the Securities Exchange Act of 1934, which made it unlawful “to use or employ, in the connection with the purchase or sale of any security…any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate…for the protection of investors.”
The SEC may investigate potential violations of Rule 10b-5 and pursue civil penalties like the assessment of fines. However, violations may also give rise to criminal prosecution by the Department of Justice (DOJ). The SEC can share any evidence it has regarding potential securities laws violations with the DOJ to assist in the criminal prosecution. Additionally, as in the case of Seadrill, violations of Rule 10b-5 can form the basis for class action lawsuits filed by investors seeking damages for harm caused by the violations.
Seadrill Case
The false and misleading statements by Seadrill are alleged to have been made in a company press release during the summer prior to the November dividend suspension. The press release stated that “Seadrill’s diversified funding strategy has resulted in the company being in the best possible financial situation in the company’s history, with significant financial flexibility to support the dividend.” But, on November 26, according to one of the lawsuits, Seadrill “shocked the market by suddenly disclosing” the indefinite suspension of its dividend.
As part of the ruling, new notice is to be given to potential class members, which includes options investors with a claim. Further, a determination must be made as to who the lead plaintiff will be. Alternatively, there may be a lead plaintiff for the buyers of Seadrill’s U.S.-traded equity and another for options investors. The plaintiffs include Issek Fuchs, who sued on behalf of stock purchasers; Ron Herron, who was a stock purchaser himself; and Sheldon Glow, who sued on behalf of stock and options investors.
For More Information
If you would like to know more about the protections afforded to investors, contact the experienced securities law attorneys at the Silver Law Group.