filings piileThe number of securities class action lawsuit filings rose slightly in 2014 compared to 2013, although the number of filings during the year was below longer term annual average number of filings. Companies in the life sciences sector were particularly hard hit, as were companies in the computer services and in the financial services and oil and gas extraction industries.


Absolute Number of Lawsuit Filings: There were 170 new securities class action lawsuits filed during 2014, compared to 167 in 2013 and 152 in 2012. While the number of filings increased in 2014 for the second straight year, the 2014 filings were below the 1997-2012 annual average of 191. (Please see the notes at the end of this post regarding data sources and counting methodology.)


Relative Number of Lawsuit Filings: While the absolute number of filings in 2014 was below the long-term annual average filing number, the number of filings in 2014 relative to the number of publicly traded companies tells a different story. The fact is that there are many fewer publicly traded companies than there were a few years ago.


 According to NERA (here), in 1997, there were 8,884 U.S. listed companies. By the end of 2012, there were only 4,916 U.S.-listed companies, representing a decline of over 44%. Even though the number of listed companies increased during the year as a result of IPO activity, there were still only about 5,100 U.S, listed companies at the end of 2014. That means that with 170 lawsuits filed in 2014, the percentage of U.S. listed companies subject to securities lawsuit during the year was approximately 3.3.%, which is above the 1997-2012 average annual filing rate of 2.85%.


This distinction between the absolute and relative filing figures is important. It would be all too easy to look only at the absolute number of filings during 2014 and conclude based on the fact that the 2014 number of filings was below long term annual averages that securities lawsuit filings are down. In fact, however, relative to the number of public companies, the filing rate in 2014 was actually up. Or to state the same thing in a more meaningful way, during 2014 it was likelier that a publicly traded company would get hit with a securities lawsuit than it was during the period 1997-2012.


Courts in Which the Lawsuits were Filed: The 2014 securities class action lawsuits were filed in numerous different courts. There was at least one securities lawsuit filed in 39 different U.S. district courts. However, many of the filings during 2014 were concentrated in just a few courts.


There were, for example, 50 new securities lawsuits filed in the Southern District of New York, representing 29.4% of all 2014 filings.


There were a total of 29 new securities suits filed in the U.S. District Courts in California (including 13 in the Central District of California and 19 in the Northern District of California), represented about 17% of all 2014 filings.


Taken together, the filings in the district courts in New York (including both the Southern District of New York and the Eastern District of New York) and the district courts in California accounted for a total of 82 securities lawsuit filings, or more than 48% of all 2014 lawsuit filings.


Interestingly, there were also 15 new lawsuit filed in the District of New Jersey, representing about 9% of all 2014 filings.


Together, the filings in the district courts in New York, California and New Jersey represented 57% of all 2014 securities lawsuit filings.


Industries of Companies Sued: The 2014 securities lawsuit filings were spread across a large number of different industries.  The companies hit with securities suits in 2014 were spread across 89 different Standard Industrial Classification (SIC) codes. There were however certain industries where the filings were concentrated.


Companies in the life sciences sector were particularly hard hit. There were a total of 36 securities class action lawsuit filed against companies in the 283 SIC code group (Drugs), representing about 21 percent of all 2014 filings. Among those 36 companies was a subset of 23 companies in the 2834 SIC code category (Pharmaceutical Preparations), representing 13.5% of all 2014 filings in that one SIC code category alone. In addition, there were also seven companies hit in the 3800 SIC Code series (Measuring and Analyzing Instruments), including five in the 384 SIC code group (Surgical, Medical and Dental Instruments and Supplies). There were also two companies hit in the 8731 SIC Code category (Commercial, Physical and Biological Research).


Taking all of these lawsuits collectively, there were a total of 45 companies sued in these various life sciences-related SIC categories, meaning that life sciences companies accounted for a total of more than a quarter of all securities lawsuits in 2014 (about 26.4%).


Companies in the computer services and semiconductor industries were also hard hit. During 2014, 13 companies in the 737 SIC code group (Computer Programming and Computer Services) were hit with securities suits, as were five companies in the 3674 SIC Code category (Semiconductors). Together these two high tech categories accounted for about 10.5% of all 2014 filings.


