The number of securities class actions filed in the first half of 2015 is essentially flat compared to historical averages, according to a new report by Cornerstone Research titled Securities Class Action Filings, 2015 Midyear Assessment (here). At the same time other trends may be shifting.
Rate of filings: In the first half of 2015 there were 85 new securities class actions filed. That number is down from the 86 filed in the second half of 2014 but more than the 78 filed in the first half of 2014. It also represents a 10% decrease from the historical semiannual average of 94 filings made between 1997 and 2014.
What the Report calls “traditional filings” — those excluding M&A and Chinese reverse merger cases – decreased by 9% compared to the second half of 2014 from 86 in that period to 78 in the first half of 2015. Over the last three years each semi-annual report has chronicled a certain number of these cases, although their total has never exceeded 10 filings.
If current trends continue, the total number of filings for 2015 is expected to reach 170. That equals the number in 2014 and exceeds the number filed in 2013 and 2012 but is below the 188 filed in 2011. It is also below the average since 1997 which is about 188 and significantly below the high for that period which was 242 actions brought in 1998.
If the current rate of filing continues, according to Cornerstone, about one in sixty firms listed on a major U.S. exchange is presently being named in a securities class action. That would put the rate at slightly lower than in 2014 and equal to 2013.
Foreign issuers: In the first half of 2015 foreign-headquartered firms represented about 18% of the listed companies. In contrast, only 9% of the listed companies in 1997 were foreign-headquartered.
Over the last few years the number of suits brought against foreign issuers listed on U.S. exchanges has increased. This trend is continuing. During the first half of 2015 24% of the filings involved a foreign issuer. That compares to 20% for all of 2014. If the trend continues 2015 will represent the third year in a row the number has increased.
The percentage of foreign companies named in securities class actions compared to the total number of these issuers also continues to increase. In 2000 1.4% of the foreign issuers were named in a suit compared to 3.9% in the first half of 2015. This means that foreign domiciled issuer traded on a U.S. exchange was more likely than the typical listed company to be named in a securities class action.
Although there has been a drop in the number of Chinese reverse merger cases from the peak of 2011, filings against Chinese and other Asian firms (excluding the reverse merger filings) represent about 55% of the total foreign filings. At the same time for the first six months of 2015 there was what the Report calls a “distinctive” lack of filings against Canadian firms and a 75% decline compared to the second half of 2014 in the number of filings involving European-headquartered firms. Suits were brought involving issuers based in Chile, the Cayman Islands and the United Arab Emirates.
Industry: The number of filings against companies in the financial sector declined in the first half of 2015. Specifically, only 6 actions were filed which is the lowest number since 2005.
There was also a drop in the number of suits filed against firms in the biotechnology, healthcare and pharmaceutical sectors. Collectively suits in these sectors represented about 19% of the total cases for the first half of the year or 16 actual filings. That number represents a decline of 43% from the second half of 2014.
In contrast, the number of actions brought against firms in the technology sector increased from four in the second half of 2014 to 11 in the first half of 2015. The number of filings brought in the industrial sector also increased by about 13%, the highest percentage since the second half of 2012.
Finally, the number of mega filings in the first half of 2015 declined. That is consistent with the trend in the prior year.