New corporate and securities litigation filings declined in the third quarter of 2013 compared to the prior quarter and the filings so far this year are on pace for the lowest annual number of filings since before the credit crisis, according to a new report from the insurance information firm, Advisen. The new report, entitled “D&O Claims Trends: Q3 2012”(here), notes that while filings overall are down, the number of filings in some categories – particularly securities class action lawsuit filings – were actually up in the third quarter compared to the preceding quarter.
Advisen’s latest quarterly report introduces certain improvements, the most significant of which is that it subdivides prior reporting categories so that, for example, data relating to regulatory and enforcement actions (now presented in a category called “capital regulatory actions”) are separated from data relating to private civil securities actions not filed as class actions (now presented in a category called “securities individual actions”). This change should improve the clarity of the information presented in future reports.
As detailed in the report, during the third quarter of 2013, there were 268 corporate and securities lawsuit filings, down from 278 in the second quarter of 2013 (representing a quarter to quarter decline of 4%). Filings during the third quarter 2013 were down 21% from the same quarter a year ago. The 2013 filings represent the lowest quarterly total since the end of 2008.
Several different kinds of lawsuit filings declined during the third quarter, including merger objection lawsuits (which the current report has separated out from breach of fiduciary duty lawsuits). According to the report, the absolute numbers of merger objection lawsuit filings have been declining since 2011, and the 2013 merger objection filings are down from 2012. The report notes, without accompanying quantification, that the downward trend in the number of merger objection suits “is likely a result of a decline in overall M&A activity.”
While some categories of lawsuit filings were down during the third quarter, securities class action lawsuit filings were up, both as a percentage of all filings and in terms of the absolute number of suits filed. According to the Advisen report, there were 58 securities class action lawsuit filings during the third quarter 2013, compared with 42 in the second quarter. The securities class action lawsuits represented 22 percent of all corporate and securities lawsuit filings, an increase of 7 percent from the second quarter, when the securities class action lawsuits represented 15 of all corporate and securities lawsuit filings. The third quarter securities class action lawsuit filings represent the largest quarterly total since the first quarter of 2012.
The report also notes that the trend of securities class action lawsuit filings as a percentage of all corporate and securities lawsuit filings has been downward for a six year period. However, with many types of lawsuit filings continuing to decline, the increase in the number of securities class action lawsuit filings so far this year means that the class action suits as a percentage of all corporate and securities filings in on pace to increase for the year. The report notes that part of the increase in the number of securities class action lawsuit filings is attributable to an increase in the number of accounting fraud cases.
Financial firms continued to experience the highest percentage of new corporate and securities lawsuit filing, with new lawsuits in this sector representing nearly one fourth of all third quarter filings. However, while the number of filings against companies in the financial sector remains high, the percentage of all filings against financial companies is down from 2009, which suits against financial companies represented 40 percent of all filings. The report notes that new filings against companies in the financial sector are now “approaching pre-crisis levels.”
The Advisen report is very careful to note that information about corporate and securities lawsuit filings outside the U.S. can be more difficult to capture. However, the available data suggest increasing litigation activity involving non-U.S. companies. Overall, identified litigation activity involving non-U.S. companies represented 12 percent of all corporate and securities lawsuit filings during the third quarter, which, while slightly down from the second quarter of 2013, is four percent higher than the third quarter of 2012.
The latest quarterly Advisen report also introduces a new feature called Loss Insight Foundation, which consists of a ten-year quarter-by-quarter overview of corporate and securities lawsuit filings segmented by industry and year-end market capitalization, as a percentage of all companies in each segment. By expressing the number of lawsuits in a segment as a percentage of all companies in a segment, the analysis produces litigation rates, permitting a comparison between segments. Among other things, the analysis shows that the rate of lawsuits against companies with market caps over $200 billion is significantly greater than the rate of lawsuits against other companies, with the rate of suits against these mega companies peaking during the credit crisis. The data also confirm that companies with smaller market capitalizations are less likely to have securities class action lawsuit filings.
Quarterly Advisen Webinar: On October 17, 2013, at 11:00 am EDT, I will be participating in an Advisen webinar to discuss the third quarter litigation trends and related litigation developments. The hour-long webinar, which is free, will also include AIG’s Rich Dziedziula, Joseph O’Neill of the Peabody & Arnold law firm, and Adivsen’s Jim Blinn. Further information about the webinar, including registration information, can be found here.