The Securities Litigation Review: Germany
i Sources of law
Securities constitute a private law contract between the issuer and the security holder. German securities are, therefore, primarily governed by civil law, namely, the law of obligations (codified in the German Civil Code) and – as far as equity securities are concerned – by corporate law.
Individual types of securities or specific features of their legal status can be subject to specific civil law legislation, sometimes with public law elements. For example:
- bonds and the rights of bondholders are dealt with in the Bonds Act (SchVG);
- the safekeeping of securities is governed by the Safe Custody Act (DepotG); and
- the Stock Corporation Act includes numerous provisions that apply specifically to public stock corporations (i.e., stock corporations listed on a regulated market). According to modern academic interpretation they form – together with relevant capital markets' supervisory law (see Section I.ii) – what is called the 'law of public stock companies'.2
Publicly offered or traded securities, as well as issuers and intermediaries, are subject to a comprehensive set of regulations, which are supervised and enforced by the German Federal Financial Supervisory Authority (BaFin). Security-related supervisory law in Germany is deeply rooted in harmonised European legislation, which aims to create a unified European financial market. The most prominent example is the revised Markets in Financial Instruments Directive (MiFID II)3 that was transposed into German national law as of 3 January 2018, becoming effective together with the Markets in Financial Instruments Regulation (MiFIR). The MiFID II/MiFIR rules contain provisions for investor protection, in particular for the safeguarding of clients' assets, product governance and monetary and non-monetary inducements, as well as a comprehensive regulation of market infrastructure (trading venues and systematic internalisers).
In addition, the updated Market Abuse Directive (MAD II)4 and a new Market Abuse Regulation (MAR)5 became effective as of July 2016. MAR has replaced a large amount of national law and establishes a single rulebook on market integrity. The new framework applies equally to traditional trading platforms, multilateral trading facilities (MTF) and organised trading facilities (OTF). MAR regulates, among other things, insider trading, market manipulation, ad hoc disclosure of insider information, over-the-counter trading and high-frequency trading. The implementation of MAD II has provided for a massive upgrade of administrative sanctions in case of deliberate or negligent offences against MAR rules.
Furthermore, the UCITS-Directive6 and the AIFMD7 harmonise the supervisory requirements for open-end and closed-end funds, the Prospectus Regulation8 provides for rules on the drawing up and approvals of prospectuses to be published when securities are offered to the public or admitted to trading on a regulated market, and the Take Over Directive9 provides for a European framework for public mandatory and takeover bids.
Since 2018, the European Commission has used a strategy to integrate sustainability considerations into its financial policy framework to mobilise finance for sustainable growth.10 As a substantial building block of this initiative, the Sustainable Finance Disclosure Regulation (SFDR)11 came into effect on 10 March 2021. The SFDR requires financial market participants to provide detailed information on their ESG products and the way they manage sustainability risks. In addition, and pursuant to an amendment of MiFID II, financial advisers and asset managers will have to explore any ESG preferences from their clients.
Meanwhile, the European Securities and Markets Authority (ESMA)12 covered (nearly) all areas of MiFID II, MiFIR, MAR and UCITS-Directive/AIFMD with a comprehensive set of guidelines and Q&As. While being formally addressed to the national competent authorities, such 'soft law' is regarded as de facto binding by market participants in the course of their day-to-day operations. In addition, BaFin issued separate FAQs on MAR and revised further parts of the Issuer's Guide. Module C – 'Regulations under the Market Abuse Regulation (MAR)' of the 5th edition of the Issuer's Guide was published on 22 April 2020 and replaces Chapters III to VII of the 4th edition of the Issuer's Guide. The revised and updated version notably takes into account the changes that have been brought about by the MAR and other new regulatory laws in the EU and Germany. In addition, further examples from practical work have been included and explanations (e.g., relating to intermediate steps) have been made more precise to reflect recent case law.
Against this background, the following (most relevant) pieces of supervisory law relating to securities in Germany are to be construed in the light of their respective European framework legislation:
- the Securities Trading Act (WpHG), which includes provisions on investment services and ancillary investment services of banks, the disclosure of major shareholdings in public companies and the publication of financial reports by public companies;
- the Capital Investment Code (KAGB), which regulates the issuance and marketing of collective investment funds, covering both undertakings for collective investment in transferable securities (UCITS) and non-UCITS (also known as alternative investment funds);
- the Securities Acquisition and Takeover Act (WpÜG) regulating the takeover and mandatory bids for the acquisition of shares in public companies;13 and
- the Securities Prospectus Act (WpPG), which applies to the drawing up, approval and publication of prospectuses for securities to be offered to the public or admitted to trading in a regulated market.
In December 2020, the German government presented a draft of an act on the introduction of electronic securities with the aim of modernising German securities law. A key aspect is the introduction of a new Electronic Securities Act (eWpG), pursuant to which a paper certificate shall no longer form the basis for evidence and transfer of securities. Instead, the electronic issuance of bonds – be it via blockchain or via other electronic formats – shall be made possible. To this end, an electronic security can be issued by the issuer effecting an entry in an electronic securities register. BaFin shall be responsible for supervising the issuance of such electronic securities, as well as the maintenance of the respective decentralised registers.
ii Common securities claims
Apart from claims pursuing the mere fulfilment of contractual duties, such as a claim for due payment according to the final terms of a bond, most securities claims are based on wrongful capital markets disclosure or other abusive behaviour that results in securities holders suffering a loss. Except for the liability of credit rating agencies under the Credit Rating Agency Regulation (CRAR)14 (see 'Wrongful ratings', below), there is no specific written law that regulates securities claims. Accordingly, a significant amount of case law has evolved.
The following claims are the most common.
Incorrect or omitted publication of insider information
The issuers of financial instruments shall inform the public as soon as possible of insider information that directly concerns them (Article 17(1) MAR). The rule addresses issuers of all kinds of financial instruments that are traded on a regulated market, as well as on MTFs and OTFs. Article 7(2) and (3) MAR clarify that in the case of a protected process (such as the early resignation of a member of the board of directors, or a transaction) the intermediate steps as well as the final event may be deemed to be insider information and trigger the obligation to publish this information. This provision implements the reasoning of the European Court of Justice in the Geltl/Daimler case.15 In addition, Article 17(4) MAR refines the rules on a temporary withholding of insider information by the issuer. Module C of the 5th edition of BaFin's Issuers' Guide, published in April 2020, now contains detailed explanations and examples of the kinds of cases where intermediate steps constitute independent insider information.
Until 2002, claims for damages were based on (general) tort law and very often failed to fulfil the statutory requirements as interpreted by the courts. The leading case on this is Infomatec, in which the Federal Court of Justice (BGH) held members of the management of Infomatec AG responsible for the wilful dissemination of false information.16 The court reasoned that such wilful action was contrary to boni mores (i.e., it was immoral) and granted damages pursuant to Section 826 BGB.17 In later decisions, the BGH refined this line of argument. In EM.TV the court clarified that an issuing company is liable for the wilful actions of its managers (Section 31 BGB).18 In Comroad, however, the BGH emphasised the prerequisite of a full proof of causation between the incorrect notification and the plaintiff's decision to acquire or sell shares,19 which, in most cases, is difficult to provide.20
The special rules on liability in Sections 97 and 98 WpHG (previously, until 3 January 2018, Sections 37b and 37c) were introduced to facilitate claims for damages against an issuing company.21 Under Section 97 WpHG, shareholders only need to show that the company did not publish insider information without undue delay, that they acquired the shares after the information should have been published, and that they still held the shares when the information came to light. The shareholder can claim the difference between the share price that was originally paid and the share price the shareholder would have paid had the information been published in time. The company is only exempt from liability if it can demonstrate and prove that its managers acted neither wilfully nor with gross negligence.22 The BGH, however, denied a similar reversal of the burden of proof if the claimant aims to retrieve the full share price that was initially paid (while concurrently offering to transfer the shares to the company); in this case the shareholder will need to prove that he or she would not have bought the shares had the disclosure obligation not been breached.23
From an investor's point of view, one of the disadvantages of Sections 97 and 98 WpHG is their scope of application, which is limited to the issuing company. In a number of cases, issuers have become insolvent when threatened with a large number of claims for damages. This is one of the reasons why investors continue to seek damages against the members of an issuer's management or other third parties such as auditors (see the Wirecard case below)) under the general tort law provision of Section 826 BGB.
