The Teva Case: A Tale of a Race to the Bottom in Global Securities Regulation

This article tells the story of our shareholder class action against Teva Pharmaceutical Industries as an illustration of the global race to laxity in the regulation of capital markets.

Teva, an Israeli company traded in Israel and the United States, is the largest generic drug maker in the world. In 2012, we filed a lawsuit in Israel to compel Teva to disclose executive pay on an individual basis as required under both Israeli law and U.S. law. Teva settled the suit by agreeing to disclose this information.

While Teva never filed an answer, it told us that its failure to disclose individual pay was legitimate under a law allowing crosslisted companies to file in Israel the reports they file abroad. To us this was illogical. Both Israel and the United States require individual pay disclosure and each country recognizes the other’s requirements. How could a company traded in both countries be exempt? Nevertheless, the Israel Securities Authority sided with Teva and told the court that, while it welcomed the settlement, the suit had no merit.  It said this position was necessary to retain company listings.

After the settlement, Israel adopted a rule affirmatively requiring individual pay disclosure of all Israeli companies traded abroad—regardless of whether they are traded in Israel as well.  This rule achieved our goal of bringing pay disclosure by Israeli companies traded abroad up to the standard in Israel. The new rule also addressed the Israel Securities Authority’s concern of delistings because it applied even to Israeli companies traded only abroad.  And it reassured crosslisted companies they would not face suits for past disclosure because it implied there had been no such requirement before.

Today, all Israeli public companies report executive pay on an individual basis. However, the race to laxity persists on other fronts. Foreign issuers in the United States, for example, continue to disclose less information than do U.S. issuers, even if their stock trades only in the United States. American law allows them to file abbreviated annual reports and exempts them from the duty to file quarterly and current reports, insider trading reports, and proxy statements. If they crosslist in Israel, they can file the same reports in Israel. While trading in both countries, they are less transparent than either country normally requires. Their foreign listing thus wins them regulatory concessions both domestically and overseas.