NERA1Securities class action lawsuit filings in 2015 were at their highest level since 2008, according to the latest annual report from NERA Economic Consulting. The report also states that not only as the number of lawsuits filed increased in 2015, but the rate of lawsuit filings relative to the number of publicly traded companies has also increased compared to historic levels as well. The report entitled “Recent Trends in Securities Class Action Litigation: 2015 Full-Year Review,” can be found here. NERA’s January 25, 2016 press release describing the report can be found here. My own analysis of the 2015 securities class action filings can be found here


Counting Methodology: According to the NERA report, there were 234 securities class action lawsuit filings in 2015, more than in any year since 2008. In assessing NERA’s securities class action lawsuit tally, it is important to note important aspects of NERA’s counting methodology. As in past years, NERA has counted separate actions filed in separate judicial districts against a single defendant as separate action, at least until consolidated; other published sources count all of the actions against a single defendant only once. The NERA tally also includes merger objection lawsuits, and other cases alleging breach of fiduciary duty, that do not allege violations of the federal securities laws. Other tallies, including my own, do not count cases that do not also allege a violation of the federal securities laws. These considerations, among other things, account for the differences between NERA’s tally and other published tallies. Though the published tallies vary in their specifics, they are generally directionally consistent.


Number of Securities Suit Filings: The 234 securities class action lawsuits NERA tallied in 2015 represents an increase of 8% over the 216 securities class action lawsuits that NERA tallied in 2014, and a 6% increase over the 2010-2014 average of 220. The 2015 tally of 234 is also well above the 1996-2014 average of 216. The 234 securities class action lawsuit in 2015 was the highest annual total since 2008, when there were 247 securities suit filings.


Securities Suit Filing Rates Relative to the Number of Listed Companies: The NERA report underscores the fact that in assessing these historical filing trends it is important to keep the number of U.S.-listed companies in mind. In 1997, there were 8,884 publicly traded companies. After 1997, the number of companies listed on the U.S. exchanges dropped significantly, to a low of 4,916 in 2012. The numbers have ticked up slightly since then; as of the end of 2015, there were 5,305 U.S.-listed companies, still well below the levels seen in the late 90s.


In a particularly important part of NERA’s analysis, the report notes that “given that more securities class actions have been filed against fewer listed companies, the average rate of litigation has increased.” Thus, during the five years after the PSLRA’s enactment, the number of filings relative to the number of public companies was approximately 2.6%. In contrast, the most recent five years’ average rate is about 4.4%. On a yearly basis, this rate peaked in 2008 at nearly 4.6%. The rate in 2015 was 4.4%, within the average for the last five years, and up slightly from 4.1% in 2014.


Securities Suits Involving IPO Companies: Among the reasons for the increase in litigation in 2015 is the increase in the number of cases alleging violations of Section 11 of the ’33 Act, primarily in cases involving IPO companies. As the number of companies completing IPOs increased in recent years, particularly in 2014, when there were more IPOs than in any year since 2000, the number of IPO related lawsuits has also increased. In 2015, there were 28 IPO-related lawsuits filed, representing a third more than the 21 filed in 2014, and more than double the number filed in 2013. The number of lawsuits filed against IPO companies during 2015 was the highest since 2009, when there were 36 IPO-related securities lawsuits filed.


Securities Suits Against Foreign Issuers: The report also notes that the number of filings against foreign issuers in 2015 remains elevated compared to prior levels. Thus, the percentage of securities suit filings against foreign issuers in 2015 was 14.8%, up from 13.6% in 2014, well above the 10-12% range in the period 2010-12, but below the 23.9% seen in 2011 (when there was a flood of lawsuits filed against Chinese reverse merger companies). The proportion of foreign-domiciled companies as a percentage of all companies with U.S. listing has increased over time, to a recent high of 17% in 2015.


In a finding that differs from my own analysis of the 2015 filings, the NERA report concludes that “the proportion of foreign class actions was less than the proportion of foreign listing” (because the foreign companies represent 17% of all listings, but only, according to NERA, 14.8% of all securities filings during the year). Where our analyses differ is with the percentage of filings that the suits against foreign companies represent; because NERA tallies a higher count in the number of securities filings overall (for reasons discussed above), the number of suits against the foreign companies represents a lower percentage of the filings than I calculate. I strongly suspect that if the cases that do not allege violations of the federal securities laws were taken out of the NERA analysis, our calculations would look much more alike.


Merger Objection Lawsuit Filings: The NERA report also notes that the number of federal court merger objection lawsuits as a percentage of all federal securities class action lawsuit filings has also declined. Thus, in 2010, there were 70 federal court merger objection lawsuits filed, representing 31% of all securities class action lawsuit filings that year. In 2015, by contrast, there were 43 federal court merger objection lawsuits filed, representing about 18% of all filings. As the report notes, the figures were diminished in 2015 despite a record volume of mergers and acquisitions announced in 2015, which exceeded $2 trillion for the first time.


Industries Targeted: According to the report, more than one out of every five securities class action lawsuit filings in 2015 (22%) involved companies in the Electronic, Technology and Technology Services sector. 19% of all 2015 filings were against companies. In addition, the NERA report states that between 2012 and 2015, the yearly median market cap of the primary defendant firms was $658 million on average, up 45% from $454 million between 2008 and 2011.


Dismissal Trends and Analysis: Motions to dismiss are filed in 96% of all cases. Of the cases in which the motions were filed, courts issue rulings in 79% of the cases. Of the remaining 21%, either the case resolved before the decision was reached, the plaintiffs voluntarily dismissed the action, or the dismissal motion was withdrawn.


Of the cases in which a ruling was reached on the motions to dismiss during 2015, 54% were granted with or without prejudice, 20% were granted in part and denied in part, and 27% were denied. The rate for dismissal has increased from around 35% for cases filed in 2000 through 2002, around 42-47% for cases filed in 2009 through 2011. More recent years are still developing. The report notes that while dismissal rates reflected a rising trend between 2000 and 2011, the authors are cautious about drawing conclusions, both because of the large fraction of cases awaiting resolution among those filed in recent years and the possibilities that recent dismissal will be successfully appealed or re-filed.


Average, Median and Aggregate Settlements: The average settlement for 2015 was $52 million, an increase of more than 46% over 2014 (when the average settlement was $36 million). Though the average settlement amount increased, the median 2015 settlement amount was $7.3 million, up slightly from the inflation-adjusted 2014 median of $6.8 million. The high 2015 average settlement amount was driven by multiple large settlements; cases “have not become more expensive to settle across the board, as shown by analyzing median settlements.” A few large settlements drove the average up, while many small settlements kept the median stable; 58% of the settlements were for amounts less than $10 million while 13% were for amounts greater than $100 million.


Six of the ten largest settlements in 2015 involved financial sector defendants and stemmed from litigation arising out the financial crisis. The ten largest settlements totaled $3.555 billion, representing about 70% of the entire $5 billion in aggregate settlement values in 2015. The $5 billion aggregate represented an increase from the $2.9 billion aggregate in 2014 but was well short of the $6.6 billion aggregate in 2013, when there were multiple cases that settled for more than $1 billion.


In 2015, the aggregate plaintiffs’ attorneys’ fees and expenses were $1.095 billion, an increase of nearly 63% over 2014, mirroring the increase in average settlement amounts.


Note that all of the average and median settlement amount figures are adjusted for inflation to make prior periods’ amounts consistent with current values. The average and median settlement figures exclude settlements in merger objection cases and cases that were settled with no cash payment to the class.


The NERA report has a wealth of additional data and analysis that I have not attempted to discuss here. The report is interesting and informative, and well-worth reading at length and in full.