NOTABLE CASES

2019 Newly Filed Securities Litigation Cases Trending at Record Pace

AUGUST 14, 2019

As ISS Securities Class Action Services has shared with clients, the quantity of newly filed securities class action litigation has grown each year since 2015. Further to this trend, the quantity of newly filed cases has set a record in each year since 2016. And 2019 is on track to set yet another record. In fact, since January 1st, the ISS Securities Class Action Services research team has tracked an astonishing 400+ newly filed cases – including U.S. Federal, U.S. State, Canadian, and non-North American securities cases.

Two independent research firms, NERA and Cornerstone, recently published mid-year reports. Data is sometimes different as various methodologies exist; furthermore the NERA and Cornerstone data is as of June 30th and focuses on U.S. Federal cases only, whereas the “400+” noted above is as of mid-August.

NERA ECONOMIC CONSULTING

The following is an excerpt from NERA’s Executive Summary… New federal securities class action filings in the first six months of 2019 indicate that annual filings are on track to be similar to the number of new cases filed in each of the prior two years. While we observed a relative surge in new cases in the first quarter of the year, this higher level of new cases did not persist in the second quarter. Filing activity in the first half of 2019 indicates a continuation of the shift in the types of cases observed in 2018—an increasing number of the standard (Rule 10b-5, Section 11, or Section 12) cases and a decreasing number of merger objections. If the filing composition and levels observed in the first half of 2019 are an indication of the pattern for the rest of the year, we may find a 15% increase in Rule 10b-5, Section 11, and Section 12 cases compared to the approximate 1% growth in this category of filings in 2018. On the other hand, merger-objection cases filed in 2019 are on pace to be more than 16% lower than similar cases filed in the prior year.

  • In 2018, 1 in 12 publicly traded companies were subject to securities class action. Based on the H1 2019 filing rate, publicly traded companies may have a similar litigation risk. However, the risk of merger-objection litigation is specific to firms planning or engaged in M&A activity.
  • During the first six months of 2019, there were 3,699 merger announcements and only 83 merger-objection cases filed. Based on this recent data, we find that only 1 in 45 companies planning a merger are being sued. The split of non-merger-objection class actions filed in H1 of 2019 across the economic sectors is fairly consistent with the distribution observed in 2018, with no indication of any shifts or increases in particular sectors.
  • As in 2018, the Health Technology and Services and the Electronic Technology and Technology Services economic sectors accounted for over 40% of filings.

During the first half of 2019, the average settlement declined to $33 million, more than 50% lower than the average in 2018 but higher than the average in 2017. However, this phenomenon is primarily driven by the fact that the Petrobras settlement for $3 billion was finalized in 2018 and heavily skewed the average for that year. If we limit to cases with settlements under $1 billion—and thus exclude the Petrobras settlement in 2018—we found a slight increase in the average settlement value in 2019 compared to the prior years. The median settlement value for cases was $12 million, which is in line with the median in 2018 but almost double the median value in 2017.

Click here to view the full midyear report.

CORNERSTONE RESEARCH

The following is an excerpt from Cornerstone’s Executive Summary… Plaintiffs continued the rapid pace of securities fraud case filings with 198 new federal class actions in the first half of 2019. According to a new report, Securities Class Action Filings—2019 Midyear Assessment, recently released by Cornerstone Research, plaintiffs have filed more than 1,000 securities class actions in the last two and a half years, accounting for more than 20% of the total number of cases filed since 1997.

The 126 core filings (those excluding M&A claims) were just one shy of the record set in the first half of 2017. The number of filings involving M&A transactions, however, dropped below 90 for the first time since the second half of 2016. In the first half of 2019, M&A-related filings declined more than 20% to 72 from 91 in the second half of 2018.

Key Trends:

  • Non-U.S. companies: In the first half of 2019, core filings against non-U.S. issuers as a percentage of all core filings remained relatively stable at 23 percent—the third-highest percentage on record. The number of core filings against European firms increased to its second-highest level on record for a semiannual period, with 13 filings.
  • State and federal courts: In March 2018, the U.S. Supreme Court issued a unanimous opinion in Cyan Inc. v. Beaver County Employees Retirement Fundallowing plaintiffs to assert 1933 Act claims in state court. To date, 61 new 1933 Act filings have appeared post-Cyan: 23 parallel filings, 12 filings in federal courts only, and 26 filings in state courts only.
  • Industries: The Consumer Non-Cyclical sector again had the greatest number of filings with 47. Of these, 32 were against biotechnology, pharmaceutical, and healthcare companies. The 19 filings in the Communications sector were all against internet and telecommunications companies.
  • S&P 500 firms: Core filings against S&P 500 firms in the first half of 2019 occurred at an annualized rate of 6.4%.
  • Cryptocurrencies: There were three core filings involving initial coin offerings (ICOs) or cryptocurrencies in the first half of 2019. There was only one such filing in the second half of 2018, after a flurry of ICO and cryptocurrency filings at the end of 2017 and beginning of 2018.

Click here to read the full midyear report.

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