1. US Securities Class Actions: Business Risks and Litigation Strategies Marc J. GottridgeMichael M. Yi Lovells Yi Cho & Brunstein, LLC New York OfficeNew York Seoul, 28 May 2004

2. What is a class action? A procedure for combining hundreds or thousands of claims in a single lawsuit The named plaintiffs represent a class of similarly situated persons Notice must be given to all class members, including individual notice to all who can be identified through reasonable effort Class members who wish to be excluded may “opt out”; otherwise they will be bound by a judgment or settlement

3. Role of the court –The court must approve plaintiffs’ “class counsel” –The court decides class certification/decertification motions – a case is not a class action unless the court says so –The court must approve any settlement –The court must approve plaintiffs’ legal fees and costs Class action does not affect availability of jury trial – in general, jury trials are available in US actions for money damages What is a class action? (continued)

4. How are class actions resolved? Few class actions go to trial - most are settled or dismissed Settlements require notice, a fairness hearing and approval by court –Claims are then filed by individual class members –Attorneys' fees are generally agreed as part of any settlement presented to the court for approval –"Clear sailing" agreements: defendants sometimes agree not to object to any award of attorney's fees up to a stipulated maximum –Objections from class members are relatively rare and courts are happy to clear their dockets, so often no one has an incentive to challenge the agreed fees

5. Federal securities class actions Over 200 filed annually Most cases are brought under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 Most cases involve alleged accounting fraud and these tend to settle for higher amounts. Examples of common allegations include: –Understatement of expenses or liabilities –Overstatement of income or assets –Premature or otherwise improper recognition of revenue –Incorrect estimates Class actions claims are often filed after income restatements, profits warnings or other negative announcements have caused share prices to drop

6. Damages theories –Generally damages claims are based on the difference between the actual share price and what the price would have been but for the alleged fraud –Expert testimony is important, and each party will have its own expert Criminal and regulatory investigations often act as triggers Defendants may include: –Companies issuing securities (equity or debt) –Individual directors/officers –Investment banks, involved as underwriters –Auditors Federal securities class actions (continued)

7. Special rules apply -- including that the plaintiff with the largest financial interest generally serves as lead plaintiff –Institutional investors (e.g., public employees' pension funds, hedge funds or private asset management firms) often serve as lead plaintiffs –Lead plaintiffs select the lawyers for the class, subject to court approval A small, specialized plaintiffs’ bar Over $2 billion was spent by defendants to settle securities class actions in 2003 (source: Cornerstone Research, cornerstone.com) Federal securities class actions (continued)

8. Largest securities class action settlement ever was $2.85 billion (Cendant Corporation), plus $335 million in same case against Ernst & Young Citigroup Inc. in May 2004 settled securities claims in WorldCom case for $2.65 billion Average settlement amount is approximately $21 million - in 2003, five exceeded $100 million The effect of Sarbanes-Oxley –Certification requirement may give plaintiffs helpful evidence –Longer statute of limitations Federal securities class actions (continued)

9. How may US securities class actions affect non-US companies? 2072 foreign issues registered with the SEC –708 Asian –51 Korean (Source: Bank of New York Depositary Receipts website, www.adrbny.com/dr_directory.jsp; as of April 2004) In 2002, there were 22 securities class actions involving ADR issuers Plaintiffs’ lawyers increasingly target non-US issuers Although European and Canadian companies have been a bigger target for the plaintiffs’ bar than Asian companies (with exceptions such as Asia Pulp & Paper), that is likely to change

10. China Life - action filed on 16 March 2004 in New York against issuer of a December 2003 $3 billion IPO and the company’s principal officers and directors Even non-US investors who purchased securities on non-US markets may be part of the plaintiff class. If such extraterritorial application of the US securities laws is accepted in a particular case, the defendants’ potential exposure may be substantially increased –Conduct test –Effects test There are significant jurisdictional issues affecting non-US auditors named as defendants in US class actions How may US securities class actions affect non-US companies? (continued)