Shareholders v. Volkswagen AG and Porsche Automobil Holding SE
The case against Volkswagen AG (VW) is well known around the world. VW admitted to having used a 'defeat device' in approximately 11 million diesel cars, which helped to reduce emissions of nitrogen oxide and carbon dioxide when the cars were in testing mode.
On 22 September 2015, VW published an ad hoc notification admitting the use of a defeat device and announcing that it would set up accruals of about €6.5 billion. Within days of the information becoming public, the price of preferred shares in VW dropped by 40 per cent. The statements from the US Environmental Protection Agency (EPA) and VW suggest that for several years VW may have deceived authorities, investors and customers as to the actual level of pollutant emissions of some of VW's most promising car models. Apart from multiple lawsuits in the United States and elsewhere, a significant number of which have been settled by VW, the company is confronted in German courts with claims by investors under the former Section 37b WpHG (since 3 January 2018, Section 97 WpHG) and Section 826 BGB, with the volume of claims filed at the Regional Court of Brunswick by more than 1,500 shareholders totalling around €9 billion in aggregate. In addition, Porsche Automobil Holding SE (Porsche), the majority shareholder of VW, is facing claims made by its own shareholders for reasons similar to those affecting VW. However, this – combined with the fact that there had been personnel integration between VW and Porsche at the management level – has triggered 'model proceedings' (see Section II.i): the Regional Court of Brunswick accepted several 'establishment objectives' applied for by plaintiffs and VW, and submitted these to the Higher Regional Court of Brunswick.24 The latter appointed a model plaintiff; following further submissions by the parties, a series of oral hearings has been taking place since 10 September 2018.25 Similarly, model proceedings have been initiated in the cases of shareholders against Porsche, with the District Court of Stuttgart delivering an order with detailed reasoning regarding why it accepted certain establishment objectives while rejecting others.26 The Higher Regional Court of Stuttgart overturned the decision of the district court in March 2019 and held that the lawsuits brought forward against Porsche were ultimately based on the same facts as those against VW itself.27 They were then to be assigned to the model proceedings at the Higher Regional Court of Brunswick. However, the BGH overturned the decision from the Higher Regional Court of Stuttgart and considered further model proceedings admissable against Porsche at the Higher Regional Court of Stuttgart.28
In May 2020, the BGH decided in a first fundamental ruling that VW has to refund the purchase price to the purchaser of a car with a defeat device. The BGH considers VW to have willfully caused damages contra bonos mores pursuant to Sections 826, 31 BGB.29 While VW is in the process of settling most consumer claims, it remains to be seen what impact the decision of the BGH will have on the securities litigation model proceedings against VW.
Criminal proceedings against the chairman of VW's supervisory board, Hans Peter Pötsch, as well as against VW's group CEO, Herbert Diess, for alleged market manipulation, were dropped against payment of €9 million.30 Likewise, in January 2021, criminal proceedings for alleged market manipulation against VW's former CEO, Martin Winterkorn, were also dropped, while proceedings against him for alleged fraud are ongoing.31
Shareholders v. Hypo Real Estate Holding
The downfall of Hypo Real Estate Holding AG (HRE) is a notable example of the impact of the 2008 global financial crisis in Germany. HRE was a commercial property lender and financing company, the shares of which were admitted to trading at the Frankfurt Stock Exchange. It ended up in a complete bailout acquisition by the German government.
In mid-January 2008, HRE announced by way of an ad hoc notification a considerable depreciation of its portfolio of collateralised debt obligations in the amount of €390 million. Within one day, the price of HRE shares dropped by 35 per cent.32 A diverse group of investors (including retail investors, but also large investment funds) claimed damages against the company totalling about €1 billion, arguing that the write-offs should have been disclosed as early as autumn 2007.33 In December 2014, the Higher Regional Court of Munich ruled in favour of the plaintiffs in a model proceeding.34 In December 2020, the BGH partially affirmed the judgment of the Higher Regional Court of Munich. Regarding the duty of an ad hoc notification, the BGH, however, states that such an untrue public announcement in a press release only gives rise to an ad hoc notification obligation, about the incorrectness of the information, if it leads to insider information that is subject to a notification obligation, not just because it is incorrect.35
Investors v. Bayer AG
In 2018, the German DAX-listed chemical company Bayer AG (Bayer) acquired the US agrochemical company Monsanto for more than €50 billion.36 Since the acquisition, Bayer has been confronted with thousands of lawsuits in the United States over the alleged carcinogenic weed killer glyphosate, followed by a sharp decrease in Bayer's share price.37
In 2020, a number of investors started to take legal action against Bayer. They argue that Bayer knew at the time of the announcement of the Monsanto deal in spring 2016 that Monsanto was starting to face class-action lawsuits in the United States that had prospects of success, and Bayer would therefore have been obliged to inform the capital market about theses economic risks related to the deal.38
Article 12 MAR sets out detailed rules on market manipulation, provided that the manipulative action may influence the market price of financial instruments. The rules apply to all kinds of markets, including OTF and MTF. They extend to manipulative high-frequency trading and to the abuse of benchmarks. Article 15 MAR prohibits market manipulation, as well as attempts to engage in market manipulation.
In contrast to the treatment of deceptive ad hoc disclosure, German law does not provide for civil sanctions in cases of market manipulation. This might change with the MAR, which strongly emphasises investor protection.39
Under German tort law, the general provision to claim damages is Section 823(2) BGB, which requires the breach of a 'protective provision' by the injuring party. Consequently, courts have had to deal with the question of whether the former Section 20a WpHG, which was repealed with the introduction of Article 12 MAR, constitutes a protective provision. The BGH rejected this assertion in the IKB case, holding that the national rules primarily aim at ensuring the functioning of the markets on a macro level.40
As a result, former Section 20a WpHG only provided for supervisory actions and penal sanctions. Therefore, as was the case with incorrect disclosures of inside information until 2002, investors were restricted to claim damages against the issuer and its managers on the grounds of wilful causation of damage contra bonos mores (Sections 826, 31 BGB). Again, investors faced great difficulty in proving that these requirements were met.
Hedge funds v. Porsche (re Volkswagen)
The takeover battle between Porsche AG (subsequently Porsche SE) and Volkswagen AG was one of the most thrilling events in recent German economic history. In summary, in March 2008 Porsche announced its intent to acquire 50 per cent of the shares in Volkswagen following continuous stake-building by Porsche since 2005. Shortly thereafter, Porsche declared that it would not acquire a stake of 75 per cent or more in Volkswagen. This announcement resulted in heavy short sales by market participants. During the following months, Porsche continued to buy shares and cash-settled equity swaps for shares in Volkswagen up to a total of 74.1 per cent. In October 2008, Porsche announced its intention to raise its holdings up to 75 per cent, which led to a sharp rise in the market price of Volkswagen shares.41 Hence – having bet on falling prices – short sellers suffered severe losses amounting to approximately €10 billion to €15 billion.42
In August 2014, the Higher Regional Court of Stuttgart admitted a criminal trial against former members of the Porsche management on the grounds of market abuse. The indictment alleged that certain managers intentionally disguised their intention to acquire a stake of at least 75 per cent in Volkswagen in a series of press communications between March and October 2008.43 However, the Regional Court of Stuttgart rendered a non-guilty verdict in March 2016.44
Under civil law, investors have filed claims for damages against both Porsche and Volkswagen on the grounds of information-based market manipulation and incorrect publication of inside information. Most claims have been dismissed. The Higher Regional Court of Stuttgart decided that the incorrect press releases of Porsche did not qualify as a wilful causation of damage in a particularly reproachable manner, thus rejecting claims on the grounds of Sections 826 and 31 BGB.45 The Court further held that Section 20a WpHG would not provide for monetary compensation of investors. The BGH upheld this decision.46 Similarly, the Higher Regional Court of Brunswick reasoned that Sections 37b and 37c WpHG (now Sections 97 and 98 WpHG) would not apply to press releases, arguing that they do not reach the 'quality' of ad hoc notifications, and it dismissed the claims filed against Porsche.47
On the other hand, the Higher Regional Court of Celle is going forward with a model proceeding filed by aggrieved investors against Porsche and Volkswagen.48 While this proceeding has recently been delayed due to several (ultimately successful) challenges of bias by the plaintiffs, directed at the presiding judge, as well as the covid-19 pandemic, and the outcome is yet to be decided, the decisions illustrate that rulings may differ between the Higher Regional Courts.
