New Report Warns of Future Litigation

A new report from the Investor Environmental Health Network (IEHN) warns that billions of dollars in potential asbestos-like litigation risks for nanotechnology companies and investors are now hidden due to weak regulations governing disclosures of liabilities. According to the report, some of the nanotechnologies are now commonly found in sunscreen, cosmetics, food, clothing, sporting goods and packaging are showing signs of posing serious hazards to human health and the environment.

The good news for investors is that the U.S. Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) are now in the process of examining disclosure requirements and could remedy the eight securities and accounting loopholes identified in the report.

• Shortsightedness – Taking the short view and thereby effectively avoiding disclosure or estimation of potential longer term liabilities.
• Concealed Science – Concealing emerging science that forewarns of potential liabilities in the future.
• The Known Minimum - Disclosing only the “known minimum” of potential liabilities, even though a more realistic assessment might be so much larger that it would indicate the potential for a total wipe out of shareholder value.
• Privileging Secrecy - ”Privileging” concealment, by using attorney-client privileges as a shield against generating a public estimate of liability for investors.
• Inconsistent Estimates – Providing inconsistent liability estimates to insurers and investors, with larger estimates of liabilities typically provided to insurers than to investors.
• Hidden Assumptions – Using hidden assumptions to minimize estimates of liability.
• Missing Benchmarks – Refusing to benchmark liabilities against other companies whose published litigation results may demonstrate realistic estimates of liability.
• Risk-Free Proxies – Refusing to allow shareholders to place on the annual proxy ballot questions requesting disclosure of specific risks of concern to investors.

As the IEHN report notes:

“Together, the eight loopholes identified in this report allow companies to avoid estimation and disclosure of contingent liabilities. They reflect a pervasive ‘don’t ask/don’t tell’ approach which is no longer tolerable in a public policy environment where restoring investor confidence is the priority. Current regulatory reform efforts already underway at the SEC and FASB provide opportunities to close these loopholes …”

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