Securities Class Action Filings Declined in 2021

The pandemic had been difficult on all forms of litigation. For months federal and state courts were closed. Even those courts that continued to operate or which have opened have done so on a limited basis. Even when cases have proceeded, the ability to appear for counsel to argue motions has been limited. While some cases have actually proceeded to trial in recent months, it has also been difficult. Nevertheless, some cases continue to be filed and work their way through the courts. In the securities class action area, Cornerstone Research, in its annual Securities Class Action Filings, 2021 Year in Review (here), has again detailed the results.

The key number – how many cases were filed last year – should come as no surprise to anyone. In 2021 there were 218 securities class actions filed. That compares to 333 the year before. While the number of 2021 filings reflects a drop of 35% compared to the prior year, the number of cases initiated 2021 does approach the average number of actions brought in recent years – 228.

One of the key trends recorded in the Report involves SPACs. While these vehicles have been criticized by the Securities and Exchange Commission, many are still interested in the entities once called “blank check” companies for their lack of an actual business. Last year the number of federal filings involving a SPAC increased dramatically to 32. That compares to 5 in the prior year and one in 2019.

In contrast, other areas examined by Cornerstone did not reflect similar trends. For example, filings involving cybersecurity increased slightly from 4 in 2020 to 6 in 2021. Actions involving crypto currency, on the other hand, declined slightly from 12 in 2020 to 11 in 2021. Similarly, for those centered on cannabis, the number of actions filed last year declined..

The type of claims incorporated in the complaints filed, however, remained essentially the same in 2021 as those included in the prior two years. In 2021 the largest categories of claims were those involving misrepresentations in financial documents, false forward-looking statements, accounting violations and internal control weaknesses in that order. In 2020 and 2019 those same categories of claims were also the largest each year in the same order.

Finally, the Second and Ninth Circuits continue to be the favorites for filing securities class actions. Last year 72% of the complaints filed were brought in those two circuits. At the same time, most federal circuits saw a decline in the number of cases filed, which is not a surprise given the large fall off in filings.