New corporate and securities lawsuits filings in the second quarter of 2013 were “down dramatically” compared to 2013’s first quarter, according to the quarterly D&O Claims Trends report of insurance industry information firm Advisen, which was released today and which can be found here. At the current filing level, the total of all corporate and securities lawsuit filings for 2013 “will have the lowest level of filings since 2006.”
Readers reviewing the Advisen report will want to be very careful to note that the report uses its own unique terminology. In particular, the report uses the term “securities suits” to refer to all categories of corporate and securities litigation. Among the subsets within this larger category of “securities suits” is what the report calls “securities fraud” suits, which as used in the report refers to actions brought by regulatory and enforcement authorities, as well as private securities suits that are not brought as class actions. The category of “securities fraud” suits does not include securities class action lawsuits, which have their own separate category of “securities class action” suits, which part of the larger category of “securities suits.” Readers will want to be very attentive to the report’s usage of these terms.
According to the Advisen report, there was a 41 percent decline in new corporate and securities lawsuit filings in the second quarter of 2013 compared to 2013’s first quarter. This quarter to quarter decline – from 352 new corporate and securities lawsuits in the first quarter to 234 new corporate and securities lawsuits in the second quarter – represents the “largest quarterly decline since before the financial meltdowns of 2007/08.” The year over year quarterly drop was even sharper, as the number of new corporate and securities lawsuits declined 55 percent comparing the second quarter 2013 filings to the filings in the second quarter of 2013. The 234 new corporate and securities lawsuits during 2Q13 is the lowest number of quarterly filings since before 2009.
Several categories of corporate and securities lawsuits contributed to this decline, with corporate and securities lawsuits that the report characterizes as breach of fiduciary duty lawsuits, derivative shareholder lawsuits and securities fraud lawsuits all declining in the quarter. What the report calls securities fraud lawsuits (which again, as noted above, includes regulatory and enforcement actions but does not include securities class action lawsuits) fell by 59 percent from the first quarter of 2013 to the second quarter of 2013.
The report notes that this decline in the number of what the report calls “securities fraud” lawsuits dates back to the first quarter of 2012 and “is due in part to a chance of emphasis in SEC enforcement.” Although this downward trend “had been apparent,” It has “never been as drastic as it was this past quarter.”
Merger objection lawsuits have contributed significantly to the growth in corporate and securities lawsuit filings in recent years. Though the numbers of these suits increased dramatically in the years through 2011, the numbers of these lawsuits began to decline in 2012, compared to 2011, and “are on pace to do so again in 2013.” The report does not examine the question whether the decline in the absolute number of merger objection lawsuits in 2012 and YTD in 2013 reflects a decline in merger activity.
The report notes that securities class action lawsuits as a percentage of all corporate and securities lawsuit filings have been on a downward trend since 2007 (from 22 percent of all corporate and securities lawsuits in 2007 to 10 percent in 2012). However, with the decline in the filing of other types of corporate and securities lawsuits in the second quarter of 2013, second quarter securities class action lawsuits represented 13 percent of all corporate and securities lawsuits.
Absolute numbers of securities class action lawsuit filings have also been declining for the past two years. The report states that there were 74 securities class action lawsuit filings during the first half of 2013, putting the annualized filings on a pace for another decline in 2013 from the 184 filings that Advisen reported in 2012. The report does note an uptick in the number of securities class action lawsuits alleging accounting allegations. (My own analysis of first half 2013 securities class action lawsuit filings can be found here.)
Companies in the financial services sector remained as the leading target of corporate and securities lawsuits in the second quarter of 2013. A quarter of all corporate and securities lawsuit filings in the second quarter involved companies in the financial sector. The report notes that “the downward trend in new financial services filing” which has developed as the credit crisis has receded into the past “continued in the second quarter.”
The quarterly Advisen report also includes a separate section on the cyber liability exposures of corporate directors and officers. The report states that directors and officers “are faced with an ominous new threat landscape comprised of an evolving set of exposures.” Readers interested in this topic will want to review the guest post on this blog of D&O maven Dan Bailey, in which Dan discusses directors’ cyber liability exposures. A recent post in which I discussed the question whether or not cyber breaches could become the next wave of securities litigation can be found here. Finally, a more recent post in which I discussed the questions corporate directors will want to be asking about cyber risk and cyber liability insurance can be found here.
Speakers’ Corner: On Tuesday, July 16, 2013, I will be participating in Advisen’s Quarterly D&O Claims Trends Webinar, in which, among other things, the latest Advisen report will be discussed. In this free hour-long webinar, which will take place at 11:00 am EDT, I will be participating on a panel with Kieran Hughes of AIG, Carl Metzger of the Goodwin Proctor law firm and Jim Blinn of Advisen. The panel will discuss claims trends and developments during the first quarter of 2013. Registration information for the webinar can be found here.