Trends in Securities Class Action Filings: The Cornerstone Report
Cornerstone Research published its semi-annual analysis of trends in securities class actions filings on July 29, 2021 (here). The Report provides a detailed analysis of trends in this key are for issuers and compliance departments. Despite the pandemic, which may have impacted filings, several key points emerge from the report.
Number of actions: Plaintiffs filed 112 securities class actions in the first half of 2021. Most of the actions were what Cornerstone calls “core” cases, that is, not M&A related. Overall, 100 of the 112 cases initiated were core; only 12 were M&A related.
Total filings for the first half of the year were 25% lower than in the second half of 2020. They were also lower than in the first half of that year. For example, in the first half of 2020 186 actions were initiated. During the second half of the period 150 cases were filed. Similarly, the number of filings for each half of 2019 also exceeded the number for the first half of this year. In the first half of 2019 207 cases were filed while in the second half of that year 120 cases were brought. Indeed, the trend in case filings was largely flat from the first half of 2017 through the second half of 2019. Since that time the number of filings has continued to drop.
Sub-trends: Other sub-trends emerge from the filings during the first half of 2021. For example, during the first half of 2021 there were 14 filings related to SPACs. Of those filings 8 cases alleged that investors had been defrauded prior to the merger. During the period cryptocurrency filings were on pace to match the elevated level of 2020. In contrast, filings involving cannabis were below the peak of 2019 when 13 actions were filed. Finally, while only 2 cybersecurity cases were filed in the first of 2021, 3 cases were brought in July 2021, 3 of which were the result of cybersecurity reviews from the Cyberspace Administration of China.
Exchange listed issuers: The percentage of exchange listed issuers named in a securities class action declined during the first half of 2021 as it did in the second half of 2020 after the high reach in the second half of 2019. In the first half of this year about 4.2% of exchange listed issuers were named in a securities class action. That percentage represents a decline from the 6.3% recorded for the second half of 2020 which in turn was less than the 8.9% rate for the second half of 2019, the highest percentage of exchange listed issuers named in a securities class action recorded for a half year period in the Report which traces back to 2006.
State court filings: Since the Supreme Court’s decision in Cyan v. Beaver County Employees, No. 15-1439 (March 20, 2018), a key question has focused on the number of class actions based on the Securities Act of 1933 filed in state court. The number of those cases filed in state court reached a high in the second half of 2019 when 29 actions were initiated. Since that time the number had declined. In the first half of 2020, for example, there were 17 filings while in the second half of that year only 6 cases were filed. During the first half of 2021 that number declined to 5 cases.
The same trend emerges when Securities Act Section 11 cases filed in federal court are considered. During the first half of this year 6 Section 11 where cases filed only in federal court. That compares to 15 in the second half of 2020, 21 in the first half of that year and 36 in the second half of 2018 – the largest number of such cases reflected in the Report.
Non-U.S. issuers: The number of securities class actions initiated against non-U.S. issuers declined during the first half of this year. That trend is consistent with 2020 when the number of these actions also declined compared to 2019 which represented the high point for cases filed against non-U.S. issuers. The largest group of these actions were brought against Asian issuers while others were filed against Canadian and European companies.
Circuit: Overall about 72% of securities class actions filed during the first half of 2021 were brought in either the Second or Ninth Circuit, respectively, 68% and 71%. This is consistent with earlier years.
Finally, two decisions by the Supreme Court center on securities class actions. First, Goldman Sachs Group v. Arkansas Teacher Retirement System vacated class certification and remanded the case to the Second Circuit to considerer the impact of the investment bank’s alleged misstatement in view of their generic nature. In Pivotal Software v Tran the High Court agreed to consider the applicability of the PSLRA mandatory discovery stay to Securities Act cases filed in state court in the coming Term.