Securities Class Action Suits Increased in 2015
Last year there were more class action suits filed compared to the prior year. The actions were brought largely against companies traded on the two major exchanges in the biotech and healthcare sectors, according to a recent report by Cornerstone Research titled Securities Class Action Filings: 2015 Year in Review (here).
In 2015 there were 189 securities class actions suits filed, an increase of about 11% compared to the year before when 170 suits were brought. Indeed, the number of suits filed last year is the largest since 2008 when a total of 223 cases were filed. The number of filings last year is up slightly over the average of 188 filed from 1997 to 2014.
Most of the suits brought in 2015 were filed in the second half of the year. Specifically, 102 of the actions were filed in the second half of the year compared to 87 in the first part of 2015. That is the largest number of suits filed in the second half of the year since 2010.
Approximately 84% of the 2015 suits were largely based on Exchange Act Section 10(b) and Rule 10b-5. That percentage has been relatively consistent over the last three years. About 15% of the suits filed last year were based on Securities Act Section 11. That compares to 14% in 2014 and 9% in 2013.
Virtually all of the complaints filed in 2015 alleged misrepresentations in financial documents. That is largely consistent with prior years. About half of the complaints filed in 2015 alleged false forward-looking statements. Only about 11% of those actions were based on a restatement of the financial statements while 35% alleged violations of GAAP.
In 2015 the number of suits filed against foreign issuers increased to 35, well above the average from 1997 to 2014 of 22. At the same time the total number of filings against foreign firms declined as a percentage of the total number of cases. Companies headquartered in China were the most common target of suits.
Suits against firms in the S&P 500 continued to remain at historical lows. Last year about 2.6% of the firms listed on the S&P 500 were named in a suit, compared to 2.2% in 2014 and 3.4% in 2013. The average from 2001 through 2014, however, is 5.5%. At the same time 84 suits were brought against NYSE firms while 96 named those listed on NASDAQ as defendants. That compares to 75 and 84, respectively, in 2014 and 76 and 96 in 2013.
Finally, the chance of being named in a class action suit for an an exchange listed firm increased last year to 4% compared to 3.6% in 2014 and 3.1% in 2013. Those statistics must be considered against the fact that in 2013 the number of exchange listed firms decreased by 2.61% but increased in 2014 by 0.11% and in 2015 by 3.67%.