The fall of the German payment provider Wirecard AG (Wirecard) will very likely be the next big case in securities litigation in Germany. Wirecard was considered to be a pioneer of the German fintech scene and even promoted to the DAX in 2018, replacing German Commerzbank.
Despite its success story, Wirecard was subject to allegations by the Financial Times and short sellers for several years. Wirecard was accused of being involved in accounting fraud, money laundering, and other illegal activities, in particular with respect to its Asian business.49 Wirecard consistently portrayed itself as a victim of market manipulation by short sellers, which even prompted BaFin to ban short selling of Wirecard stock in February 2019. As the allegations continued, Wirecard hired KPMG to conduct an independent special audit in late 2019.50 Despite the report not being entirely clear, Wirecard succeeded in presenting the outcome of the audit, publishing it in April 202051 as a discharge. However, on 19 June 2020, Wirecard had to announce that its long-time auditor Ernst &Young (EY) was unable to identify sufficient evidence of bank balances in escrow accounts amounting to €1.9 billion – an amount corresponding to one-quarter of Wirecard's total assets – and, therefore, refused to certify the 2019 balance sheet.52 This being a covenant breach under financing agreements, certain lenders to Wirecard were permitted to cancel loans totalling €2 billion. Wirecard's share price dropped sharply53 and the company is now facing securities litigation relating to accounting fraud, market manipulation and false ad hoc disclosure.54 The company's former CEO Markus Braun and the former CFO Jan Marsalek, who is on the run, are subject to criminal charges.
Because Wirecard eventually had to file for insolvency, securities litigation by retail and institutional investors as well as lending banks are now primarily directed at the auditor EY (and to a limited extent against BaFin).55 They argue that EY breached its professional duty by auditing alleged escrow funds and failing to disclose further balance sheet manipulations at Wirecard.56 Thus, EY should be liable for having wilfully caused damages contra bonos mores pursuant to Sections 826, 31 BGB. The Wirecard case has also drawn attention to the question of whether BaFin is liable under the German principles of official liability for improper supervision. The condition for such official liability is the breach of a third-party-related official duty. Pursuant to Section 4 (4) of the Law on the Federal Financial Supervisory Authority, BaFin only acts in the public interest. The BGH concludes from this that there is such third-party relevance with respect to market participants who are not direct addressees of BaFin acts or measures.57 The aim of such limitation is to prevent BaFin from taking overly rigid supervisory measures. As a consequence, BaFin will only be held liable for third parties in cases of abuse of authority.
At the beginning of 2021, private investors aiming to protect the video game retailer GameStop gathered on the platform Reddit and encouraged investors to buy shares in GameStop. They did this to attack the hedge fund Melvin Capital, which had made significant short sales in GameStop shares. Such organised buying of shares by retail investors led to a significant increase in GameStop's share price, going from €12 to €320 within one month. Many purchase orders were placed via 'neo-brokers' such as Robinhood or the German broker Trade Republic. Due to the significant increase in the share price, several of these neo-brokers imposed an execution stop for purchase orders on GameStop shares, which eventually dropped in price.58
There are efforts by retail investors to claim damages from neo-brokers with the argument that the non-execution of purchase orders fulfils the criteria of market manipulation. Furthermore, almost 4,000 complaints were submitted to BaFin.59
Takeover law-related claims
Pursuant to Section 10(1) WpÜG, a bidder must publish without undue delay its voluntary decision to submit an offer to the shareholders of the target company. Section 35(1) WpÜG provides that the same applies if a bidder obtains direct or indirect control over the target company. The law irrefutably presumes a controlling position of the bidder if it holds 30 per cent of the voting rights of the target company.60 In this case, a mandatory offer must be published.
Under Section 12 WpÜG, the shareholders of the target company are entitled to damages if they have tendered their shares on the grounds of an incorrect or incomplete offer document. In legal practice, however, case law instead deals with the timing of an offer because that sets the amount of the consideration.61 In this respect, debates focus on the question of how to determine whether and when a person has acquired direct or indirect control over a target company. Voting shares of third parties may be attributed to the bidder (Section 30 WpÜG), but usually the facts are not as clear as voting rights held by a subsidiary of the bidder. In the case of Schaeffler/Continental, BaFin had to deal with the difficult question of whether cash-settled equity swaps held by a minority stakeholder (Schaeffler Group) could convey direct or indirect control over the target company (Continental AG).62 The prevailing view is that they do not.63 In addition, the rules on acting in concert appear even more controversial and relevant in practice.64
Minority shareholder v. Deutsche Bank (re Postbank)
In September 2008 Deutsche Bank AG and Deutsche Post AG, the holding company of Postbank AG, signed an agreement that granted Deutsche Bank the right to acquire 29.75 per cent of the shares in Postbank, plus the right to acquire a further 18 per cent within 12 and 36 months after the acquisition of the first stake. In January 2009 Deutsche Bank and Deutsche Post amended their agreement and redefined their cooperation. Thereafter, Deutsche Bank purchased 22.9 per cent of Postbank shares and in October 2010 submitted a voluntary takeover bid to the free-float shareholders of Postbank.
Since the offered purchase price was unattractive, a minority shareholder sued Deutsche Bank for a higher consideration on the assumption that Deutsche Bank should have made a takeover bid as early as October 2008 or January 2009. At both times the market price of Postbank shares was considerably higher. The plaintiff alleged that Deutsche Bank had passed the threshold of 30 per cent by acquiring the right to purchase additional shares from Deutsche Post in September 2008 or at least because of the attribution of the voting rights held by Deutsche Post, with the attribution resulting from the cooperation agreement between the two companies. In July 2014 the BGH expressed sympathy for the latter assumption.65
In addition, the BGH decided on a number of controversial legal issues. First, it granted shareholders of the target company who had tendered their shares to the bidder the right to demand an adjustment of the offered purchase price if the latter was found to be unreasonable.66 Some commentators had argued that shareholders faced with an unreasonable offer were merely entitled to damages for an incorrect or incomplete offer document pursuant to Section 12(1) WpÜG.67 By acknowledging the shareholders' right to demand an adjustment of the purchase price, the BGH rejected this view. The court further distinguished this breach of obligation by the bidder from a situation in which the bidder does not publish a mandatory offer altogether. In this situation shareholders are not entitled to damages.68 Finally, the BGH affirmed the view that the attribution of voting rights held by a third party requires that the bidder disposes of an unconditional right to acquire these shares and that the (simple) contractual right against a third party to demand the transfer of the shares does not suffice.69
The ruling of the BGH strengthens the rights of shareholders and at the same time provides clarity for investors and bidders. Somewhat ironically, Deutsche Bank later announced the divestment of Postbank as part of its consolidation strategy.70
While the case that the BGH remanded to the Higher Regional Court of Cologne was still pending, the District Court of Cologne had ruled in favour of other plaintiffs in parallel cases.71 However, in December 2020, the Higher Regional Court of Cologne rejected the claims of the plaintiff investors in both the aforementioned cases and based this on the fact that the requirements for the assumption of acting in concert are not given.72
Section 21 et seq. WpPG provides a cause of action for an investor who acquires securities that are admitted to trading on a regulated market where the underlying prospectus contains incorrect or incomplete information.73 The list of persons who can be held liable for the losses that the investor has incurred is fairly broad and encompasses the issuer, persons who have assumed liability for the prospectus (e.g., the guarantor) and other persons who initiated the publication of the prospectus.74 If securities of an issuer domiciled outside Germany are also admitted to trading on a foreign regulated market the investor may only establish a claim under German law if the securities were purchased on the basis of a transaction concluded in Germany or an investment service fully or partially rendered in Germany (Section 21 WpPG, Paragraph 3).
The investor is entitled to rescind the purchase contract and render the securities against reimbursement of the purchase price, provided that the purchase was concluded after publication of the prospectus and within six months of the first listing of the securities. If the investor is no longer the owner of the securities, he or she may claim the payment of the difference between the purchase price and the selling price of the securities.
