The number of securities class action lawsuits filed in 2015 rose to the highest annual level in several years. As detailed below, a number of factors contributed to the increase in securities class action lawsuit filings during the year, including in particular the number of lawsuits filed against IPO companies (owing to the fact that IPO activity has been up in recent years), as well as the elevated number of lawsuits against foreign-domiciled companies.
Absolute Number of Securities Class Action Lawsuit Filings: There were 186 federal court securities class action lawsuits filed in 2015, and an additional five more IPO-related securities class action lawsuits filed in state court (pursuant to the concurrent state court jurisdiction provisions of Section 22 of the Securities Act of 1933). The 191 lawsuits filed in both federal and state courts represent the highest annual number of securities class action lawsuit filings since 2008 (when there were 223 securities suit filings).
Even if the state court filings are disregarded, the 186 federal court securities suit filings represent the highest annual total number of filings since 2011 (when there were 188 filings). The 186 federal courts securities lawsuits filed in 2015 represents an increase of 9.4% over the 2014 filings, when there were 170 federal court securities class action lawsuits.
Please refer to the notes below regarding data sources and counting methodology.
Annual Filings Compared to Historical Averages: The 191 new securities lawsuits filed in both federal and state courts in 2015 is slightly above the 1997-2013 average annual number of filings of 189; however, if only federal court securities suit filings are taken into account, the 186 securities suit filings in 2015 were slightly below the long-term annual average.
Annual Filings Compared to More Recent Annual Averages: In comparing current filing levels to historical averages, it is important to keep in mind that there are now many fewer public companies than there were at the beginning of comparison period. 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 slightly since the end of 2012 as a result of IPO activity, there were still only about 5,100 U.S-listed companies at the end of 2014.
In view of this dramatic decline in the number of publicly traded companies since 1997, it may be more meaningful to compare current filings only to the more recent years, to account for the possibility that there are fewer securities suits now compared to past periods simply because there are many fewer publicly traded companies than before.
Looking only at the more recent six-year period from 2009-2014, the average annual number of new securities suit filings was 169. The 186 federal court lawsuit filings in 2015 was 10 percent higher than the 2009-2014 average annual number of filings, and the 190 total federal and state court filings in 2015 was 13% percent above the 2009-2014 average.
IPO-Related Lawsuit Filings: The increased number of securities class action lawsuit filings in 2015 compared to the year before and compared to recent annual averages is largely attributable to the increased number of IPO-related securities lawsuits in 2015. During 2015, there were 29 IPO-related securities lawsuit filings in both state and federal courts (representing about 15% of all securities suit filings), compared to 2014, when there were 17 IPO-related securities lawsuit filings in both state and federal courts (representing about 10% of all securities suit filings).
The number of securities lawsuit filings involving IPO companies is up compared to recent years because of elevated levels of IPO activity in the U.S. securities markets during the period 2013-2015. According to Renaissance Capital (here), 222 companies completed IPOs in 2013, 275 companies completed offerings in 2014, and 170 companies completed IPOs in 2015. Though the number of IPOs in declined in 2015, because of the lag time that usually follows between the date of the IPO and the filing of an IPO-related securities class action lawsuit, there were an increased number of IPO-related lawsuits in 2015.
Of the 29 IPO-relates securities suits filed in 2015, one was from the IPO class of 2012, four were from the 2013 IPO class, fifteen were from the 2014 IPO class, and nine were from the 2015 IPO class. Refer here for a more detailed analysis of recent years’ IPO activity and its relation to the level of IPO-related securities class action lawsuit filings.
Litigation Against Foreign Companies: Another significant factor in heightened level of securities class action lawsuit filing activity in 2015 is the elevated number of securities suits filed against non-U.S. companies (that is, those companies that have either their principal place of business or place of domicile outside the U.S.). There were a total of 34 securities suits filed against non-U.S. companies, representing about 18% of all 2015 filings. There were also 34 securities suit filings against foreign companies in 2014. The 34 filings this year (and last year) are well above the historical average of 22 annual filings against non-U.S. companies during the period 1997 to 2013. The 2015 filings against foreign companies as a percentage of all filings (18%) is well above the 1997-2013 historical average of 11 percent. (The historical figures are drawn from Cornerstone Research, here, page 15).
