Securities Class Action Filings Reach Record Levels in 2019

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Cornerstone Research report shows surge in state court filings.

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“The combined number of filings with 1933 Act claims in federal and state courts reached unprecedented levels. This was driven in large part by the activity in state courts.” - Cornerstone Research Senior VP Alexander “Sasha” Aganin

Securities fraud class action filings accelerated in 2019, according to a report released today by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. The report, Securities Class Action Filings—2019 Year in Review, finds that filing activity remains elevated well above historical levels by several key measures.

For the third year in a row, plaintiffs filed more than 400 securities class actions. In 2019, there were 428 securities class actions across federal and state courts—the highest number on record—with 268 core filings and 160 M&A filings. This marks a historic high for core filings, surpassing even 2008 when class actions peaked in response to financial market volatility. Market capitalization losses in 2019 eclipsed $1 trillion for the second consecutive year.

The likelihood of core filings targeting companies listed on U.S. exchanges was also at its highest in 2019. This measure reached new levels due to the record number of filings, as well as an extended decline in the number of public companies over the last 15 years.

The impact of the U.S. Supreme Court’s 2018 decision in Cyan Inc. v. Beaver County Employees Retirement Fund continues to reverberate. The report, which includes expanded data on state court filings from 2010 to 2019, found that Securities Act of 1933 claims in state courts rose to 49 in 2019, a 40% increase from the previous year. Almost half of these had parallel actions in federal court.

“The combined number of filings with 1933 Act claims in federal and state courts reached unprecedented levels. This was driven in large part by the activity in state courts,” said Alexander “Sasha” Aganin, report coauthor and Cornerstone Research senior vice president. “The significant increase in state actions following Cyan indicates plaintiffs are modifying their approach, and we will continue to monitor the trend.”

“The increase in state court Section 11 filings under the 1933 Act has caused a sharp jump in the cost of D&O insurance for companies going public,” said Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “Many IPO issuers have adopted rules that would move this litigation back to federal courts where these claims have traditionally been resolved. The enforceability of these provisions, however, has been challenged, and the IPO market is awaiting a decision by the Delaware Supreme Court that will likely define the contours of federal securities fraud litigation for years to come. That decision will likely be handed down before the end of April.”

Key Trends

  • Both Disclosure Dollar Loss (DDL) and Maximum Dollar Loss (MDL) decreased in 2019. DDL fell by 14% to $285 billion, and MDL by 9% to $1,199 billion as the size of the typical filing decreased.
  • Combined core federal filings in the Technology and Communication sectors grew by almost a third from 2018 and have more than doubled since 2017.
  • Second Circuit core federal filings increased to 103, the highest number on record. The Ninth Circuit’s core federal filings decreased by 25% to 52 filings.
  • Core federal filings against companies headquartered outside the United States increased to 57, the highest total on record. The likelihood of a core federal filing against a non-U.S. company increased from 4.8% to 5.6% from 2018 to 2019.
  • Beginning in the latter part of 2018, companies with connections to the cannabis industry were increasingly the target of federal class action filings. There were six such filings in 2018 and 13 in 2019.

Cyan Inc. v. Beaver County Employees Retirement Fund
In March 2018, the U.S. Supreme Court issued a unanimous opinion allowing plaintiffs to assert claims under the Securities Act of 1933 (1933 Act) in state courts. Under the 1933 Act, Section 11 allows investors to pursue damages for alleged misrepresentations or omissions in securities registration statements. It is generally believed that the ruling will lead to more securities class action filings in state courts based on this claim.

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 thirty 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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