A defendant cannot be held liable if they can prove that they were not aware of the incorrectness or incompleteness of the prospectus and that this ignorance was not because of gross negligence. In practice, however, it is very difficult for a defendant to provide such exonerating proof.75
Section 23 WpPG provides for further exclusions of the defendant's liability. For example, the investor will fail with its claim if the defendant can show that the investor knew that the statement in question was inaccurate or incomplete (Section 23 WpPG, Paragraph 2).
Section 306 KAGB provides for similar rules with respect to units or shares of investment funds, where the defendant is either the management company or any other person who has taken responsibility for the accuracy of the prospectus. Section 165 KAGB lists, in detail, the necessary content of such prospectuses (in the specifically important case of closed-end funds in conjunction with Section 269 KAGB).
Until July 2005, no disclosure requirements existed with regard to certain non-securitised investments, such as closed-end funds, which were most often structured as a GmbH & Co KG.76 Mainly for tax reasons, these investments were particularly popular among retail investors. As a result, it is not surprising that a lot of case law on prospectus liability involves the liability for these 'grey market' investments.77
In general, courts tend to issue investor-friendly rulings. This has increasingly been the case, with persons held responsible for the issuance of securities or financial instruments as well as alleviations of the burden of proof of causation and damages.78 The case law also supports the interpretation of the complex prospectus liability rules set out in Section 306 KAGB.79
Shareholders v. Deutsche Telekom AG
A well-known case of prospectus liability relates to the third initial public offering (IPO) of Deutsche Telekom AG shares in the year 2000. The company was formed in 1996 when the former state-owned monopoly Deutsche Bundespost was privatised. In December 2014, the BGH held that the prospectus published by Deutsche Telekom AG for its third IPO contained misleading statements on the valuation of the company's real estate assets and on certain shares held by a subsidiary.80
To date, there are disputes before the Higher Regional Court of Frankfurt am Main81 and the BGH as to whether the investors are actually entitled to compensation for damages, whereby the question at hand is the causation between the misleading statement in the prospectus and the decision of the individual investor to buy stock.82
In recent years, investors have commenced lawsuits against credit rating agencies on the grounds that claimants allegedly relied on the accuracy of the rating when making their investment decision and the rating later turned out to be inaccurate. Such legal action has been fostered by a reform of the CRAR.83 Pursuant to Article 35a of the CRAR,84 investors have a claim for damages against a credit rating agency if the latter has intentionally or negligently committed one of the infringements listed in Annex III of the CRAR and this has affected a credit rating. Until Article 35a came into force, claims for damages had to be asserted exclusively under national civil law. Since the legal framework in Germany did not provide for specific liability rules for wrongful ratings, investors had to draw their claims from general civil law liability or compensation rules.
Investor v. rating agency
In 2018, the Higher Regional Court of Düsseldorf dealt with both the scope of Article 35a CRAR and the applicability of general civil law principles to false ratings. According to the court's judgment, Article 35a CRAR does not establish any liability of a credit rating agency towards the investor if its rating relates to the issuer of the financial instrument acquired by the investor but not to the financial instrument itself.85 Furthermore, the court held that the rating agreement made between the issuer and the rating agency in the case of an issuer rating does not establish any protective obligations towards investors who acquire a financial instrument of the rated issuer.
Wrongful investment advice
Claims based on wrongful investment advice are usually filed against the advising bank or individual advisers. Disclosure obligations of the advising banks vary on a case-by-case basis. In 1993, the BGH ruled in a principle-establishing judgment that any given advice must be investor-specific, which requires that a recommended product matches the risk tolerance of the customer, and is investment-specific, meaning that the adviser must inform the client about all material aspects of the product.86 Courts tend to render investor-friendly judgments and to hold advisers responsible for even minor disclosure infringements.
Retail investors v. investment banks (Re: Lehman Brothers)
For several years, case law had involved, in particular, holders of Lehman Brothers securities who had filed claims against their investment banks for wrongful investment advice. The BGH has dismissed most of these claims.87 In November 2014, however, the court found in favour of the plaintiffs, ruling that the bank's advice lacked information about an exceptional right of termination of the Dutch issuing company (Lehman Brothers Treasury Co BV) and granted damages to the plaintiffs.88
The liability of third persons (i.e., neither the issuer nor its managers or directors) plays a minor role in German securities litigation. In theory, advisers of an issuer, such as attorneys, lawyers and investment banks, may be held liable if they intentionally cause damage that is contrary to public policy (Section 826 BGB).89 Regarding the liability for the incorrect or omitted publication of insider information, as well as for market manipulation, these requirements are difficult to prove (see Section I.ii, 'Market manipulation').
In legal practice, secondary liability is confined to the field of prospectus liability, without substantial differences between prospectuses published for securities admitted to trading on a regulated market (Section 21 WpPG) and those published for investment funds (Section 306 KAGB).90 An action for damages can be brought against the banks issuing the securities,91 against accounting firms that audited the incorrect prospectus and whose final report is included in the prospectus92 and against any other person upon whose initiative the publication is based or who assumes responsibility for it.93 German legal literature does not, however, assume liability of advisers who drew up parts of the prospectus or advised on its content (such as attorneys, tax lawyers or experts) unless they have a particular economic interest in the issuance of the securities.94
|Cause of action||Sources of claims for damages||Prominent case law|
|Incorrect or omitted publication of insider information||Sections 37b and 37c WpHG (now Sections 97 and 98 WpHG) (against the issuer) and Sections 826 and 31 BGB (against the issuer and its managers)||Infomatec I–II (BGH, judgments of 19 July 2004 – II ZR 218/03 and 402/02) |
EM.TV (BGH, judgment of 9 May 2005 – II ZR 287/02)
Comroad I–VIII (Comroad I: BGH, guidance order of 28 November 2005 – II ZR 80/04)
HRE (OLG Munich, order of 15 December 2014 – Kap 3/10)
|Market manipulation||Sections 826 and 31 BGB (against the issuer and its managers)||Infomatec I–II (BGH, judgments of 19 July 2004 – II ZR 218/03 and 402/02) |
IKB (BGH, judgment of 13 December 2011 – XI ZR 51/10)Porsche (OLG Stuttgart, judgment of 26 March 2015 – 2 U 102/14)
|Takeover law-related claims||Sections 12(1), 31(1) and 39c WpÜG (against the bidder)||WMF (BGH, judgment of 18 September 2006 – II ZR 137/05) |
Schaeffler/Continental (BaFin, press release of 21 August 2008)Deutsche Bank/Postbank (BGH, judgment of 29 July 2014 – II ZR 353/12)
|Prospectus liability||Sections 21 ff WpPG, Section 306 KAGB and contract law||BuM (BGH, judgment of 12 July 1982 – II ZR 175/81) |
Telekom (BGH, order of 21 October 2014 – XI ZB 12/12)
|Wrongful ratings||Article 35a CRAR, general civil law||Higher Regional Court of Düsseldorf (judgment of 8 February 2018 – I-6 U 50/17).|
|Wrongful investment advice||Contract law||Lehman Brothers (e.g., BGH, judgments of 27 September 2011 – XI ZR 182/10; of 15 October 2013 – XI ZR 51/1; and of 25 November 2014 – XI ZR 169/13)|
i Forms of action
Currently, there are no types of action in Germany comparable to class actions, as they are known in the United States. Nonetheless, in 2005 the German legislature introduced the Capital Markets Model Case Act (KapMuG), which provides for a very specific form of class action (model cases) for capital markets litigation. Initially, the KapMuG was supposed to be limited until 31 October 2020; after that date, its effectiveness was to be evaluated. However, the German legislature decided to extend the KapMuG until 31 December 2023; in particular to include learnings from the MuFKG, which was only introduced on 1 November 2019.95 The Act allows for a concentration of legal or factual issues concerning a great number of pending or future proceedings in one court, to reduce the caseload caused by mass litigation and to prevent contradictory decisions on similar issues. The scope of the KapMuG is, however, very limited; only claims for damages or for contractual performance can be pursued in these 'model proceedings' – and only if the claim can be based on wrongful capital markets information (damages) or can rely on offers according to WpÜG (performance claims). Also, these model proceedings do not abandon the rule that any injured party must litigate its own case and prove its own damages. Rather, the KapMuG allows for parties who actively choose to participate in the model proceedings to receive a preliminary ruling on legal or factual questions that are of significance beyond their individual cases. Also, the German capital markets model proceedings require every potentially injured party to actively opt in to the proceedings. Only those parties who have actively chosen to participate in the model proceedings will be legally bound by the rulings and, in particular, only those parties can make use of the preliminary ruling when proceeding with their individual cases.
