The D & O Diary
First Half Securities Suit Filings Level With Last Year's Pace
Buoyed by an influx of case filings in the final days of June, securities class action lawsuit filings during the first half of 2013 remained roughly on pace with 2012 filings, although well below the historical average number of filings. Though the absolute numbers of filings so far this year are below historical averages, the number of filings relative to the number of publicly traded companies remains level with past years. Roughly one in five of the first half filings involved companies in the life sciences sector.
During the year’s first half, there were 75 new securities class action lawsuit filings, putting the filing levels on pace for a year-end total of about 150 lawsuit filings. Thus the profected number of filings is about the same as the 2012 year-end total number of filings of 152. The first half filing numbers were significantly boosted at the end of June, when during the last ten business days of the month there were 11 new securities lawsuit filings, representing almost 15% of the filings in the year’s first six months.
The securities suit filings during 2012 were unevenly spread between the year’s two halves, as there were a greater number of filings in the first six months of the year (when there were 88 new securities class action lawsuit filings) and the last six months of the year (when there were only 64 filings). The 75 new filings in the first six months of 2013 were about 15% below the number of filings in the first half of 2012 – but about 17% above the number of filings in the second half of 2012.
Though the YTD filings through this year’s first six months puts us on an annualized pace roughly equal with the filing numbers for the full year of 2012, the number of filings so far this year puts us on a pace well below the historical average number of filings. The average annual number of securities class action lawsuit filings during the period 1996 through 2011 was 193, meaning the projected annual number of filings for this year based on the filings so far is about 22.2% below the historical average. Similarly, the 75 securities suit filings during the first half of 2013 is about 22.6% below the average number of filings during six-month half-year periods between the first half of 1997 and the second half of 2011 (97)
It would be easy to conclude from these comparisons that securities class action law filings are declining. However, before jumping to any conclusions about filing trends, the number of filings needs to be considered on a relative basis as well as an absolute basis. When the filing levels are considered relative to the number of publicly traded companies, the current filing levels are revealed to be far more consistent with prior levels than might appear to be the case when only absolute filing numbers are considered.
Consider these data: there were 202 securities class action lawsuit filings in 2004, compared to only 152 in 2012. However, there were also about 6,097 publicly traded companies at the end of 2004, compared with only 4,943 at the end of 2012. That is, the number of publicly traded companies declined by about 23.3% during the period between 2004 and 2012. All else equal, one would expect that the number of securities class action lawsuits would decline roughly in line with the decline in the number of publicly traded companies. And that is exactly what happened – the decline in the number of lawsuit filings between 2004 and 2012 of 24.7% is just about the same as the 23.2% decline in the number of publicly traded companies.
In other words, everyone should be very wary of headlines that inevitably will appear in the mainstream media about declines in securities class action lawsuit filings. The numbers of lawsuits may well have declined compared to historical average numbers of filings, but the rate of lawsuit filings relative to the number of publicly traded companies remains roughly level. Don’t get sucked in by facile but misleading assertions about declines in the number of securities class action lawsuits filings. The fact is, publicly traded companies continue to be sued in securities class action lawsuits at about the same rate as they have been in the past.
The securities class action lawsuit filings during the first half of 2013 lacked any clearly discernible characteristics. Unlike the period 2007-2011, when the lawsuit filings were driven by credit crisis-related allegations, and 2011, when an influx of suits against U.S.-listed Chinese companies drove lawsuit filings, there was no industry event or sector slide that generated a concentrated number of securities suits.
The 75 securities suit filings during the year’s first half were spread among companies in 56 different Standard Industrial Classification code (SIC code) categories. The only SIC Code category with more that three companies sued during the year’s first half was SIC Code 2834 (Pharmaceutical Preparations), which had a total of nine new lawsuits, representing about 12% of all first half lawsuit filings.
There were a total of 15 new securities suits filed against companies in the life sciences industries (represented by companies in the 283 SIC Code group [Drugs] and the 384 SIC Code group [Surgical, Medical and Dental Instruments and Supplies]).These 15 new suits against life sciences companies represented 20% of all filing during the first half of 2013. (By way of comparison life sciences companies presented only about 17% of all 2012 filings).
Only one other SIC Code category had as many as three new lawsuits – SIC Code category 1311 (Crude Petroleum and Natural Gas) had three new lawsuit filings during the year’s first six months.
The securities suit filings during the year’s first six months were filed in 25 different federal district courts. However, just three district courts accounted for a substantial proportion of the filings. There were 22 new cases filed in the Southern District of New York in the first six months of 2013, along with 13 in the Northern District of California and 6 in the Central District of California. No other federal district court had more than four new filings. The filings in just these three districts account for just about 43% of all first half filing activity.
Ten of the securities suits filed in the year’s first half involved companies domiciled or with their principle place of business located outside the United States, representing roughly 13.3% of first half filings. This level of filings against non-U.S. companies is well below the level in 2012 (when about 21% of all filings involved non-U.S. companies) and in 2011 (when about 30% of all filings involved non-U.S. companies), but above the average proportion of filings for the period 1997-2009 (about 9% of all filings).
The first half filings against non-U.S. companies involved firms from six different countries. The countries with the most companies sued were China (3) and Canada (3). Israel, Argentina, Bermuda and Mexico each had one company involved in a securities suit in the U.S. during the first half of 2013. (Note that I am counting the filing against Nam Tai Electronics as involving a Chinese company; the company is registered in the British Virgin Islands but has its operations in China.)
Please note that in counting securities class action lawsuit filings, I count each lawsuit filings only once, regardless of the number of separate complaints that may be filed. Other commentators counting securities suits count separate complaints filed in separate judicial districts as separate lawsuits unless the separate complaints are consolidated into a single proceeding. This different methodology may cause my securities lawsuit count to appear lower than other published tallies.
And All This Time, You Thought Monty Python Just Made the Whole Thing Up: In Marc Morris’s excellent recent book “The Norman Conquest: The Battle of Hastings and the Fall of Anglo-Saxon England ,” the author notes the following incident involving Exeter’s residents, as William the Conqueror besieged the city following the Norman Invasion: “According to William of Malmsbury, one of them staged something of a counter-demonstration by dropping his trousers and farting loudly in the king’s general direction.”
Public Service Announcement (Just in Time for the July Fourth Holiday): Since the dawn of time, man has struggled to find just the right wine to use in a wine spritzer. I am happy to report that after countless hours of research, I have found the best wine for the purpose. The wine is a Vinho Verde, a light wine that originates in the Northern regions of Portugal. Although the wine’s name literally means “green wine,” the name describes a young wine from the region that can be white, red or rose. Most of the wine that makes it to the U.S. is white.
The fermentation process used in making the wine results in a slight effervescence. The wine’s pétillance, light flavor and low alcohol level make it a refreshing ingredient for a wine spritzer. Although the optimal proportions are a matter of taste, I suggest poring over ice one part Vinho Verde to two parts fizzy mineral water. (I recommend using LaCroix water.) For best results, serve the beverage on a backyard patio as twilight gathers and the lightening bugs come out. Repeat frequently as long as summer persists.
And Finally: How to make kebabs (because you like to stab things and to play with fire). Find it here.
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