Securities Class Action Filings Increase Significantly

The number of securities class actions filed in the first half of the year, as well as the number of mega maximum dollar loss filings during that period, increased significantly, according to a new report from Cornerstone Research (here). Highlights from the report include:

Number of cases: In the first half of 2016, 119 new securities class actions were filed. That compares to 87 filed during the same period one year earlier. The number of filings also eclipses the 94 actions filed on average from 1997 through 2015. The increase is explained, according to the report, by the substantial uptick in the number of M&A class actions. If this trend continues, this it will be the first year since 2008 to be above average and the second largest number of filings in one year, exceeded only by the 242 actions brought in 1998.

Mega cases: There were 10 mega maximum dollar loss fillings in the first half of the year compared to the historical average of six. The percentage of these filings relative to the total number of cases brought increased to 11% from 5%.

M&A cases: Federal M&A filings increased by 167% over the second half of last year. This was the highest number since the second half of 2010.

Foreign issuers: The number of actions brought against foreign issuers declined slightly to 18% of the cases filed compared to 19% in 2015. Generally, over the last 19 years the filings against foreign issuers have increased.

Chinese firms: In the first half of 2016 no Chinese company was named as a defendant. That contrasts sharply with the period from 2010 through 2015 when these firms were targeted.

S&P Firms: If the current trend in filings continues, about 5% of the firms listed on a major U.S. exchange will be named as defendants in an action. In contrast, on an annualized basis, 6.1% of the S&P 500 market capitalization was subject to new filings. This is higher than in recent years but below the historical average of 9.1%. Health care, industrial, telecom/information technology and utilities had 7% or more of their market capitalization subject to new filings on an annualized basis. Historically larger S&P 500 firms had been more likely targets of class actions. This pattern was not evident in the first half of 2016.

Industries: The number of filings against firms in the financial sector increased to 17% in the first half of 2016. That is about the same as the 1997—2015 semiannual average and equals the total for 2015. Filings in the non-cyclical sector increased to 43, accounting for 36% of the filings in the first half of 2016. This sector has had the most filings for the past 10 semiannual periods.

Exchanges: The number of filings against NYSE listed firms increased by 2% over the second half of 2015. For NASDAQ firms the increase was 27%.

Circuit: For the first half of the year there were 38 filings in the Ninth Circuit and 36 in the Second.