Whether investors make use of the model proceedings under the KapMuG or not, as the law currently stands they will always have to initiate an individual claim against an issuer before the competent regional court. The regular rules of procedure apply as provided for in the German Code of Civil Procedure (ZPO).
Further, on 1 November 2018, the Model Declaratory Action Act (MuFKG) came into effect in Germany. The model declaratory action is intended to facilitate collective redress for consumers in cases of mass damages caused by large companies.
The model declaratory action was introduced in the wake of the diesel scandal involving Volkswagen and other car manufacturers. In the view of the German legislature, a large number of diesel car owners hold claims against the relevant car manufacturers due to the diesel scandal. The German legislature takes the position that so far there have not been effective procedural means for diesel car owners to successfully assert and enforce their claims in court against the diesel car manufacturers. The model declaratory action is intended to change this. Broadly speaking, the concept of the MuFKG is to entitle consumer protection associations and other 'qualified entities' to sue enterprises, seeking a model declaratory judgment on legal or factual issues relevant for a multitude of similar cases on which, if successful, individual consumers may subsequently base their individual claims against the enterprise. What is interesting with regard to securities litigation, is the fact that the new Act does not expressly exclude capital-market-related claims from its scope so courts will have to determine whether the KapMuG and MuFKG exclude or partly overlap each other. The prevailing opinion in German legal publications is that the scope of application of the model declaratory action also encompasses capital-market-related claims.96 Therefore, it is possible that investors (provided they qualify as consumers as required under the MuFKG) may base potential claims on both the KapMuG and the MuFKG – which might lead to competing law court judgments on an identical issuer.
On 4 December 2020, the Directive (EU) 2020/182897 on representative actions for the protection of the collective interests of consumers (the Collective Redress Directive) was published. The Directive intends to give more consumer protection and thus enable consumers to bring collective claims throughout Europe. According to Article 2, paragraph 1, the Collective Redress Directive applies to representative actions brought against infringements by traders of the provisions of EU law referred to in Annex I, including such provisions as transposed into national law, that harm or may harm the collective interests of consumers. It applies to domestic and cross-border infringements, including where those infringements ceased before the representative action was brought or where those infringements ceased before the representative action was concluded. According to Article 4 of the Collective Redress Directive, Member States shall furthermore ensure that the representative actions are brought up by qualified entities.98
With regard to the legal consequences, the Collective Redress Directive is more extensive than the German MuFKG. In contrast to the MuFKG, the Collective Redress Directive enables in Article 9, paragraph 1, a direct remedy such as compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid.99
The Collective Redress Directive stipulates in Article 1, paragraph 2, sentence 1, that it does not prevent Member States from adopting or retaining in force procedural means for the protection of the collective interests of consumers at a national level. However, Member States shall ensure that at least one procedural mechanism that allows qualified entities to bring representative actions for the purpose of both injunctive measures and redress measures complies with the Collective Redress Directive.100
Consequently, legal action under the German KapMuG and the MuFKG will still be possible. However, since the Directive's remedies go further than the German legislature has provided for in the MuFKG, it remains to be seen how the German legislature will incorporate the Collective Redress Directive into national law. Member States need to incorporate the Collective Redress Directive by 25 December 2022, and must apply those measures by 25 June 2023.101
Since securities constitute private law contracts between the parties, the ordinary civil courts of justice are competent to decide disputes between the parties. The procedural rules are laid down in the ZPO.
The two single most obvious differences between the ZPO and common law rules of civil procedure are the outstanding significance of written pleadings in German civil courts and the absence of discovery proceedings.
The original principle of German civil procedure, according to which the essential parts of a lawsuit should be conducted orally, has been reversed over the past 100 years into proceedings that are based almost entirely on written pleadings.102
With the effective service of the statement of claim on the defendant, the action is pending. The statement of claim must comprehensively present all the relevant factual allegations on which the claim is based.103 Upon receipt of the statement of claim, the defendant is required to file its defence —normally within a period of three to five weeks — to which the plaintiff may reply. There is no limit to the number of briefs that each side may subsequently submit to the court before the first hearing. Before the hearing takes place, all relevant legal and factual aspects of the case must have been presented to the court in writing and very strict rules apply restricting any delayed presentation of facts.104 The hearing is preceded by settlement negotiations conducted by the court.105 If the court does not succeed in settling the case amicably, the settlement negotiations are immediately and automatically followed by the (main) hearing,106 which is generally a short event where the court orally presents the facts of the case and each party has an opportunity to comment on them.
The main hearing will either be followed by a judgment, which terminates the first instance, or the court might schedule an additional hearing for taking evidence, such as hearing witnesses or expert testimony before rendering its judgment. Judgments of first instance become final and binding unless they are appealed again within one month of being rendered.
No discovery proceedings
It is a basic principle of German civil procedure that the parties enjoy wide discretion in deciding which issues and which factual allegations they choose to present to the court.107 It is in their discretion to determine their allegations and counter-allegations as well as the factual claims that they intend to prove by evidence and the type of evidence they would like to present.
The parties are obliged to tell the truth.108 Judges are under a general duty to clarify the facts and allegations and to this end may obtain information from public sources109 and may order the presentation of documents if they have been referred to by, and are in the possession of, a party to the dispute.110 However, there is nothing in German civil procedure even remotely resembling subpoena proceedings or disclosure proceedings as they are known in the US legal system. There simply exists no general duty for one party to produce all relevant material in its possession.
Consequently, as there is no obligation to disclose all the facts of a case to the court, there are (with very minor exceptions) no pretrial discovery proceedings in German law of civil procedure.111 Therefore, the parties depend on other sources of information, which may involve requests under the German Freedom of Information Act or requests to access records of criminal investigations if the case is being investigated by public authorities. Administrative courts, however, have strengthened the right and obligation of BaFin to withhold information that concerns third-party rights.112
The most significant consequence of the parties' wide discretion to determine the factual allegations and evidence to be submitted to the court is that any factual allegations that remain uncontested by the other party are deemed to constitute a true fact on which a judgment can be based without any further proof.113
A key principle of German civil proceedings is that the court shall facilitate an amicable solution for a legal dispute (Section 278 ZPO). A dispute litigated in court may be settled at any time within or outside the proceedings. A settlement may, in particular, be reached by submitting a proposed settlement to the court. The court will not review the proposed settlement for adequacy or fairness of the terms. However, the court may refuse to issue an order establishing that a settlement has been reached if the settlement violates mandatory statutory law or public policy.
Special rules apply in proceedings under the KapMuG. The model plaintiff and the model defendant may conclude a settlement before the court by submitting to the court a proposed settlement of the model proceedings and of the original individual cases or by accepting a settlement proposed by the court (Section 17 KapMuG). The proposed settlement must also be submitted to any intervening party —namely, plaintiffs who have not been chosen as the model plaintiff – under parallel proceedings. Intervening parties may comment on the settlement and may reject their participation (opt out) within one month of receipt (Section 19 KapMuG). Unlike in standard civil proceedings, the proposed settlement also requires approval by the court, including the adequacy of the settlement, and takes into account the status of the model proceedings and the results of consultation with intervening parties (Section 18 KapMuG). The settlement will become valid and binding upon approval by the court, provided that less than 30 per cent of the intervening parties opt out of the settlement.
Attorneys' fees are governed by professional rules stipulated by the Lawyers' Remuneration Act (RVG). Attorneys are under an obligation to charge at least the fees stipulated by this act for representation in court cases. These fees depend on the value of the dispute. An attorney who contributes to finding a settlement that ends the dispute is entitled to an additional statutory fee.
Damages and remedies
Remedies for violations of securities laws, including the determination and calculation of damages, depend on the cause of action. Generally, damages for violations of securities laws shall result in a natural restitution to the extent of the negative interest. That means that the claimant is to be placed in a position that it would have been in had the relevant law not been violated. Depending on the cause of action and the current status, this may include a right of choice. For example, in the case of incorrect publication or failure to publish insider information (Sections 97 and 98 WpHG), the investor may choose either to reverse the relevant securities transaction or to claim the difference between the price actually paid and the price that would apply if the information had been duly published.114
This principle also applies to the prospectus liability. The investor may claim either reimbursement of its expenses (particularly including the capital contribution and any premium) against return of the shares and an earned interest or compensation for the reduced value of the shares plus interest resulting from the inaccurate or omitted information. The claim for damages includes indemnification against tax and other disadvantages resulting from the investment. In addition, the investor may claim for loss of profit from a missed opportunity of an alternative investment.