Together lawsuits against life sciences and high tech companies accounted for well over a third of all 2014 securities lawsuit filings (about 37%).


The downturn in oil and gas sector also led to an increase in the number of lawsuit filings against companies in the oil and gas businesses. During 2014, companies in the 1300 SIC code group (Oil and Gas Extraction) were hit with eleven securities class action lawsuits, representing about 6.4% of all 2014 filings.


As has been the case in recent years, there were a significant number of lawsuits filed in 2014 against companies in the financial services sector. During 2014, 22 companies in the 6000 SIC Code series (Finance, Insurance, and Real Estate) were hit with securities suits, representing about 13% of all 2014 filings. While these lawsuits represent a significant portion of 2014 suits, the filings against financial companies were down in 2014 compared to recent years. For example, according to Cornerstone Research (here), filings in which financial companies were the primary defendant represented 15% of all 2013 filings. During 2008 and 2009, during the peak of the financial crisis, filings in which financial companies were the primary defendant represented 37% and 34% of all filing in those years, respectively.


Lawsuits Against Foreign Companies: According to NERA (here), about 16% of all companies listed on U.S. exchanges are domiciled outside the U.S. During 2014, 32 non-U.S. companies were hit with securities class action lawsuits. These suits involving foreign companies represented about 19% of all 2014 lawsuit filings, meaning that during 2014, foreign-domiciled companies were disproportionately targeted. The percentage of lawsuits filed against foreign companies was up in 2014 compared to 2013, when suits against foreign companies represented about 15% of all suit filings.


The 2014 filings against foreign companies included lawsuits filed against companies registered in or with principal places of business in 15 different countries – although this count is complicated by the “Flash Boys” high frequency trading securities lawsuit, in which massive list of defendants includes company defendants from a number of foreign companies. I have made no attempt to account here for the foreign defendants in the high frequency trading lawsuit.


The foreign country with the highest number of companies sued in 2014 was China, which had ten companies sued during the year. Indeed, five companies sued in 2014 had the word “China” in the company name. No other country had more than two companies named as defendants in lawsuits during 2014.


Merger Lawsuits: In past years, a significant number of securities lawsuit filings have arisen out of merger transactions. The number of merger objection securities lawsuit filed in federal court in 2014 was down compared to recent years. 18 of the 2014 securities suits related to merger activity, representing about 10.5% of all 2014 securities suits.


Lawsuits Involving IPO Companies: The numbers of initial public offerings completed in 2013 and 2014 were up significantly compared to recent years. As discussed here, the 288 IPOs completed during 2014 represents the highest annual number of IPOs since the dot com boom year of 2000.


Along with the increased numbers of IPOs has come increased numbers of IPO-related securities suits, as discussed in greater detail here. During 2014, there were 17 securities lawsuit filed against IPO companies, representing 10% of all filings during the year. Of the 17 companies sued, two had completed their IPOs in 2012, eight had completed their offerings in 2013 and seven had completed their offerings in 2014.


Given the increase in the number of IPOs during 2013 and 2014 and in light of the usual lag time between the IPO date and the date of lawsuit filings, it seems probable that there will continue to be significant numbers of filings in the months ahead involving IPO companies.


A Final Note About Data Sources and Methodology: The data used in the analysis above were compiled from a variety of sources, including media outlets (such as Bloomberg and Yahoo Finance), online legal news services (including Law 360 and Advisen), and other online data services (including the Stanford Law School Securities Class Action Clearinghouse). In addition, during the course of the year, I took advantage of opportunities to audit my lawsuit dataset by comparing it to those being compiled by other litigation monitoring services.


In counting the securities class action lawsuits, I count each company sued for the same basic set of allegations only once, which is different from the methodology used by other prominent litigation monitoring sources. At least some of these services count each lawsuit separately (at least if the complaint is filed in a separate judicial district), unless and until the separate lawsuits are consolidated. The different methodologies used will not only result in different litigation counts, but it could also result in differing analytical conclusions. It is very important to understand the methodologies used by the different prominent litigation monitoring services and to understand how the methodologies used will affect analyses of the data.