cornerstone reserach pdfNot only were securities class action lawsuit filings in 2015 at their highest levels since 2008, but the likelihood that a U.S.-listed company would get hit with a securities suit was at the highest level at any time since the PSLRA was enacted, according to the latest annual report from Cornerstone Research. Cornerstone Research’s report, issued in conjunction with the Stanford Law School Securities Class Action Clearinghouse and entitled “Securities Class Action Filings: 2015 Year in Review,” can be found here. Cornerstone Research’s January 26, 2016 press release about the report can be found here. My own analysis of the 2015 securities class action lawsuit filings can be found here.


Cornerstone Research’s Counting Methodology: According to the Cornerstone Research report, there were 189 securities class action lawsuits filed in 2015. Cornerstone Research’s tally includes only federal court lawsuits; it omits securities class action lawsuits filed in state court pursuant to the concurrent state court jurisdiction provisions of the ’33 Act. Cornerstone Research counts each defendant company, regardless of the number of complaints that are filed. Cornerstone Research’s tally does not include federal court lawsuit that do not allege violations of the federal securities laws. Because Cornerstone Research counts each defendant company only once and because it does not include any lawsuits that do not include alleged violations of the federal securities laws, its tally is lower than that of NERA Economic Consulting (about which refer here).


The Number of 2015 Securities Suit Filings: The 189 federal court securities class action lawsuits that Cornerstone Research tallied in 2015 represents the most since 2008, when there were 223 suits. The 189 filings in 2015 is basically even with the 1997-2014 annual average of 188 filings. The 2015 total was in large part a reflection of the increased numbers of filings in the second half of the year; there were 102 filings in the year’s second half compared to 87 in the first half. The 102 filings in the 2H15 was the highest semiannual total number of filings since the second half of 2010, when there were 103.


The Likelihood of Litigation Against U.S.-Exchange Listed Companies: The number of companies listed in U.S. exchanges has declined significantly since the late 90s, although the number did increase slightly in 2014 and 2015 as a result of increased IPO activity. There were 4,578 publicly traded companies as of the end of 2015, representing a 3.67% increase from the 4,416 companies as of 2014. Approximately one out of 25 of every U.S. listed company experienced a securities suit in 2015. The 4% likelihood that a company would get hit with a securities suit in 2015 is above the 3.6% rate in 2014 and well above the 1997-2014 average of 2.9%. In what is probably the most important observation in the report, the report states that “In 2015, companies listed on U.S. exchanges were more likely to be the target of a class action than at any time in the data.”


IPO-Related Litigation: Though the number of IPOs in 2015 declined to 117 from 207 in 2014, in each year during the period 2013-2015, the annual number of IPOs was above the 2001-2009 average number of IPOs of 102. Not only has the number of IPOs increased in recent years, but the likelihood that an IPO company will experience a securities class action lawsuit has increased since the financial crisis. According to the report, 17.8 percent of IPOs completed during the period 2009-2014 were involved in a securities suit (a percentage that could in fact increase as IPOs from 2013 and 2014 get his with suits), compared to 14.5 percent of IPO companies during the period 2001-2008 and 12.5% during the period 1996-2000. The report also found that 15% of the 2015 filings included Section 11 allegations, up from 14% in 2014 and 9% in 2013. The increase in the percentage of filings with Section 11 allegations “parallels the increase in IPO activity in 2013 and 2014.”


Foreign Filings: The Cornerstone Research report found that there were 35 securities class action lawsuits against non-U.S. companies in 2015, an increase over the 34 filed against foreign companies in 2014 and well above the 1997-2014 historical average of 22 filings. For the past three years, the proportion of total federal court lawsuits alleging violations of the U.S. securities laws against foreign issuers has hovered between 18 and 20 percent. (The recent NERA Economic Consulting report noted that foreign issuers represent about 17 percent of U.S.-listed companies, so the federal court securities litigation filings against non-U.S. companies are disproportionately greater than the foreign companies’ representation on the U.S. exchanges.)


Securities Litigation by Size and Sector: According to the Cornerstone Research, about 2.6% of the S&P 500 companies were hit with securities suits in 2015, up from 2.2% in 2014, but well below the 2001-2014 average of 5.5%. As a percentage of the S&P 500’s aggregate market capitalization, the 2015 securities suit filings against S&P 500 companies represented about 3.2% of the index’s market capitalization, up from 1.3% in 2014, but well below the 9.1% annual average during the period 2001-2014.


Filings against pharmaceutical companies increased in 2015 for the third year in a row. Biotechnology, Pharmaceuticals and Healthcare companies collectively were hit with 43 securities suits in 2015, up from the 42 in 2014 and well above the 35 in 2013 and the 32 in 2012. There were 17 financial firms sued in 2015, down from 26 in 2014 and well below the 1997-2014 average of 35.


Disclosure and Maximum Dollar Losses: The total Disclosure Dollar Losses of companies sued in 2015 jumped to $106 billion from $57 billion, an 86 percent increase, but still well below the historical annual average Disclosure Dollar Losses of $121 billion. (Disclosure Dollar Loss is the dollar value change in the defendant company’s market cap between the trading day preceding the end of the class period and the trading day following the end of the class period.) The increase in 2015 Disclosure Dollar Loss was the largest annual increase in DDL since 2008 and is largely the result of the five “Mega” Disclosure Dollar Loss cases filed (that is, cases with Disclosure Dollar Loss of over $5 billion), compared to zero in 2014.


The Maximum Dollar Losses in 2015 increased 73 percent in 2015, from $214 billion in 2014 in 2014 to $371 billion. (The “Maximum Dollar Loss” measure the dollar loss between the market cap high during the class period and the market cap on the trading day following the end of the class period.) The 2015 MDL was approximately 61 percent of the historical average of $607 billion. The increase in MDL during 2015 compared to 2014 was largely a reflection of the eight mega MDL cases (that is, those with an MDL of at least $10 billion), compared to two in 2014.


Dismissal Rates: Around 33-40% of the cases filed during the period 2006-09 were dismissed. The dismissal rate for the cases filed during the period 2010-2012 seemed to increase, as reflected in the chart on page 13 of the report, to 45-50% of the cases. However, the dismissal rates appear to be trending down since the 2010 and 2011 filing year. Beginning with the 2012 year and continuing through 2014, the timing of dismissals in the first three years indicates that dismissal rates have subsided from the 2010-2012 highs.


The report contains a great deal of other information beyond that discussed above. The report is detailed and interesting and warrants reading at length and in full.