Damages comprise, and are limited to, the actual loss suffered (i.e., there are no punitive damages). As a general rule, the investor bears the burden of proof of the loss and of its causation by the violation. However, there are concepts that ease or even shift the burden of proof from the investor. Where it is in dispute whether a loss has occurred, and its amount, a German court shall rule at its discretion based on its evaluation of all circumstances (Section 287 ZPO). The concept of prospectus liability also includes a reversal of the burden of proof regarding the causation of the acquisition of the share or interest by the inaccurate or omitted information, which means that the defendant must prove that the investor would have acquired the shares even if it had been properly informed.
BaFin supervises and enforces compliance with the requirements of all security-related supervisory rules (see Section I.i) and may issue orders provided that they are appropriate and necessary. For example, pursuant to Section 6(2) WpHG, BaFin may temporarily prohibit on-exchange trading of individual shares to the extent that this is necessary to enforce the prohibitions or requirements pursuant to the WpHG (e.g., market manipulation).
To this effect, BaFin may request that anyone provide information, or present documents and surrender copies, as well as summon and question people. During usual business hours, employees of BaFin must be given access to the property and business premises.
BaFin can publish decisions against companies for not complying with the provisions of the WpHG on its website, provided that such decisions are legally binding, the authority deems the publication suitable and necessary, and it would not significantly endanger the financial markets or lead to disproportionate damage to the parties involved (Sections 123 to 126 WpHG).
As a consequence of the Wirecard scandal, the German government presented a Draft Act on Strengthening Financial Market Integrity (FISG) in December 2020. According to the draft, BaFin shall also receive more power, such as direct intervention rights with regard to companies to which relocations are made, in order to have effective supervision.115
ii Sanctions, prosecutor and cooperation
In the event of a deliberate or grossly negligent breach of supervisory rules, German law provides for two classes of sanctions: criminal penalties for serious breaches and administrative fines for minor cases. The competent authority for the imposition of administrative fines is BaFin, while public prosecutors are responsible for the prosecution of criminal matters. Both authorities work closely together. With the implementation of MAD II and MiFID II, administrative fines have been increased substantially (as set out in Section 120 WpHG).
BaFin report to the competent public prosecutor as soon as possible and present information and facts leading to the suspicion that a criminal offence may have been committed. It may transfer personal data of the relevant people who are under suspicion or who could act as witnesses to the public prosecutors to the extent that this is necessary for purposes of criminal prosecution.
In return, the public prosecutor informs BaFin of the commencement of any investigation proceeding with respect to criminal offences. If experts are required during the investigation proceedings, employees of BaFin with the relevant knowledge can be called upon. If the public prosecutor considers discontinuing the proceedings, it is required to take the view of BaFin into consideration.
There are no specific laws in place for cross-border securities litigation; rather the general rules for cross-border litigation apply. Generally, a non-EU foreign issuer that does not maintain a branch office in Germany can only be subjected to legal proceedings before a German court if the parties have agreed on German jurisdiction, either when entering into a contract or at any time thereafter (Section 38 ZPO). The situation is principally the same if the foreign issuer has its corporate seat in the EU (see Article 25 of Regulation (EU) No. 1215/2012). German courts will always apply German rules of civil procedure, while the applicable substantive law is determined by conflict-of-law rules, the primary source of which in this case is the Regulation (EU) No. 593/2008 (the Rome I Regulation). A choice of law made by the parties is generally recognised under these rules (Article 3 Rome I Regulation), subject to certain exceptions such as overriding mandatory provisions (Article 9 Rome I Regulation) that may become relevant in the context of securities litigation.116
The degree of complexity that can be reached in cross-border securities litigation cases even within the EU (or especially in the EU) is demonstrated by the highly controversial case of HETA Asset Resolution AG (HETA), an Austrian 'bad bank' with many German – mainly institutional – creditors. On 1 March 2015, the Austrian Financial Market Authority (FMA) ordered a moratorium on the payment of HETA's unsecured obligations until 31 May 2016. The decree was based on the Austrian Federal Law on the Recapitalisation and Liquidation of Banks, which implements the European Banking Recovery and Resolution Directive 2014/49/EU (BRRD) in Austria. The HETA case is the first example of the application of a liquidation measure under the provisions of a national implementation law of the BRRD. German HETA creditors called upon the Regional Court of Frankfurt am Main. The Court indicated that it may not acknowledge the moratorium.
In June 2016 the court presented the case to the European Court of Justice to clarify a number of questions on the BRRD (preliminary ruling procedure).117 In particular, the ECJ shall decide whether the BRRD applies to an entity in resolution, which has lost the quality of a credit institution before the expiry of the implementation period.
Meanwhile a major agreement has been reached between a large number of investors that are not parties to the pending trials and the Austrian state of Kärnten, which could be liable for the outstanding debt.118
Year in review
Again, Volkswagen (see Section .ii) has been the most notable event in the area of securities litigation in Germany. The Higher Regional Court of Brunswick has held 10 oral hearings up to the end of September 2020, but has not yet come to a decision on the various 'establishment objectives' brought forward by both plaintiffs and defendants. Given the current constraints caused by the covid-19 pandemic, further oral hearings have been cancelled until 1 March 2021. It is unclear whether a decision can be expected in 2021.
Multiple tax refunds known as cum-ex deals have been paid a lot of attention by the media, market participants, and German courts in 2019/2020. In the first criminal trial in Germany, on 18 March 2020, the Regional Court of Bonn considered cum-ex deals under specific circumstances a criminal offence.119 Accordingly, the court sentenced the accused stock traders to suspended sentences (probation) for aiding and abetting tax evasion in a particularly serious case.120 Previously, the Fiscal Court of Cologne had already classified the transactions as illegal under tax law. The question of whether they are also punishable under criminal law has now been affirmed in the positive by the Regional Court of Bonn. In November 2020, the second criminal trial with respect to the cum-ex deals started in front of the Regional Court of Bonn. Accused in these criminal proceedings is a former banker of the private bank MM Warburg. He is being charged with 13 counts of particularly severe tax evasion in connection with the cum-ex deals.121
However, investigations are still ongoing and the clearing up of this case will still take years.
Outlook and conclusions
While the Dieselgate case of VW and Porsche has been the leading case for years in Germany, we believe that in the future there will also be a lot of focus on the Wirecard case and the Monsanto case. It is predictable that the recent fall of Greensill Bank, domiciled in Bremen, will also give rise to litigation work, but this will be related to losses in deposits rather than in securities issued by Greensill Bank.
Further, it is likely that market participants (investors, asset managers, banks and custodians) will try to seek recovery for trading losses, retrospective tax payments and penalties incurred in the context of cum-ex/cum-cum deals, and will sue each other before civil law courts. Depending on the contractual relationship they have with each other, such claims may be based on alleged wrongful advice, breach of contractual duties, or joint and several compensation.
It is also likely that the covid-19 pandemic, which started to disrupt the global economy in spring 2020, will lead to a significant increase in securities litigation cases after the crisis has been overcome. Investors may try to sue companies that did not (or not in timely manner) disclose the effects of the pandemic situation on their business operations in accordance with the laws (e.g., in their annual report or in ad hoc notifications).
In addition, BaFin will probe stock transactions made ahead of or after the sharp market downturn stemming from the spread of coronavirus. Severe losses in stock prices combined with alleged insider trading or failure to comply with ad hoc disclosure requirements may give rise to claims of investors and asset managers against other market participants or issuers.
1 Lars Röh and Tobias de Raet are partners at lindenpartners Partnerschaft von Rechtsanwälten mbB. The authors thank Fatima Sayed, associate at lindenpartners, for her valuable contribution to this chapter.
