Cornerstone Research: Securities Class Action Filings
Executive Summary
Number And Size Of Filings
- Plaintiffs filed 170 new federal class action securities cases (filings) in 2014—four more than in 2013. The number of 2014 filings was 10 percent below the historical average of 189 filings observed annually between 1997 and 2013. (pages 4–5)
- The total Maximum Dollar Loss (MDL) of filings in 2014 was $215 billion, or 66 percent below the historical annual average of $630 billion. MDL was at its lowest level since 1997. (page 7)
- The total Disclosure Dollar Loss (DDL) decreased substantially in 2014, falling to its lowest level since 2006. Total DDL was $57 billion in 2014, 54 percent below the historical average of $124 billion. (page 6)
- For the first time since 1997, there were no mega DDL filings—filings with a DDL of at least $5 billion. Only two mega MDL filings—filings with an MDL of at least $10 billion-occurred in 2014, both of which related to oil and gas companies. (page 19)
Other Measures Of Litigation Intensity
- Looking at the full universe of U.S. exchange-listed companies, 3.6 percent were subject to filings in 2014, an increase from 3.4 percent in 2013. (page 9)
- Companies in the S&P 500 were less likely to be targeted by a securities class action in 2014 than in any year measured (2000 through 2014). (page 17)
- Of the S&P 500 companies, those with the largest market capitalizations were less likely than smaller firms to be the subject of a class action filing—a departure from historical experience. (page 18)
Key Trends
- IPO activity continued the upward trajectory that has followed the nadir of offerings in 2008 (with potential implications for future litigation). (page 10)
- The percentage of filings against foreign issuers increased in 2014 for the first time in three years. (pages 15–16)
- Filings against companies in the Consumer Non-Cyclical sector-which includes biotechnology and pharmaceutical firms—increased markedly in 2014. (pages 22–23)
- Filings against energy companies gained prominence in the fourth quarter of 2014 as oil and gas prices declined. (pages 19 and 22)
- Collectively, filings in the Second and Ninth Circuits in 2014 were more consistent with historical averages compared with the number filed last year, although total MDL and DDL declined considerably relative to historical averages. Filings in the Third Circuit increased to the highest level since 2004. (page 25)
New For The 2014 Year In Review
Trends In The Number Of Public Companies And Their Litigation Exposure
This analysis tracks the number of companies listed on U.S. exchanges, as well as the likelihood they were the subject of a class action filing. (pages 9–10)
- The number of companies listed on U.S. exchanges increased recently after a 15-year decline, due in part to the quickening pace of IPO activity in 2014.
- On major U.S. exchanges, there were 206 IPOs in 2014, a 31 percent increase from 2013.
- The likelihood that a public company was the subject of a filing remained above the historical average in each of the past five years.
Dismissal Trends
This analysis revisits earlier work conducted in 2010 and 2013 examining the outcomes of class action filings. Starting in the mid-2000s, the likelihood of dismissal began increasing. (pages 12–13)
- Filings have been dismissed at a rate of 59 percent and 58 percent in cohort years 2010 and 2011, respectively. Dismissal rates for these years may edge higher as pending cases are resolved.
- For cohort year 2012, 40 percent of filings have been dismissed. Dismissal rates for this cohort year will increase as class actions are resolved for the ongoing cases filed in that year.
- Statistical tests indicate that the likelihood of dismissal remains higher for class action filings in recent cohorts even after controlling for filing characteristics such as filing type, industry, and circuit.
New Developments
- Halliburton Co. v. Erica P. John Fund (page 26)
Number Of Class Action Filings
Key Findings
- The 170 filings in 2014 represent a slight increase (2 percent) from 2013, although the number of filings continues to remain well below the 1997–2013 average of 189 filings.
- Despite the subdued total class action filings activity relative to the historical average, the number of “traditional filings”—those excluding credit crisis, merger and acquisition (M&A), and Chinese reverse merger (CRM) cases—was 8 percent lower than the 1997–2013 historical average of 167.
- Filings related to CRMs have waned and were minimal in 2014. Filings related to M&A transactions have persisted at the same level for the past three years.
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