Corporate Exposure to Alleged Violations of the Securities Exchange Act Amounts to $68.1 billion in 1Q 2019

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According to a report released today by SAR, LLC, aggregate exposure of U.S. public corporations to securities class action lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act was $68.1 billion during the first quarter of 2019.

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Corporate exposure to allegations of fraud-on-the-market declined during the first quarter, driven by a decrease in market capitalization losses of large cap corporations. However, the number of small cap corporations that were sued for alleged violations of Rule 10b-5 almost doubled.

Aggregate exposure of U.S. public corporations to securities class action lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act was $68.1 billion during the first quarter of 2019. According to a report released today by SAR, LLC, that is a decrease of $23.6 billion, or 26%, from market capitalization losses reported during the fourth quarter of 2018. The report – SAR Securities Exchange Act Class Action Litigation Exposure Report – 1Q 2019 – indicates that securities class action litigation exposure of the 44 defendant corporations is 23.2 basis points of the aggregate market capitalization of all U.S.-based public corporations.

“Corporate exposure to allegations of fraud-on-the-market declined during the first quarter, driven by a decrease in market capitalization losses of large cap corporations. However, the number of small cap corporations that were sued for alleged violations of Rule 10b-5 almost doubled,” said Nessim Mezrahi, CEO of SAR, LLC.

The 1Q 2019 report presents the following key observations in the securities class action arena:

  • 44 U.S.-based public corporations were sued for alleged violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Based on the allegations presented in the first filed securities class action complaint against each defendant corporation, aggregate market capitalization losses amount to approximately $68.1 billion.
  • Aggregate corporate exposure to securities class actions alleging violations of the Exchange Act amounts to 23.2 basis points of the total market capitalization of U.S. publicly traded corporations during 1Q 2019 – a decline of 5 basis points relative to 4Q 2018.
  • 18.7% of alleged corrective disclosures that rectify alleged misstatements or omissions made by defendant corporations did not surpass a statistical threshold associated with heightened pleading standards of loss causation – a decrease of 2.23 percentage points.
  • 17 U.S. large cap corporations were sued for alleged violations of Rule 10b-5. Large cap corporate exposure to Exchange Act claims was $58.7 billion during 1Q 2019 – a decrease of $23.3 billion in market capitalization losses, or 28.4% from 4Q 2018.
  • 8 U.S. mid cap corporations were sued for alleged violations of Rule 10b-5. Mid cap corporate exposure to Exchange Act claims was $6.2 billion during 1Q 2019 – a decrease of $2.1 billion in market capitalization losses, or 25.8% from 4Q 2018.
  • 19 U.S. small cap corporations were sued for alleged violations of Rule 10b-5. Small cap corporate exposure to Exchange Act claims was $3.2 billion – an increase of $1.8 billion in market capitalization losses, or 135% from 4Q 2018.

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Lauren Kannry
SAR, LLC
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