2 Marsch-Barner and Schäfer (Handbuch börsennotierte AG (Fourth Edition, 2017) passim).
3 Directive 2014/65/EU.
4 Directive 2014/57/EU.
5 Regulation (EU) No. 596/2014.
6 Directive 2014/91/EU.
7 Directive 2011/61/EU.
8 Regulation (EU) No. 2017/1129.
9 Directive 2004/25/EU.
10 European Commission, Action Plan: Financing Sustainable Growth, COM(2018) 97 final
11 Regulation (EU) 2019/2088.
13 In spite of its economic importance, the takeover of private companies has not been specifically regulated until now.
14 Regulation (EU) No. 1060/2009.
15 ECJ, judgment of 28 June 2012 (Case No. C-19/11); cf. also the corresponding ruling of the Federal Court of Justice (BGH), decision of 23 April 2013 (Case No. II ZB 7/09), NZG 2013, p. 708 et seq. (Geltl/Daimler AG).
16 Infomatec AG (a mobile telephone provider) had published an ad hoc notification stating that it had received an offer for purchase of the company's products with a total order volume of more than 55 million deutschmarks (approximately €30 million). In fact, the binding part of the order had a volume of only 9.8 million deutschmarks. Immediately after the ad hoc notification the share price rose by 20 per cent. For a summary of the facts, as well as the judgment, see Koch in European Capital Markets Law (Veil (ed.) 2013), Section 19, Paragraph 111 et seq.
17 BGH, judgment of 19 July 2004 (Case No. II ZR 218/03), BGHZ 160, p. 134 et seq.
18 BGH, judgment of 9 May 2005 (Case No. II ZR 187/02), NZG 2005, p. 572.
19 BGH, guidance order of 28 November 2005 (Case No. II ZR 80/04), NZG 2007, p. 345; see Koch (footnote 16), Section 19, Paragraph 114.
20 For a discussion on possible alleviations of the proof of causation, see ibid., Section 19, Paragraph 115.
21 See Zimmer and Grotheer in Kapitalmarktrechts – Kommentar (Schwark/Zimmer (ed.) 2010), Section 37b WpHG, Paragraph 2 et seq.
22 As Koch (footnote 16) points out, none of the other EU Member States, with the exception of the United Kingdom, provide a special legal framework for the breach of the obligation to disclose inside information.
23 BGH, judgment of 13 December 2011, NJW 2012, p. 1800; Koch (footnote 16), Section 19, Paragraph 120.
24 Regional Court of Brunswick, decision of 5 August 2016 (Case No. 5 OH 62/16).
25 Higher Regional Court of Brunswick (Case No. 3 Kap 1/16).
26 Regional Court of Stuttgart, decision of 28 February 2017 (Case No. 22 AR 1/17 Kap). In a further decision of 6 December 2017, the court initiated separate model proceedings regarding issues of local jurisdiction (Case No. 22 AR 2/17 Kap).
27 Higher Regional Court of Stuttgart, resolution of 27 March 2019 (Case No. 20 Kap 2 – 4/17).
28 BGH, resolution of 16 June 2020 (Case No. II ZB 10/19).
29 BGH, judgment of 25 May 2020 (Case No. VI ZR 252/19).
30 See Menzel, 'Strafverfahren gegen VW-Chef Diess und Aufsichtsratschef Pötsch eingestellt', Handelsblatt, 19 May 2020.
31 See 'Marktmanipulations-Prozess gegen Ex-VW-Chef Winterkorn geplatzt', Handelsblatt, 15 January 2021.
32 See Hesse and Ott, 'Doppelte Chance auf Schadensersatz', Süddeutsche Zeitung, 18 January 2011.
34 Higher Regional Court of Munich, decision of 15 December 2014 (Case No. KAP 3/10). See 'HRE drohen Klagen über Hunderte Millionen Euro', Süddeutsche Zeitung, 15 December 2014.
35 BGH, resolution of 17 December 2020 (Case No. II ZB 31/14).
36 See 'Bayer macht den Sack zu – 66 Mrd. Dollar für Monsanto', Börsen-Zeitung, 15 September 2016.
37 See 'Neue Klage gegen Monsanto in den USA wegen Verseuchung von Gewässern', Handelsblatt, 30 May 2019.
38 See Bert Fröndhoff/VolkerVotsmeier, 'Bayer erfahren droht die nächste Klagewelle – diesmal von Investoren', Handelsblatt, 27 January 2021.
39 Likewise see Mock in Kölner Kommentar zum WpHG (Hirte and Möllers (eds.), Second Edition, 2014), Section 20a WpHG, Paragraph 478 et seq.; and Hellgardt, AG 2012, p. 154, 163 et seq.; Beneke/Thelen, BKR 2017, p. 12.
40 BGH, judgment of 13 December 2011 (Case No. XI ZR 51/10), NJW 2012, p. 1800. On the facts and ruling of the case, see Mock (footnote 39), Section 20a WpHG, Paragraph 475; BGH, decision of 15 November 2016 (Case No. KZR 73/15), BeckRS 2016, 21465.
41 For a brief time on 28 October 2008, Volkswagen was the world's most valuable company.
42 On the facts see Möllers, NZG 2014, pp. 361 and 362.
43 Decision of 18 August 2014 (Case No. 1 Ws 68/14), ZIP 2014, p. 1829.
44 Regional Court of Stuttgart, decision of 18 March 2016 (Case No. 13 KLs 159 Js 69207/09); the judgment is final.
45 Judgment of 26 March 2015 (Case No. 2 U 102/14), BeckRS 2015, 05690; in this case hedge funds claimed damages in the amount of €1.76 billion for losses suffered as a result of short selling in 2008.
46 Decision of 15 November 2016 (Case No. KZR 73/15), BeckRS 2016, 21465.
47 Judgment of 12 January 2016 (Case No. 7 U 59/14), NJW-RR 2016, 624.
48 Decision of 5 December 2016 (Case No. 13 Kap 1/16), BeckRS 2016, 115907; becklink 2005201; cf. also Weber, NJW 2017, p. 991, 993 f.
49 See Felix Holtermann/René Bender, 'Staatsanwaltschaft stellt Ermittlungen gegen „FT'-Journalisten zu Wirecard-Berichten ein', Handelsblatt, 3 September 2020.
50 See Felix Holtermann/Christian Schnell, 'Wirecard lässt auch die dritte Frist zur Vorlage der Sonderprüfung verstreichen', Handelsblatt, 28 April 2020.
51 See Felix Holtermann, 'BaFin zeigt Wirecard-Chefs wegen Verdachts der Marktmanipulation an – Razzia in Konzernzentrale', Handelsblatt, 5 June 2020.
52 See 'Wirecard kämpft ums Überleben - 1,9 Milliarden gelten als verloren', Börsen-Zeitung, 23 June 2020.
53 See 'Bilanzbluff führt zum Kollaps', Börsen-Zeitung, 24 June 2020.
54 See Felix Holtermann, 'Wirecard-Skandal: Zahlungsabwicklung für betrügerische Trading-Seiten rückt in den Fokus', Handelsblatt, 9 July 2020.
55 See 'Anlegerschützer gehen gegen EY vor', Börsen-Zeitung, 17 July 2020; see 'Wirecard-Schadensersatz fokussiert auf EY', Börsen-Zeitung, 22 September 2020.
56 See 'Union Investment plant Klage gegen Prüfer EY', Börsen-Zeitung, 1 October 2020.
57 BGH, resolution of 20 January 2005 (Case No. III ZR 48/01), BGHZ 162, 49, 58; BGH, judgment of 7 May 2009 (Case No. III ZR 277/08), para. 26.
58 See Lars Röh, 'Der Gamestop-Coup und das Kapitalmarktrecht', Frankfurter Allgemeine Zeitung,- Einspruch exklusiv, 30 January 2021.
59 See Yasamin Osman, 'BaFin nimmt 4000 Beschwerden gegen Trade Republic unter die Lupe', Handelsblatt, 10 February 2021.
60 See Section 29(2) WpÜG.
61 Pursuant to Section 31(1) WpÜG in conjunction with Sections 4 and 5 WpÜG-AngebotsVO (WpÜG Offer Ordinance) the consideration must be 'reasonable'.
62 On the facts, see Habersack, AG 2008, p. 817 et seq.; and Schanz, DB 2008, p. 1899 et seq.
63 BaFin, press release, 21 August 2008; Cf. Wackerbarth in Münchner Kommentar zum AktG (Goette and Habersack (eds.), Volume 6, Fourth Edition, 2017), Section 30 WpÜG, Paragraph 48; and von Bülow in Kölner Kommentar zum WpÜG (Hirte and von Bülow (eds.), Second Edition, 2010), Section 30 WpÜG, Paragraphs 127 and 173 et seq.
