Largely due to a significant decline in the number of filings during May and June, the number of federal court securities class action lawsuit filings in the first half of 2020 was well below the number of filings at the same point last year – although still well above long-term historical levels. The number of first half filings was significantly boosted by a cluster of securities suit filings against cryptocurrency companies that were sued on a single day in April, as well as by the number of coronavirus outbreak-related securities suits.
The Number of First Half Filings: According to my tally, there were a total of 174 federal court securities suit filings in the first half of 2020, representing a 12.5% drop from the 199 securities suits filed in the first half of 2019. Though the number of filings in the year’s first half declined compared to last year, the number of filings in this year’s first half was still well above the 1997-2018 semiannual average number of filings of 106.
The 174 first half filings implies a year-end total number of federal court securities class action lawsuit filings of 348, which would be well below 2019’s year-end total of 404, although well above the 1997-2018 annual average number of securities suit filings of 215.
The Cause of the Decline in Filings Relative to Last Year: The decline in the number of filings compared to last year is a reflection of the number of securities suit filings in May and June. Thus, in April, there were a total of 44 securities suit filings (including 11 filings against cryptocurrency companies), whereas in May there were only 16 filings and in June there were only 23 filings. Some of the reduction undoubtedly is attributable to government ordered shutdowns and court closures; however, a certain amount of the reduction is also due to the fact that merger activity declined during the second quarter, resulting in fewer merger-related lawsuits. (Of course, the fall-off in the number of merger transactions is itself related to the pandemic, so arguably it is just another manifestation of the same cause.)
Factors Boosting the Number of First Half Filings: While there was an overall decline in first half filings compared to last year, the number of first half filings was boosted by the 11 suits filed against cryptocurrency companies in early April, as well as the by the 15 coronavirus outbreak-related securities class action lawsuit filings during the period March to June.
Merger Objection Lawsuit Filings: In addition to the cryptocurrency suits and coronavirus-related suits, and despite the decline in merger activity during the second quarter, merger objection lawsuit filings were still a significant factor contributing to the number of first half securities suit filings. During the first half of 2020, there were 62 merger objection lawsuit filings, representing 35% of all first half securities suit filings. By way of comparison, there were 73 merger objection lawsuit filings in the first half of 2019, representing 37% of all securities suit filings.
The Number of Traditional Lawsuit Filings: There were 112 traditional lawsuit filings in the first half of 2020, which is below the 126 traditional securities suit filings in the first half of 2019, but which is still above the 1997-2018 semiannual average number of securities suit filings of 106. However, this year’s first half figures arguably should not include the 11 securities suits filed against cryptocurrency companies (as those lawsuits allege violations of Sections 5 and 12 of the Securities Act of 1933, based on the defendant companies alleged failure to register the cryptocurrency as securities, rather than the traditional securities liability lawsuit allegations based on alleged violations of Section 11 of the ’33 Act or Section 10 of the ’34 Act). If the cryptocurrency lawsuits are not considered, then the number of traditional securities suit filings in the first half of 2020 was only 101, below the longer term 106 semiannual average number of securities suit filings.
The Courts in Which the Lawsuits Were Filed: The first half 2019 federal court securities suit filings were filed in a total of 27 district courts. The district court with by far the largest number of securities suit filings in the year’s first half was the District of Delaware, where there were a total of 60 securities suit filings (all but four of which were merger objection lawsuit filings). The district court with the next highest total number of first half securities suit filings was the Southern District of New York, which had 33 filings. The Northern District of California had 16. The various district courts in New York taken collectively had a total of 46 securities suit filings. The district court in California had a total of 31.
The Industries of the Defendant Companies: The companies named as defendants in the first half filings represented a total of 88 different Standard Industrial Classification (SIC) Codes. The SIC Code category 283 (Drugs) had the highest number of any industrial category, with a total of 27 defendants companies, of which 21 were in SIC Code category 2834 (Pharmaceutical Preparations). There were an additional five companies from SIC Group 384 (Surgical and Medical Instruments and Supplies), bringing the total number of first half securities suit against companies in Life Sciences industries to 32, representing about 18.5% of all first half filings.
Other groups with significant number of first half filings were SIC Code group 602(Commercial Banks), which had 11 first half filings (many of them merger related) and SIC Code group 737 (Computer Programming and Data Processing).
Filings Against Non-U.S. Companies: There were a total of 44 first half filings against non-U.S. companies, representing a total of 18 different countries. The number of filings in the year’s first six months against non-U.S. companies was materially increased by the cryptocurrency company lawsuits; many of the entity defendants in those suits are domiciled or based outside the U.S. The countries with the most significant number of first half suits were China (which had 13) and Canada (which had six, all either natural resources companies or cannabis companies).
Suits Involving IPO Companies: There were a total of 13 first half federal court lawsuits involving IPO companies. Of the 13 lawsuits, two involved companies who completed their IPOs in 2017; three involving companies with 2018 IPOs; six involved companies with 2019 IPOs; and two involved companies that completed their IPOs in 2020.
Discussion: While there was some drop off in the number of securities class action lawsuit filings in the year’s first half, the decline almost certainly reflects the pandemic’s disruptive impact and is therefore likely to be temporary. It is entirely possible that by the year’s end the impact from the decline in the number of filings during May and June will be largely eliminated.
But though the fall off may prove to be temporary, the decline in the number of filings in the first six months of the year arguably was more substantial than might otherwise appear. The extent of the decline is somewhat masked by the unusual filing of the eleven lawsuits against the cryptocurrency companies. Absent this anomalous development, the first half decline would have been even more pronounced.
All of that said, it is important to note that the first half filings declined only with respect to the number of filings in 2019, which was one of the most active years for securities class action lawsuit filings ever. Relative to historical filing levels, the filings in the first half of 2020 were not in a decline; rather, the filing pace in the year’s first half is elevated compared to historical measures. It is only relative to the extraordinary number of filings during the period 2017-2019 that the 2020 filing levels appear to be in decline.
One final note about the above analysis is that all of it relates only to federal court securities class action lawsuit filings. The analysis does not take into account state court securities class action lawsuit filings. The state court suits are harder to track, and I do not have access to complete state court securities suit filings information. A full consideration of all first half securities suit filing activity would take into account both federal court and state court securities suit filings.
Some Final Notes about Data and Methodology: I count each company that has been sued in a securities class action lawsuit for essentially the same allegations only once, regardless of the number of complaints actually filed. This methodology may differ from the methodology used by other public sources that track securities lawsuit filings, which it turn may cause my tallies to differ from other published tallies.
In tracking the securities lawsuits, I rely on a number of different sources including the Stanford Law School Securities Class Action Clearinghouse; Law 360; Justia; ISS Securities Class Action Services; and Stanford Securities Litigation Analytics. I also audit my tally against other resources periodically throughout the year.