Cornerstone Research Report: Securities Class Action Filings Involving Technology Companies Are on the Rise

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Tech company settlements decline sharply after peaking in 2018.

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The number of filings against tech companies increased to a record 85 new cases in 2019 from 55 the year before. Companies in the Internet and Software subsectors were targeted in 66% of 2019 cases.

Securities class action filings involving technology companies rose by more than 50% in 2019, the fourth annual increase in a row, according to a new Cornerstone Research report released today.

The report, Tech Company Securities Class Action Filings and Settlements—2015-Q1 2020, found that the number of filings against tech companies increased to a record 85 new cases in 2019 from 55 the year before. Companies in the Internet and Software subsectors were targeted in 66% of 2019 cases.

Tech company cases in both federal and state courts have boomed over the last four years, accounting for 20% of total securities class action filings. Similar to overall filings activity, tech company filings saw a shift from federal to state courts, after the U.S. Supreme Court’s 2018 ruling that state courts have jurisdiction over 1933 Act claims.

The first quarter of 2020 saw a decline in tech company cases, likely due in part to slowdowns associated with the COVID-19 pandemic.

“We will continue to monitor the longer-term impact of the pandemic. If Q1 2020 is any indication, however, the pandemic’s impact on the market value of tech companies may be less severe than its effect on the overall market,” said Ravi Sinha, a Cornerstone Research vice president and report coauthor. “The S&P 500 declined by 20% during the first quarter of 2020, while the Dow Jones U.S. Technology Index lost 12% of its market value.”

The number of tech company settlements has been volatile in recent years, declining to its lowest level in 2019, after peaking in 2018. For the first time in the last five years, however, the median settlement amount for tech company cases ($17 million) exceeded the median for non-tech company settlements ($11 million) in 2019.

Highlights

  • Dollar Disclosure Loss: The aggregate Dollar Disclosure Loss (DDL) of tech company filings rose to $161 billion in 2019, up 27% from $127 billion in 2018. DDL is the dollar value change in the defendant firm’s market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period.
  • Maximum Dollar Loss: The aggregate Maximum Dollar Loss (MDL) of tech company filings more than doubled in 2019 to $614 billion from $282 billion in 2018. MDL is the dollar value change in the defendant firm’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period.
  • Mega Filings: There were four mega DDL filings and eight mega MDL filings involving tech companies in 2019. Mega DDL filings have a DDL of at least $5 billion, and mega MDL filings have an MDL of at least $10 billion.
  • Mega Filings Allegations: Between 2015 and Q1 2020, there were 26 mega filings against tech companies in federal and state courts. Allegations in these cases primarily relate to business prospect misrepresentations or the fallout from mergers and acquisitions.

About Tech Companies

“Tech companies” as used in this report refer to five subsectors under the Bloomberg Industry Classification Systems (BICS): (1) Computers, (2) Internet, (3) Semiconductors, (4) Software, and (5) Telecommunications. This report provides an in-depth look into the securities class action filings and settlements of tech companies. For more information on trends across industries, see Cornerstone Research’s latest Securities Class Action Filings and Securities Class Action Settlements reports.

About Cornerstone Research

Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for more than 30 years. The firm has over 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.

See Cornerstone Research’s website for more information about the firm’s capabilities in economic and financial consulting and expert testimony.

http://www.cornerstone.com
Twitter: @Cornerstone_Res

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Elisabeth Gaubinger
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