Securities class action lawsuit filings remained at elevated levels in 2019, but the mix of cases changed during the year, according to the recently published annual report from NERA Economic Consulting. According to the report, which is entitled “Recent Trends in Securities Class Action Litigation: 2019 Full-Year Review,” there were relatively fewer merger objection lawsuits during the year, and relatively more standard securities suits. NERA’s January 21, 2020 press release about the report can be found here, and the report itself can be found here. My own analysis of the 2019 securities litigation can be found here.


According to the report, there were 433 federal court securities class action lawsuits filed in 2019, the same number as NERA counted in 2018. For the last three years, the filing totals have been at their highest recorded levels (other than 2001, when the filing totals were inflated by a flood of over 300 IPO laddering cases). The number of federal court filings in 2018 and 2019 was nearly double the number of filings in 2014. (The NERA report discusses only federal court securities suit filings; the report does not include statistics about or discuss state court securities class action lawsuit filings).


The report also notes that the rate of litigation (that is the number of lawsuits relative to the number of listed companies) has also significantly increased. According to the report, during the 20-year time span ending in 2019, the ratio of filings to companies listed has increased from 2.94% to 7.94%.


The federal court securities suit filings are not even distributed throughout the country; rather, they are concentrated in certain courts. Between January 2017 and December 2019, 73% of all federal court securities lawsuits (including merger objection lawsuits) were filed in just three federal judicial circuits – the Second, Third, and Ninth. In 2019, the number of cases filed in the Second Circuit (108) was nearly double the number filed in the Ninth Circuit (56), which had the second most number of suits.


Though the number of lawsuits filed each year in 2018 and 2019 was even, the mix of cases changed slightly. A greater percentage of the cases filed in 2017 and 2018 were merger objection cases, while the percentage of merger objection cases declined in 2019, and the percentage of all federal court securities lawsuit filings that were “traditional” or “core” cases increased by 7%. The report also notes that the number of federal court Section 11 lawsuit filings increased in 2019 by more than 80% to 42, from 23 in 2018.


Since 2015, the industrial sector with the highest number of securities suit filings as been the health technology and services sector. This trend that continued in 2019, when this sector had 21% of all non-merger related cases. However, the percentage of cases in the sector has declined from a 2016 high of 34%.


While in recent years a predominant number of securities class action lawsuit filings involved accounting issues, in 2019, a greater proportion of cases involved missed earnings guidance. More than 30% of the 2019 cases involved missed earnings guidance allegations, compared to an average of approximately 20% of cases in the prior four years.


The report notes that while there were fewer cases in 2019 involving allegations relating to the #MeToo movement and relating to the opioid crisis, there were several filings during the year relating to cybersecurity allegations and also relating to cannabis. The report helpfully includes a detailed list of all opioid, #MeToo, cybersecurity and cannabis securities class action lawsuit filings during the period 2017 through 2019.


The number of cases resolved in 2019 declined to 312, from the ten-year high of 340 cases resolved in 2018. Though the number of case resolutions declined, the number of resolutions remained the 2010-2016 annual average number of case resolutions of 215. Dismissals accounted for the highest number of case resolutions during 2019; during the year, more than two thirds of the cases that were resolved were resolved in favor of the defendants, with no payment to plaintiffs. The number of settlements declined below 100 for the first time since 2012.


In the absence of any “outlier” large settlements during the year, the average settlement in 2019 declined to $31 million (excluding merger suits), compared to an inflation-adjusted average settlement in 2018 of $71 million (excluding merger suits). The 2018 average was substantially boosted by the massive Petrobras settlement. Excluding the Petrobras settlement, the 2018 average was $30 million.


The median settlement, by contrast to the average settlement, increased in 2019, to $12.4 million (excluding merger cases), compared to an inflation-adjusted 2018 median of $11.5 million (excluding merger cases). There has been a general upward trend in the settlements every year since 2014.