Describe the nature and extent of securities litigation in your jurisdiction.
Securities litigation is rare in Switzerland. The few cases that were brought in the past couple of years almost exclusively focused on prospectus liability claims, meaning claims based on false or misleading statements or omissions in prospectuses used for the purpose of issuing new equity or debt securities. Given the limited number of securities litigation cases, there is only little precedent on a number of important issues.
Regulators are not involved in civil securities litigation. Rather, they take administrative enforcement actions or conduct criminal investigations with respect to certain aspects of securities law, such as insider trading, market manipulation, or the disclosure of significant shareholdings.Available claims
What are the types of securities claim available to investors?
Owing to the lack of a large body of securities fraud case law, and given the fact that Swiss law does not provide for broad anti-fraud provisions in connection with the purchase or sale of securities, the following discussion of Swiss securities litigation will focus on prospectus liability claims.
Unlike in other jurisdictions, Swiss law does not yet require - in fact does not even provide for the possibility - to have offering documents for shares (and similar equity securities) and bonds reviewed by a government agency (see, however, the Update and trends). Thus, prospectus liability is the primary means by which Swiss law ensures compliance with the prospectus requirements in the context of equity or debt offerings. Listing prospectuses are, however, subject to review and approval by the SIX Swiss Exchange, the most important stock exchange in Switzerland. Furthermore, offering documents for collective investment schemes (such as interests in investment funds) are subject to regulatory approval if the collective investment scheme is organised under Swiss law or, in case of a foreign fund, if the fund targets retail investors in Switzerland.
Articles 752 and 1156(3) of the Swiss Code of Obligations (CO) form the statutory basis for prospectus liability claims. The liability rules interplay with the statutorily prescribed minimum content for issue prospectuses in article 652a CO (equity securities) and article 1156 CO (bonds), respectively.Offerings versus secondary-market purchases
How do claims arising out of securities offerings differ from those based on secondary-market purchases of securities?
The Swiss civil law prospectus rules directly apply only to an issue and public offering of new shares or new bonds. However, any later purchaser of such securities also has standing to bring a prospectus liability suit. As noted below (see questions 9 and 13), a secondary-market purchaser may, however, be faced with certain difficulties in establishing a sufficient causal link. This is particularly true if there is a significant time gap between the secondary-market transaction and the initial issue and public offering.
Moreover, Swiss law does not provide for a prospectus requirement in the context of secondary placements of securities. In practice, however, prospective buyers in a secondary placement would want to see some kind of documentation, such as a placing memorandum, or even a fully fledged prospectus. Additionally, a secondary placement might also include the listing of existing shares on a stock exchange, which will require the preparation of a listing prospectus. Accordingly, a voluntary prospectus or a similar offering document is often prepared in connection with secondary placements. The prevailing view is that false or misleading information in these voluntarily prepared documents are actionable and can form the basis for a prospectus liability claim.Public versus private securities
Are there differences in the claims available for publicly traded securities and for privately issued securities?
The Swiss prospectus requirements only apply to public offerings of securities. There is no requirement to prepare a prospectus in the context of privately issued securities. However, it is the prevailing view that the prospectus liability rules not only apply to mandatorily prepared prospectuses but also to prospectuses prepared on a voluntary basis. In addition, prospectus liability also applies to ‘similar statements’, that is, other documents that are used to market and offer securities to investors. Accordingly, when a voluntary prospectus (or similar statements) was prepared in the context of a private offering of securities, the prospectus liability rules would equally apply to these private offering materials.Primary elements of claim
What are the elements of the main types of securities claim?
The statutory basis for a prospectus liability claim is provided in articles 752 and 1156(3) CO (this is a federal law that leaves no room for additional cantonal or state law). Such a claim can be brought against any person who was involved in the preparation of a prospectus or similar statements, which contain inaccurate, misleading or omitted information or are in breach of statutory requirements. A liability claim can be brought for both wilful and negligent conduct.Materiality
What is the standard for determining whether the offering documents or other statements by defendants are actionable?
Under Swiss law, materiality is the standard for determining whether a statement in a prospectus or similar statements by a defendant are actionable. The incorrect, misleading or omitted information must be material in the context of the issue of the securities.Scienter
What is the standard for determining whether a defendant has a culpable state of mind?
Prospectus liability claims, like tort liability claims in general, can be brought against persons who acted wilfully or negligently. Thus, it is not sufficient to simply allege that a prospectus contains inaccurate or misleading statements or omitted a material fact. Rather, the plaintiff must show that the defendant wilfully or negligently breached his or her duties when preparing the prospectus or a similar statement. In the context of a prospectus liability claim, negligence presupposes the violation of the duty of care required in business dealings. Applying this objective standard, an action is considered negligent if a diligent and experienced person in the same situation would have acted differently.Reliance
Is proof of reliance required, and are there any presumptions of reliance available to assist plaintiffs?
To successfully bring a prospectus liability claim, a plaintiff has to show two different causation elements, loss causation (see question 9) and transaction causation. Transaction causation means the causation between the violation of the duty of care and the purchase of the securities. More specifically, a plaintiff has to show that he or she would not have bought the securities, or at least not at that price, had he or she known that the prospectus contained inaccurate or misleading information, or omitted information. Proof of causation does not require strict proof (which is the applicable standard with respect to the other elements of a prospectus liability claim). Rather, the Swiss Supreme Court held that with respect to the causation requirement, a lesser standard of proof applies, namely that of preponderant probability.
With regard to the fraud on the market doctrine, the Swiss Supreme Court noted that a buyer of securities in the secondary market could assume that the price of a security reflects the information available in the issue prospectus, and thus, such a buyer does not have to show that he actually read the prospectus when making his investment decision. This presupposes, of course, that the secondary market for the specific security is in fact an efficient market, meaning that prices will adjust immediately to newly available public information.
As regards establishing transaction causation in the context of a secondary market transaction, we note the following: as a general rule, an individual who purchased shares in the secondary market may bring a prospectus liability suit. However, such individual will be faced with difficulties in successfully showing a causal link between the offering documents and his or her decision to invest. In particular, causation seems less likely in instances where a substantial time period between the offering and the secondary market purchase has elapsed.Causation
Is proof of causation required? How is causation established?
In addition to the transaction causation, a plaintiff also has to show loss causation, meaning that the alleged misconduct caused the damage. Under Swiss law, a plaintiff has to show both actual cause and proximate cause. As described in question 8, establishing causation is subject to a lesser standard of proof, namely that of preponderant probability.Other elements of claim
What elements present special issues in the securities litigation context?
Other than mentioned above, there are no elements that in practice present special issues in a securities litigation context. That being said, however, owing to the limited case law available in the field of securities litigation, various issues are untested and not settled by Supreme Court precedence.Limitation period
What is the relevant limitation period? When does it begin to run? Can it be extended or shortened?
The relevant limitation period for prospectus liability claims is defined in article 760 CO, which provides for both a relative and an absolute limitation period. A claim for damages becomes time-barred five years after the date on which the injured party learned of the loss and of the person liable. In any event, a claim becomes time-barred 10 years after the date of the act that caused the loss. Where the loss was caused by a criminal act (eg, fraudulent actions), for which criminal law provides for a longer time limit, such longer time limit also applies to the related civil claims.
The limitation period is interrupted if the defendant acknowledges the claim (eg, by making partial payments or providing security), if the claimant initiates debt enforcement proceedings or brings a claim before a court or arbitral tribunal.