Describe the nature and extent of securities litigation in your jurisdiction.
Securities litigation is rare in Switzerland. The few cases that were brought in recent 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 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, the disclosure of significant shareholdings and, under the newly introduced Financial Services Act (FinSA), non-compliance with certain prospectus disclosure rules.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 and liability claims relating to key information documents and similar communications.
Prospectus liability (including the liability for key information documents (where required) and communications that are similar to a prospectus or key information document) is the primary type of security claim available to investors in the context of oﬀerings of securities and other financial instruments in Switzerland.
Article 69 FinSA forms the statutory basis for prospectus liability claims under Swiss law. The liability rules affect the statutorily prescribed minimum content for prospectuses and key information documents according to FinSA and its implementing ordinance.
When FinSA and its implementing ordinance passed into law on 1 January 2020, a new prospectus regime was introduced in Switzerland. Although the provision in the Swiss Code of Obligations (CO) regulating prospectus liability prior to 1 January 2020 has been repealed, the Federal Council's dispatch to FinSA states that the new prospectus liability provision is, in essence, a continuation of the previous prospectus liability regime (with the adaptions that are required in light of the new FinSA prospectus requirements). Therefore, the information herein is provided based on our untested view that the existing practice and case law on prospectus liability in Switzerland remains valid under the prospectus liability regime.Offerings versus secondary-market purchases
How do claims arising out of securities offerings differ from those based on secondary-market purchases of securities?
Prospectus liability under FinSA does not differentiate between claims arising out of securities offerings and claims based on secondary-market purchases of securities. Liability is linked to the fact that inaccurate or misleading information, or information not satisfying legal requirements, has been given. Consequently, the issue and public oﬀering of new shares or new bonds, and a later purchase of these securities, can give rise to a prospectus liability suit. 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.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 and to applications for admission of securities to trading. 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 statement) 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 article 69 FinSA (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, key information document or similar statement, 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 statement by a defendant are actionable. The incorrect, misleading or omitted information must be material in the relevant context.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, key information document or 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 must show two diﬀerent causation elements: loss causation and transaction causation. Loss causation means that the alleged misconduct caused the damage, and transaction causation means the causation between the violation of the duty of care and the purchase of the securities. More specifically, a plaintiﬀ must 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 or she actually read the prospectus when making his or her investment decision. This presupposes 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, as a general rule, an individual who purchased shares in the secondary market may bring a prospectus liability suit. However, this 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 must show loss causation, meaning that the alleged misconduct caused the damage. Under Swiss law, a plaintiﬀ must show both actual cause and proximate cause. 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?
There are no elements that, in practice, present special issues in a securities litigation context. 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 limitation period for prospectus liability claims is not specifically addressed in FinSA. It is currently unclear whether the limitation periods as per the previous regime continue to apply or whether the shorter, general Swiss law limitation periods will apply to FinSA prospectus liability claims. In either case, a claim becomes time-barred 10 years after the date of the act that caused the loss. Criminal law provides for a longer time limit, and where the loss was caused by a criminal act (eg, fraudulent actions), this 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), or if the claimant initiates debt enforcement proceedings or brings a claim before a court or arbitral tribunal.
Law stated dateCorrect on
Give the date on which the information above is accurate.
1 January 2020