Why Not Much Change in Securities Class Actions?

July 30, 2015

Plaintiffs brought 85 federal class action securities cases in the first half of this year, or seven fewer than they did last year.

The 85 filings in the first six months of 2015 falls 10 percent below the semiannual average of 94 recorded between 1997 and 2014 and represents he seventh consecutive semiannual period below the historical average, according to Securities Class Action Filings—2015 Midyear Assessment, a report compiled by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

Of the 2015 total, an increasing percentage target companies headquartered outside the United States. Twenty filings, or 24 percent of the total, targeted foreign firms. Asian firms were named in more than half of these cases.

Reversing trends noted at year-end 2014, filing activity against industrial and technology firms increased to levels more consistent with historical averages, while filings against energy companies declined to average historical levels.

Biotechnology, healthcare, and pharmaceutical companies together accounted for 19 percent of total filings in the first half of 2015. Within this group, filings against pharmaceutical firms were the most common class action.

Filings in the Ninth Circuit (California and western states) represented a 90 percent increase over the last six months of 2014. These were driven primarily by an increase in the technology and industrial sectors.

“Securities class actions continue to percolate at a relatively low level, whether measured by the number of cases filed or the dollar amounts at stake,” said Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse and a former SEC Commissioner. “The interesting question is ‘why?’ Some observers point to high stock price valuations and the lack of volatility in equity markets. Others point to the fact that many of the major accounting scandals now appear to be happening abroad. A combination of both factors could well be at work.”

According to Dr. John Gould, senior vice president of Cornerstone Research, aggregate market capitalization losses in securities class actions continued to dip below historical averages in the first two quarters of 2015. Also, mega filings remained relatively rare, and on an annualized basis only 2.5 percent of S&P 500 company market capitalization was targeted by new filings during this period.

Key Trends

  • The total Disclosure Dollar Loss (DDL), which calculates investor losses at the time that an alleged fraud is disclosed, remained at low levels. Aggregate DDL was $34 billion in the first half of 2015, 43 percent below the historical semiannual average of $60 billion.
  • The total Maximum Dollar Loss (MDL), a measure of the largest amount that plaintiffs might seek to recover, was $105 billion, an amount 65 percent below the historical semiannual average MDL of $304 billion.
  • Filing activity against companies with large market capitalizations, as represented by firms in the S&P 500, remained well below average. Only 1.6 percent of S&P 500 firms were the subject of class actions in the first half of 2015.
  • The median lag between the end of the alleged class period and the filing of the lawsuit declined to 11 days, the third lowest on record, suggesting intensifying competition for filings by the plaintiff bar.
  • Dismissals within the first three years of the filing of a class action peaked for 2010 and 2011 filing cohorts. In filing cohort years 2012, 2013, and 2014, early dismissals (those within the first year) have declined relative to 2010 and 2011 cohorts.

Source: Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse

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