Securities class action lawsuits were filed at “near record levels” in the first six months of 2018, according to a July 25, 2018 report from Cornerstone Research. According to the report, which is entitled “Securities Class Action Filings – 2018 Midyear Assessment,” more than 750 federal securities class actions have been filed since mid-2016, the highest number of filings in a 24-month period since the passage of the PSLRA. The report can be found here. Cornerstone Research’s July 25, 2018 press release can be found here. My report of the securities suit filings in the year’s first six months can be found here.
According to the report, there were 204 securities class action lawsuits filed in the first six months of 2018. The first-half filings project to a year-end total of 408 filings, which would represent a 101 percent increase over the 1997-2017 annual average number of filings of 203. The projected year-end total of 408 filings would be slightly below 2017’s record total of 412 (representing about a one percent decrease).
The 204 filings in the first half of 2018 represents about an 8 percent increase from the 189 securities suits filed in the second half of 2017. The 204 filings in the year’s first half is the second highest number of semiannual filings since the enactment of the PSLRA, exceeded only by the 223 filings in the first half of 2017. The 204 securities suit filings in the year’s first six months is twice 1997-2017 semi-annual average of 102. The 750 federal securities class action lawsuit filings since mid-2016 represent the highest number of filings in a 24-month period since the adoption of the PSLRA.
Of the 204 first half filings, 93 were merger objection lawsuits and 111 were traditional securities suits (what the report refers to as “core filings”). The number of core filings rose to 111 in the first half of the year from 87 in the second half of 2017 (representing a 28 percent increase), but was below the 127 traditional filings in the first half of 2017. The 93 merger objection lawsuit filing in the year’s first six months represents 46 percent of all first half securities class action lawsuit filings.
The overall increase in the number of securities suit filings compared to historical levels means that it is now much more likely that a company listed on a U.S. exchange will get hit with a securities suit. Based on the annualized projections from the first half filings, 8.5 percent of companies listed on a major U.S. exchange may become the subject of a securities class action lawsuit this year. This litigation rate is slightly above the record annual 2017 rate of 8.4%.
2018 projects to be “the sixth consecutive year in which the likelihood of a company being hit the subject of a class action increases.” If the 2018 year-end projections hold, “the percentage of firms sued will exceed any year since the PSLRA was enacted.”
Even if the merger objection lawsuits are disregarded, the securities suit filing rate is at elevated levels compared to historical patterns. The 2018 annualized rate for traditional securities suits is 4.6%, above 2017’s record annual rate for traditional securities suits of 4.2%, both figures well above the 1997-2017 annual average rate for traditional filings of 2.9%.
During the first six months of 2018, traditional securities suit filings against S&P 500 companies were at their highest annualized rate since 2002. On an annualized basis, 9.6 percent of S&P 500 companies were defendants in a traditional securities class action lawsuit in the first six months of 2018. By way of comparison, during the period 2001 to 2017, annually about 5.2% of S&P 500 companies were the subject of a traditional securities class action lawsuit.
Filings against non-U.S. companies declined slightly in the year’s first half, after increasing every year since 2013. Traditional securities suit filings against non-U.S. companies represented about 22 percent of all traditional securities suits in the year’s first six months, compared to 23 percent for the full year 2017.
The report also tracked the filing patterns for securities suits alleging violations of the ’33 Act. In March 2018, the U.S. Supreme Court held in Cyan, Inc. v. Beaver County Employees Retirement Fund that state courts retain concurrent jurisdiction of ’33 Act claims and that ’33 Act suits filed in state court may not be removed to federal court. Looking at ’33 Act filings post-Cyan, the report found “no pattern was yet evident.” Of the seven post-Cyan filings alleging Section 11 or Section 12 claims, only three were filed solely in California state court.
The report also analyzes the Disclosure Dollar Loss (DDL) and Maximum Dollar Loss (MDL) for the securities suit filings. DDL measures the change in dollar value change in a company’s market capitalization between the trading day immediately before the end of the class period and the trading day immediately after the end of the class period. MDL measures the dollar value change in a company’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day following the end of the class period. According to the report, the DDL increased 166 percent from $59 billion in the second half of 2017 to $157 billion in the first half of 2018, the second highest semiannual amount since 1997. Largely as a result of the increase numbers of mega filings, the DDL in the first half of 2018 is 162 percent greater than the 1997-2017 semiannual average of $60 billion. The MDL index of $643 billion in the first half of 2018 increased 180 percent from the $230 billion in the second half of 2017. MDL in the first half of the year was more than double the 1997-2017 semiannual historical average of $301 billion.