64 See von Bülow (footnote 63), Section 30 WpÜG, Paragraph 203. See also, for example, regarding the WMF case, Veil in European Capital Markets Law (Veil (ed.) 2013), Section 24, Paragraph 53 et seq.
65 See also BGH, judgment of 29 July 2014 (Case No. II ZR 353/12), NZG 2014, p. 985, Paragraph 56 et seq.; the court remanded the case to the Higher Regional Court of Cologne for further investigation of the cooperation agreement and final judgment.
66 BGH, judgment of 29 July 2014 (Case No. II ZR 353/12), NZG 2014, p. 985, Paragraph 19 et seq.
67 See, for instance, Krause in WpÜG (Assmann, Pötzsch and Schneider (eds.), Second Edition, 2013), Section 31 WpÜG, Paragraph 166a.
68 BGH, judgment of 29 July 2014 (Case No. II ZR 353/12), NZG 2014, p. 985, Paragraph 19.
69 BGH, judgment of 29 July 2014 (Case No. II ZR 353/12), NZG 2014, p. 985, Paragraph 39 et seq.
70 See de la Motte and Maisch, 'Und ab die Postbank', Handelsblatt, 27 April 2015.
71 District Court of Cologne, decision of 20 October 2017 (Case No. 82 O 11/15).
72 Higher Regional Court of Cologne, decisions of 16 December 2020 (Case No. 13 U 166/11), BeckRS 2020, 35492, Paragraph 46; (Case No. 13 U 231/17).
73 The Act is based on the European Prospectus Directive (2003/71/EC). The EU plans to establish a single rule book on prospectus liability and will adopt a binding regulation by 2017/2018.
74 See further 'Secondary liability'.
75 See Groß, Kapitalmarktrecht (Sixth Edition, 2016), Section 23 WpPG, Paragraph 77 'probatio diabolica'.
76 This is a general partnership, with the general partner being a limited liability company. See also Zoller, Die Haftung bei Kapitalanlagen (Second Edition, 2014), Section 5, Paragraph 4 et seq.
77 While in both cases the basis for a claim is in contract law (Sections 280(1) and 311(2)(3) BGB), the two forms of liability differ with regard to the persons held responsible and the limitation of actions. On the distinction, see Emmerich in Münchner Kommentar zum BGB (Säcker, Rixecker and Oetker (eds.), Sixth Edition, 2012), Section 311, Paragraph 147 et seq.
78 See also Zoller (footnote 76), Section 5, Paragraph 20 et seq. and Section 6.
79 Likewise, see ibid., Section 6, Paragraph 9.
80 BGH, judgment of 21 October 2014 (Case No. XI ZB 12/12), NJW 2015, p. 236;
81 Higher Regional Court of Frankfurt am Main, decision of 30 November 2016 (Case No. 23 Kap 1/06), NJOZ 2017, p. 1391.
82 BGH, decision of 15 December 2020 (Case No. XI ZB 24/16), BeckRS 2020, 42399.
83 Regulation (EU) No. 1060/2009.
84 Article 35a being inserted by the 2nd Reform Regulation to the CRAR (Regulation (EU) No. 462/2013).
85 Higher Regional Court of Düsseldorf, judgment of 8 February 2018 (Case No. I-6 U 50/17).
86 Judgment of 6 July 1993 (Case No. XI ZR 12/93) – Bond.
87 e.g., BGH, judgment of 27 September 2011 (Case No. XI ZR 182/10), NJW 2012, p. 66. See also BGH, judgment of 15 October 2013 (Case No. XI ZR 51/11). Regarding the latter, see Zoller (footnote 76), Section 2, Paragraph 113 et seq.
88 BGH, judgment of 25 November 2014 (Case No. XI ZR 169/13), NJW 2015, p. 398.
89 In theory, the contract between an issuer and its advisers (e.g., accountants or lawyers) may grant third parties the right to claim damages against the adviser for breaching its obligations under the advisory contract. The courts, however, usually dismiss such assumptions; see Zugehör, NJW 2008, p. 1105 for a detailed analysis of the case law.
90 See also Paul in KAGB (Weitnauer, Boxberger and Anders (eds.)), Section 306, Paragraph 8.
91 See Section 5(4) WpPG; therefore, banks usually intend to stipulate a hold-harmless agreement with the issuer. See Groß, Kapitalmarktrecht (Sixth Edition, 2016), Section 21 WpPG, Paragraph 17 et seq.
92 Groß (footnote 75), Section 21 WpPG, Paragraph 37 with further references; Wagner in Münchner Kommentar zum BGB (Säcker, Rixecker and Oetker (eds.), Seventh Edition, 2017), Section 826, Paragraphs 98 et seq. and 130 et seq. The BGH decided that an accounting firm is liable for auditing an unjustifiable profit forecast in a prospectus, judgment of 24 April 2014 (Case No. III ZR 156/13), NJW 2014, p. 2345.
93 For a more detailed discussion, see Groß (footnote 75), Section 21 WpPG, Paragraph 30 et seq.
94 Groß (footnote 75), Section 21 WpPG, Paragraph 36 with further references; Vokuhl in European Capital Markets Law (Veil (ed.) 2013), Section 17, Paragraph 63.
95 See BT-Drucksache 19/20599, p.1.
96 Lutz in ZPO (BeckOK), Section 606 ZPO, Paragraph 8.1; Rathmann, in ZPO (Saenger (ed.), Section 606 Paragraph 4; Vollkommer, in ZPO (Zöller (ed.), 32nd Edition, 2018), Section 606 Paragraph 2.
97 Directive (EU) 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC, L 409/01.
98 Article 4 of Directive (EU) 2020/1828, p. L 409/13.
99 Article 9 of Directive (EU) 2020/1828, p. L 409/16.
100 Article 1 para. 2 sentence 1 of Directive (EU) 2020/1828, p. L 409/12.
101 Article 24 of Directive (EU) 2020/1828, p. L 409/21.
102 Greger in ZPO (Zöller (ed.), 32nd Edition, 2018), Section 128 ZPO, Paragraph 1 et seq. and Section 129 ZPO, Paragraph 1 et seq.
103 Section 253 ZPO.
104 Sections 296 et seq. ZPO.
105 Section 278(2) ZPO.
106 Section 279 ZPO.
107 Greger (footnote 102), Section 128 ZPO, Paragraph 10.
108 Section 138(1) ZPO.
109 Section 358a No. 2 ZPO.
110 Section 142 ZPO.
111 See also Higher Regional Court of Frankfurt am Main, decision of 16 May 2013 (Case No. 20 VA 4/13), BeckRS 2013, 12264.
112 VGH Kassel, judgment of 3 March 2015 (Case No. 6 A 1071/13), BeckRS 2015, 46064, relying on a decision of the ECJ dated 12 November 2014 (Case No. C-140/13); Weber, NJW 2015, p. 2307, 2308.
113 Section 138(3) ZPO.
114 BGH, judgment of 13 December 2011 – Case No. XI ZR 51/10.
115 See bill of the German federal government from 16 December 2020 regarding the Draft Act on Strengthening Financial Market Integrity (FISG), p.1, available on the website of the German Federal Ministry of Justice and Consumer Protection, last retrieved on 11 March 2021.
116 See also Martiny in Münchner Kommentar zum BGB (Säcker, Rixecker and Oetker (eds.), Volume 11, Sixth Edition, 2015) Article 9 Rom I-VO, Paragraph 74 et seq.
117 Decision of 21 June 2016 (case. No. 2-12 O 114/15), WM 2016, 1681.
118 'Fast alle Gläubiger akzeptieren nachgebessertes Angebot', Handelsblatt, 10 October 2016.
119 District Court of Bonn, judgment of 18 March 2020 (Case No. 62 KLs 1/19).
120 Fiscal Court of Cologne, judgment of 19 July 2019 (Case No. 2 K 2672/17).
121 See Jan Willmroth/Nils Wischmeyer, 'Erster deutscher Banker wegen krummer Aktiendeals vor Gericht', Süddeutsche Zeitung, 17 November 2020.