The number of securities cases filed in federal court continues to rise each year. The SEC continues to file large numbers of cases, although there are periods when the numbers drop. Private plaintiffs continue to file large numbers of securities class actions, although the pace seems to be slowing. Interestingly, the areas of focus for the SEC and securities class actions differ significantly. The agency focuses on accounting and disclosure issues; private plaintiffs focus on accounting and disclosure.
Two recent reports analyze trends in securities class actions for 2018. One was prepared by NERA Economic Consulting. Recent Trends in Securities Class Action Litigation: 2018 Full-Year Review (Jan. 2019)(here). The other by Cornerstone Research. Securities Class Action Filings (Jan. 2019)(here). While the reports are generally similar, they are not identical.
The key metric is always the number of actions filed. NERA reports that last year 441 federal securities class actions cases were filed. That compares to 434 filed in 2017 and 299 in 2016. Indeed, the number filed in 2018 is the highest since 1996 when the Reform Act was passed, according to NERA. Those cases involved about 8.2% of the publicly listed firms. The overall risk of litigation for listed firms has, according to NERA, substantially increased since early in the decade.
The cases filed in 2018 were about evenly split between what NERA calls standard securities class actions and merger objection cases. That is comparable to prior years. The total number filings in the NERA tabulation also includes several filings that alleged fraudulent initial coin and cryptocurrency offerings, the manipulation of derivates and metal futures and breaches of fiduciary duty.
In contrast, Cornerstone reports that only 403 cases were filed last year. That compares to 412 in 2017 and 271 in 2016. While the numbers between the two reports differ, that may result from the manner in which cases are tabulated. The overall trend, however, is largely the same, although Cornerstone does report a slight decline for 2018 while NERA only notes the very slow growth in the number of cases compared to the prior year.
The number of securities class actions involving foreign issuers declined last year. In recent years foreign issuers trading on U.S. exchanges have been disproportionately targeted. In 2018 however, the number of these actions declined by about 25% compared to the prior year. In 2018 only 43 such actions were filed compared to 56 one year earlier and 44 in 2016.
Trends in the filing location continued essentially unchanged — the Second and Ninth Circuits had the most cases. In 2018 the Second Circuit was the leader with 73 filings while the Ninth had 69. The year before however, the numbers were the reverse. The Ninth Circuit had 80 cases while the Second only had 50, according to NERA.
The health technology and services sector was the favorite target of securities class actions last year with about 25% of the cases. That sector was followed by electronic technology and services at 21%, finance at 16% and consumer and distribution services at 9%, according to NERA.
Traditionally, regulatory claims centered on matters such as disclosure were the staple of securities class actions. While 19% of the cases filed last year contained those types of allegations, down from the prior year when 26% of the filings asserted that type of claim, in 2019 accounting issues were asserted in 26% of the securities class actions filed, the largest category. In 2017 about 24% of the securities class actions filed alleged accounting issues, according to NERA. Missed earnings at 21% of the cases filed in 2019 was the next largest category after accounting and regulatory.
Finally, the statistics demonstrate that most of the securities class actions filed are resolved before they reach class certification. About 95% of the actions have a motion to dismiss filed. Of those ruled on by the Court, about 39% were granted and 30% were granted at least in part in 2018. In contrast, of those cases which reach class certification – only about 27% — most were certified – about 81%. The other cases were resolved by that point in the litigation, according to NERA.
Program: Save the Date of March 19, 2019 for: “Women in Compliance” held at Dorsey & Whitney LLP, 51 West 52nd St. New York, New York, 10019-6119. The program begins at 6:00 p.m. and is followed by cocktails. The announcement is here.