In an article published in Bloomberg Law, Partners Jessica Lewis and Chris Johnstone discuss common pitfalls and challenges associated with confidential witness testimony in securities class action cases. They offer proactive strategies for reducing risk, including training personnel on how to respond to investigators, methods for preserving records and how to effectively challenge confidential witness statements.
Excerpt: "In a year marked by turbulent market conditions, tech companies have faced a series of challenges—including earnings misses, workforce reductions, and stock price declines. These events often trigger securities class actions as plaintiffs’ firms seize on negative market reactions to allege companies defrauded investors. When layoffs coincide with stock drops, companies face an additional challenge—the use of confidential witnesses. Confidential witnesses are usually former employees whose anonymous statements are cited in securities class actions to support allegations of fraudulent intent. They’re portrayed as insiders with firsthand knowledge of the practices that allegedly misled investors. As insiders, their statements can carry weight—often becoming the key allegations that allow a securities case to avoid early dismissal."