Corporate and securities litigation filing activity reached a “crescendo” in the first quarter of 2011, according to the most recent quarterly report from Advisen, the insurance information firm. The filing rate in the year’s first three months if annualized would represent a record –settling annual level of corporate and securities litigation activity. A copy of the Advisen report can be found here. My own survey of the first quarter 2011 securities class action lawsuits filings can be found here.
Preliminary Notes
In considering the Advisen report, it is critically important to recognize that the report uses its own unique vocabulary to describe certain of the litigation categories.
The “securities” litigation analyzed in the Advisen report includes not only securities class action litigation, but a broad collection of other types of suits as well, including regulatory and enforcement actions, individual actions, derivative actions, collective actions filed outside the U.S. and allegations of breach of fiduciary duty. All of these various kinds of lawsuits, whether or not involving alleged violations of the securities laws, are referred to in the aggregate in the Advisen report as "securities suits."
One subset of the overall collection of "securities suits" is a category denominated as "securities fraud" lawsuits, which includes a combination of both regulatory and enforcement actions, on the one hand, and private securities lawsuits brought as individual actions, on the other hand. However, the category of "securities fraud" lawsuits does NOT include private securities class action lawsuits, which are in their own separate category ("SCAS").
Due to these unfamiliar usages and the confusing similarity of category names, considerable care is required in reading the report.
The Report’s Findings
According to the report there were a total of 363 corporate and securities lawsuits filed in the first quarter of 2011, which is up from the 342 filed in the fourth quarter of 2010 but below the quarterly record level of 386 set in the third quarter 2010. If the first quarter filing levels were to continue for the rest of the year, that would imply a 2011 year-end total of 1,448 corporate and securities lawsuits, which, according to Advisen would represent a “record-setting year.” Just to put this level of filing activity into perspective, prior to the credit crisis “new filings averaged less than two-thirds of this annualized level.”
According to Advisen’s tally, there were 61 securities class action lawsuits in the first quarter of 2011. However, securities class action lawsuits as a percentage of all corporate and securities lawsuit filings continue to decline. As recently as 2006, corporate and securities lawsuits represented as much as one third of all corporate and securities litigation, but in the first quarter of 2011, the securities class action suits represented only 17 percent of all corporate and securities lawsuit filings.
With respect to the securities class action lawsuit filings, 85 percent of the suits were filed against companies in just five sectors: financial, information technology, consumer discretionary, energy and industrial. With respect to all corporate and securities litigation generally, financial firms continue to be the most frequently sued albeit at a lower level in recent years. Financial firms were named as defendant in 34 percent of all corporate and securities lawsuits in the first quarter, compared to 45 percent in 2008 and 40 percent in 2009.
Breach of fiduciary duty suits, many of which are filed in state court and many of which are filed shortly after the announcement of a proposed merger or acquisition, represent a growing area of corporate and securities litigation. These breach of fiduciary duty suits represent about a third of all corporate and securities lawsuit filings in the first quarter of 2011, up from only eight percent of all corporate and securities filings as recently as 2004. Over 60 percent of the first quarter breach of fiduciary duty suits were filed in the state court.
Corporate and securities litigation activity outside the U.S. has also been on the increase. During the first quarter of 2011, Advisen recorded 17 of the corporate and securities lawsuits filed outside of the United States.
By the same token, 16 percent of all corporate and securities lawsuits filed during the first quarter involved non-US companies, compared to only 11 percent in 2009 and 2010. These figures were largely driven by cases involving Chinese companies whose shares trade on the U.S. exchanges. Cases against Chinese companies in U.S. courts “mushroomed” in 2010, and continued in the first quarter, when there were 11 new securities lawsuits in the U.S. against Chinese companies. (This trend of filings against Chinese companies has continued into the second quarter as well, as I noted in my recent posts, here and here.)
Finally, with respect to settlements, the Advisen report notes that the average securities class action lawsuit settlement announced during the first quarter of 2011 was $54.6.
Quarterly Advisen Conference Call: On Thursday, April 21, 2011, I will be participating in an Advisen conference call to discuss the first quarter 2011 filing statistics and trends. The free one-hour conference call will take place at 11 am EDT. The conference call panel will include a number of distinguished speakers, including Dan Bailey from the Bailey Cavalieri law firm, Carol Zacharias from ACE, Carolyn Polikoff from the Woodruff Sawyer firm and David Bradford from Advisen. Information about the session including registration information can be found here.