Number of Securities Class Action Filings Falls to Lowest Level Since 2016

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Cornerstone Research, Stanford Law School Report: Decline in Section 11 cases leads to overall reduction in filing activity.

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Plaintiffs filed 182 new securities class action lawsuits in federal and state courts in the first half of 2020, as the COVID-19 pandemic triggered extreme volatility in the financial markets, according to a report released today by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

The report, Securities Class Action Filings—2020 Midyear Assessment, found that the number of filings remained higher than the historical average, but was 18% lower than in the second half of 2019 and the lowest level since the second half of 2016. The filing slowdown affected both core and M&A filings, which declined by 13% and 25%, respectively.

Sasha Aganin, report coauthor and Cornerstone Research senior vice president: “Not surprisingly, as the economic consequences of the COVID-19 pandemic became apparent, many industries experienced significant declines in market capitalization in the first half of the year. A keen observer of new securities class action filing activity may wonder why core filings related to stock price drops declined rather than increased in the first half of 2020. The puzzle is not the number of filings in the first half of this year—this number was higher than at the height of the financial crisis in the second half of 2008. The puzzle is why there were so many filings in 2019 when financial markets were relatively calm and rising.”

Section 11 and 1933 Act filings declined more substantially than M&A and core federal filings, and were the main cause of reduced filing activity in the first half of 2020. Due to a steep decline in state court -- only and parallel filings, the number of Section 11 and state 1933 Act filings in the first half of 2020 was roughly a quarter of the number of such filings in 2019.

Joseph A. Grundfest, director of Stanford’s Securities Class Action Clearinghouse: “The M&A litigation decline is easy to explain: COVID-19 depressed M&A activity, and without M&A activity, you can’t have M&A litigation. The Section 11 litigation decline calls for more data to explain. COVID-19-induced volatility can create a damage challenge for plaintiffs because defendants can easily point to the pandemic as a confounding factor and explain that price declines were caused by larger market forces, and not by any alleged misrepresentation.”

Eleven complaints involving COVID-19 allegations were filed in the first half of the year. Aside from a flurry of cryptocurrency and cannabis-related filings, other event-driven cases—including those related to data breaches, opioid filings, or sexual harassment allegations—declined in the first half of 2020. Most cryptocurrency filings named non-U.S. issuers and three of the four cannabis-related complaints involved Canadian firms.

Key Trends

  • S&P 500: Core federal filings against S&P 500 firms in 2020 occurred at an annualized rate of 4.8%, the lowest since 2015.
  • U.S. vs. Non-U.S. Companies: Almost one-third of core federal filings were against non-U.S. issuers in 2020 H1, the second-highest percentage on record. Annualized core federal filings against non-U.S. issuers are on pace to be the highest on record.
  • Industries: The first half of 2020 saw an uptick in filing activity in the financial sector, with the number of filings increasing by 50% from this time last year, and Maximum Dollar Loss increasing tenfold. The number of technology and communications filings declined after rising in recent semiannual periods.
  • Federal Circuits: There were 40 core federal filings in the Second Circuit in the first half of 2020, dropping from 51 and 52 in the first and second halves of 2019, respectively. Plaintiffs filed 35 complaints in the Ninth Circuit, up from 24 in the second half of 2019.
  • Dollar Disclosure Loss: This measure of litigation activity decreased by 25% from $108 billion in the second half of 2019 to $81 billion in the first half 2020.
  • Maximum Dollar Loss: This measure of litigation activity increased by 48% from $394 billion in the second half of 2019 to $584 billion, due partially to market capitalization losses in a broad swath of industry sectors during the first half of the year.

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.
Twitter: @Cornerstone_Res

About the Stanford Law School Securities Class Action Clearinghouse
The Securities Class Action Clearinghouse is an authoritative source of data and analysis on the financial and economic characteristics of federal securities fraud class action litigation. The SCAC maintains a database of more than 5,590 securities class action lawsuits filed since passage of the Private Securities Litigation Reform Act of 1995. The database also contains copies of complaints, briefs, filings, and other litigation-related materials filed in these cases.

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