Securities Class Action Filings 2015: More Cases, Small Issuers

A new report on securities class actions records an increase in the number of filings in 2015. Most of those actions were brought against smaller issuers, according to the report. PWC, Small Companies, Big Targets – 2015 Securities Litigation Study (April 2016)(here).

Over the last decade the number of securities class actions filed each year has generally increased. Last year 195 actions were filed compared to 110 in 2006. In contrast there were 169 filings in 2014, 160 in 2014 and 149 in 2012. The highest number of cases brought in the last ten years was 209 in 2008 followed by 187 in 2011. The number of filings over the last three years has been an inverse reflection of the S&P 500 – as the index dropped the number of cases filed increased, according to the findings of PWC.

Perhaps of more interest is the target of the suits – “no company is too small” as the report states. In 2015 the largest number of cases were brought against small cap issuers, that is, those with a market cap of $300 million to $2 billion. The next largest group of suits targeted micro cap issuers – those with a market cap of under $300 million. Indeed, the largest group of issuers targeted in securities class actions in 2012, 2013 and 2014 were also those in the small cap and micro cap range.

Other key findings of the study include:

Accounting issues: Accounting issues were alleged in only 26% of the cases filed in 2015, down from the prior year. Of those brought, about 42% centered on revenue recognition while 30% involved the understatement of liabilities and expenses. Overall since 2011 the number of securities class actions centered on accounting issues has generally declined.

Disclosure issues: In 2015 most of the cases brought involved disclosure related issues. Those included issues involving IPOs, M&A transactions, false or misleading statements and the late disclosure of negative information.

Foreign issuers: Last year the number of cases filed involving foreign issuers increased slightly to 22% compared to 21% the prior year. Most of the actions filed in 2015 targeted China and Canada related firms. Over the last decade the largest percentage of actions filed against foreign issues was in 2011 at 33%.

SEC: The SEC filed 135 accounting and disclosure cases in fiscal 2015 of the 807 total cases initiated by the agency. That represents an increase from the 96 accounting and disclosure cases filed in fiscal 2014 and 68 in 2013. The 135 SEC actions filed last year only resulted in one follow-on action. In contrast, the disclosure by an issuer of an SEC and/or DOJ investigation or inquiry triggered at least six accounting-related cases in 2015.

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