The 34 securities class action lawsuits filed in 2015 against non-U.S. companies involved companies from 18 different countries. As has been the case for the past several years, the country with the highest number of companies sued is China, with 15 (if Alibaba, which is based in Hong Kong, is included). The lawsuits against Chinese companies represent about 41 percent of all suits filed in 2015 against non-U.S. companies, and about eight percent of all 2015 federal court securities suit filings. After China, the country with the most new lawsuits in 2015 was Brazil, which had three.
Other Significant Factors in 2015 Filings: A significant number of 2015 securities class action lawsuit filings involved merger transactions. A total of 14 of the 2015 securities lawsuit filing were merger-related, representing about 7.3% of all 2015 filings. The number of merger objection securities lawsuit filed in federal court in 2015 was down slightly compared to recent years. By way of comparison, 18 of the 2014 securities suits related to merger activity, representing about 10.5% of all 2014 securities suits.
Another noteworthy factor in the 2015 filings is the number of companies who were sued because they allegedly employed the services of a stock promotion firm to drive up their share price. There were five lawsuits in 2015 involving the defendant companies’ use of stock promotion firms, representing about three percent of all 2015 federal court lawsuit filings.
Place of Filing: The securities class action lawsuits filed in 2015 were filed in 30 different federal courts, as well as in state courts in California. There several district courts that received a disproportionately large number of securities suit filings. The Southern District of New York, with 47 filings (representing 25% of all 2015 federal court securities suit filings), had the highest number of any single federal district court. There were 33 filings in the Central District of California (representing nearly 18% of all 2015 federal court securities suit filings). There were a total of 62 securities suits filed in Northern, Central and Southern Districts of California, representing a third of all 2015 federal securities suit filings.
The total filings just in these four federal district courts (that is, the S.D.N.Y., N.D. Cal, C.D. Cal, and S.D. Cal., taken together) represented about 58 percent of all 2015 federal court securities lawsuit filings.
Types of Companies Sued: The 2015 securities suits were filed against a broad range of kinds of companies. The companies named as defendants in these lawsuits represented 99 different Standard Industrial Classification (SIC) code categories. There were, however, certain groups that predominated.
As in past years, life sciences companies as a group were among the most frequent targets of securities suits. The 2834 SIC Code category (Pharmaceutical Preparations), with 21 securities suit filings, had the highest number of any single SIC code category. The 283 SIC code Industry Category (Drugs) had a total of 28 filings, the highest number in any single Industry Category. There were also an additional ten companies named as securities suit defendants in the 3800 SIC Code series (Measuring and Analyzing Instruments), including eight in the 384 SIC code group (Surgical, Medical and Dental Instruments and Supplies). There was one additional company hit in the 8731 SIC Code category (Commercial, Physical and Biological Research). The total number of life sciences companies across all of the various categories that were hit with securities suits in 2015 was 39, representing about 21% of all 2015 federal court securities lawsuit filings.
There were several other SIC Code categories that had significant numbers of securities suit filings, all of which generally were in the high tech sector. The 7372 SIC Code category (Prepackaged Software) had 11 securities suit filings, and the 737 Industry Group (Computer Programs, Data Processing) had a total of 18 filings. The 3674 SIC Code category (Semiconductors) had 10 securities suit filings. The 367 Industry Group (Computer and Office Equipment) had a total of 14 securities filings across five different SIC Code categories in that group. The total of 32 securities suit filings in these two high tech Industry Groups represented about 17% of all federal court securities class action filings in 2015.
The filings against life sciences and high tech companies together represented a significant proportion of all 2015 securities filings. The 71 lawsuits filings against companies in these two sectors represented about 38% of all 2015 federal court securities suit filings.
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. In addition, by comparison to several of the prominent securities class action monitoring services, I count state court securities class action lawsuit filings as well as securities class action lawsuits filed in federal court; most of the other monitoring services only count federal court lawsuits, not state court lawsuits.
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 securities litigation monitoring services and to understand how the methodologies used will affect analyses of the data.