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Securities Class-Action Lawsuits on the Decline

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Sep 16th 2015
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Fewer federal class-action securities lawsuits were filed during the first half of the year over the preceding six-month period, and the decrease marks the seventh consecutive six-month period of filings below the historical average noted between 1997 and 2014, according to a recent report.

However, filings in the 9th District (much of the western United States) almost doubled over the last half of 2014, and class-action filings against companies with headquarters outside of the United States rose about 24 percent. The western case influx is the result of increases in the technology and industrial sectors, according to the report, Securities Class-Action Filings 2015 Midyear Assessment, issued by Cornerstone Research and Stanford University Law School's Securities Class Action Clearinghouse.

“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,” professor Joseph Grundfest, a former US Securities and Exchange Commission member who is director of Stanford Law School's clearinghouse, said in a prepared statement. “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.”

It may be worth noting that the report and Grundfest's comments were released almost a month before the recent market rout.

John Gould, senior vice president for Cornerstone Research, noted that aggregate market capitalization losses in securities class actions also dropped below historical averages during the first half of 2015.

“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,” he said.

Here are five other takeaways from the report.

  • While the 9th Circuit increased in cases, the 2nd Circuit (Connecticut, New York, and Vermont) dropped by a third compared to the preceding six months. That's largely fueled by a decrease in cases involving financial, energy, biotechnology, and pharmaceutical firms.
  • Disclosure dollar loss remained low. The $34 billion in disclosure dollar loss during the first half of the year was 43 percent below the historical semiannual average of $60 billion.
  • Maximum dollar loss was $105 billion, 65 percent below the historical average of $304 billion.
  • During last year and the first half of this year, mega filings comprised the smallest percentage of the disclosure dollar loss and maximum dollar loss since 1998. Mega filings are those with a disclosure dollar loss of at least $5 billion and a maximum dollar loss of at least $10 billion.
  • Asian companies were the defendants in at least 50 percent of the foreign lawsuits.

If filings continue at the same pace for the remainder of the year, it will be the seventh consecutive year with at or below average activity, and 2015 would tie for the fifth-lowest number of filings in the last 19 years, according to the report.

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