New corporate and securities lawsuit filings and enforcement actions were down for the third consecutive year in 2014, according to the latest annual report from the insurance information firm, Advisen. According to the report, which is entitled “D&O Claims Trends: 2014 End of Year Wrap-Up,” and which can be found here, the decrease in the number of new filings was spread across almost every major lawsuit and enforcement action category. The report does note that though the number of lawsuits and enforcement action is down compared to the immediately preceding years, the activity levels are still elevated compared to the years immediately preceding the financial crisis.
Unlike other published litigation reports, many of which track only securities class action lawsuit filing and settlement activity, the Advisen report attempts to track filing trends across several types of corporate and securities litigation, including but not limited to securities class action lawsuit filing activity. However, readers should be cautioned that the report uses its own unique names to describe the various different categories of litigation and enforcement activity. Because of this definitional issue, the report must be read very carefully.
According to the report, the number of new corporate and securities lawsuit and enforcement action filings declined by ten percent between 2013 and 2014, from 1,492 in 2013 to 1,342 in 2014. These figures for both years are well below the 2011 peak of 2,059. While the 2014 activity was below recent years, the 2014 activity level still exceeds the totals from the period before the financial crisis prior to 2009. The report suggests that the decline in activity can be attributed to a number of factors, including the continued wind down of the financial crisis-related litigation and the fact that there are fewer U.S. public company litigation targets.
The report notes that the sector with the greatest number of corporate and securities lawsuit filings during 2014 was the financial sector, as has been the case every year since 2006. However, the spike in actions against companies in this sector during the period 2008 through 2011 has subsided.
With respect to securities class action lawsuits, the report notes that while the number of filings in the category has remained steady over the past three years, the number of 2014 filings (183) remained well below the 10-year annual average of 199. (To see my commentary on the significance and possible interpretation of the drop in filings below the long-term historical average, please see my own report on the 2014 securities class action lawsuit filing activity, here). The report notes that for many years, the number of securities class action lawsuit filings as a percentage of all corporate and securities litigation had been declining, as other types of litigation and enforcement activity increased. For example, in 2010, securities class action lawsuit filings represented only ten percent of all corporate and securities lawsuit filings. However, in the past three years, the securities class action lawsuit filings as a percentage of all corporate and securities filings has been increasing. The 183 securities class action lawsuit filings that Advisen tallied in 2014 represented 13.6 percent of all corporate and securities lawsuit filings during the year.
According to the report, the number of shareholder derivative lawsuit filings has “declined every year since 2011.” The 164 shareholder derivative lawsuit filings in 2014 is nearly 30 percent below the ten year annual average number of shareholder derivative lawsuit filings of 233. The number of derivative lawsuit settlements has declined as well; Advisen tracked only 38 derivative lawsuit settlements in 2014 compared to 64 in 2011. But though the number of derivative lawsuit settlements has been decreasing, the number of jumbo derivative settlements has increased. The report notes that during 2014, two massive shareholder derivative settlements were announced – the $275 million settlement in Activision, the largest derivative settlement ever, and the $137.5 million Freeport McMoRan settlement, the third largest derivative settlement every. (My discussion of the Activision settlement can be found here. My discussion of the Freeport McMoRan settlement can be found here. My running tally of the largest derivative lawsuit settlement can be found here.)
The report contains a number of interesting observations about FCPA enforcement activity. Among other things, the report notes that the number of FCPA enforcement actions increased by 57 percent in 2014, from 7 filings in 2013 to 11 in 2014. The number of settlements of FCPA enforcement actions also increased, from 11 in 2013 to 16 in 2014. Companies also paid more in 2014 than ever before to settle FCPA actions, including the $772 that Alstom agree to pay in settlement with the SEC, the $135 million that Avon Product agreed to pay, and the $97.3 million that Weatherford International agreed to pay. The report also notes that anticorruption enforcement has become a priority area in a number of other countries, including China, Brazil and Canada.
The report includes a number of interesting comments from my friends Joe Monteleone of the Rivkin Radler law firm, Rick Bortnick of the Traub Lieberman law firm, and Priya Cherian Huskins of Woodruff Sawyer.
Discussion of 2014 Litigation Trends: On January 28, 2015, I will be participating in an Advisen webinar discussing the 2014 Corporate and Securities Litigation Trends. The webinar, which will take place at 11:00 am EST, is free. The webinar panel will also include Steve Shappell of JLT Specialty, Kathryn Walker, of Travelers, and Jim Blinn of Advisen. Information about the webinar including instructions on how to register can be found here.